Executive Summary


            During the turn of the century, the world experiences more drastic changes than before, which include changes in the environment, culture, education, knowledge, the society, and technology. The world has evolved into a massive ball of information and technology that led to the expansion and the development of the society in several aspects. However, despite the improvement of the performance of many companies, these changes also contributed to the distress of some, which are not apt for these changes. From this, it can be understood that, existing and persisting in the business industry is not as easy as it seems. Because of these, many business organizations and companies are encountering a variety of problems and issues that determine their success or failure in the market and in the industry. These problems and issues arise from the external and internal changes that the company encounters.


            From these, this assignment discusses a specific company in Hong Kong, which encountered a number of problems, in relation to the changes that happened in its internal and external environments. The profile of the company, including the general issues and problems that the company faces will be evaluated and discussed, using the different tools of analysis. Moreover, the issues identified will be tackled in relation to the scope of its change.


 


Introduction


A. Background of Company: PCCW Limited


            It has been reported that PCCW Limited is the largest telecommunication enterprise in Hong Kong, and have been listed on Hong Kong Stock Exchange since October 18, 1994 (‘PCCW’ 2006). The company is also one of Asia’s leading competitors in Information and Communication Technologies or ICT (‘Company Profile of PCCW-HKT Limited’ 2007).


            The business was formed by Li Tzar Kai, Richard, the younger son of Hong Kong tycoon and billionaire Li Ka Shing, and is formerly called the Pacific Century Development, and investment holding company. Its English name became Pacific Century Cyber Works Limited on August 9, 2002.


            The company contributes in enhancing the image of Hong Kong as a center of technology and business superiority, with its outstanding innovation, especially in terms of IP-based business services, New Generation Fixed Line services, broadband pay-TV, Internet access, media content, large-scale IT solutions, mobility, and wireless innovations (‘Company Profile of PCCW-HKT Limited’ 2007). It also facilitates and encourages international, most especially Western organizations to bring their businesses to Asia, run operations across the region, and bring Asian businesses to other parts of the world.


            Currently, it has approximately 17,000 employees, located in different parts of the globe, including mainland China, South America, Japan, Korea, Thailand, Malaysia, Singapore, Taiwan, Europe, the United States, India, and the Middle East (‘Company Profile of PCCW-HKT Limited’ 2007), and form the technology flagship of the Pacific Century Group (Darlington and Cooke 2000). With this, the company becomes an exclusive center for high-quality talents and Information Technology professionals, which presents outstanding IT consulting services, infrastructure solutions, and industry-focused IT solutions, with a key focus on areas, including financial services, the public sector, telecommunications, and enterprises (‘Corporate Profile’ 2007). The combination and collaboration of the company’s workforce, having a variety of expertise and located in different parts of the world, helped the company generate revenues of .9 billion or HK,550 million during the end of December 2003, with an increase of 12.6% over the revenues of .5 billion in 2002 (‘PCCW Limited’ 2007).


            In addition to the mentioned services, PCCW also IT solutions for port management, security and CCTV systems, audio and visual solutions, and technical support and maintenance services to various sectors in the industry, such as government departments, public utilities, aviation, and broadcast engineering operations (‘Corporate Profile’ 2007).      


Furthermore, the number of the company’s employees and the extent of its services enable it to achieve its mission and vision, which is to provide innovative and practical technological and communication solutions and services to its market. It also seeks to maintain and sustain a global corporate identity, which is needed to represent the company’s new leadership position in the satellite, telephony and Internet service industries (‘PCCW, Taking the Brand Forward’ 2007). In addition, with the contribution of its large team of IT professionals, experiences and industry knowledge, the company integrates and influences both the resources of Hong Kong and China in providing excellent ICT solutions that would help consumers develop new and challenging business opportunities and attain operation efficiency (‘Corporate Profile’ 2007). The company also seeks to create an identity, including strategy, naming and complete visuals, which will enable it to communicate all of its service offerings, while expressing a unique blend of agility and stability (‘PCCW, Taking the Brand Forward’ 2007) that will enable its consumers to recognize its contribution in the market and in the industry. These help contribute to the overall image of PCCW, as the leading provider of telecommunications and innovative technology in Hong Kong, and in other parts of the world.


 


B. General Issues: Changes, Concerns, Problems


            The start of its problems occurred when it offered Cable and Wireless PCCW stock and US billion in bank loans (‘PCCW’ 2006). It has been the subject of much ridicule, since many residents are PCCW stockholders, and with the purchase, the company’s stock price was reduced by 96% in 2003, from its peak in 2000. In 2003, Cable and Wireless finished paying in all the stock from the 14.7% stake it had, which amounted to US billion at the time, and yielded only .9 billion of sales in the end. Because of this, Richard Li resigned as the company’s chief executive officer and agreed to sell his indirectly held 22.66% stake in the company for a total of HK.16 billion (‘PCCW’ 2006).


            In the intention of the PCCW to expand its market, secure its position, and make strategic agreements with other Asian companies, it has borrowed heavily to finance the billion bid for Hong Kong Telecom, which resulted to its debt of US billion (Darlington and Cooke 2000). Further decline of the company’s performance is brought about by its lack of confidence in the debt repayment plans among shareholders (Darlington and Cooke 2000), which contributed to the its reputation as the worst performing blue-chip company on the list of the Hong Kong Stock Exchange in 2002 and 2003 (‘PCCW’ 2006).


            In addition to the debt and the change in ownership and management of PCCW are the increasing incidences of competition among the industry. It has been reported that in August 2000, there were 165 external telecommunications services operators and 187 Internet market service providers (Darlington and Cooke 2000). The increase in competition led to another cause of the company’s problems, which is the existence of monopoly for domestic fixed telephony. This includes three companies, namely, Hutchison Communications Limited, New T&T Hong Kong Limited, and New World Telephone Limited. This became a major blow for the company, as many telephone operators no longer need the gateways and local networks provided by PCCW (Darlington and Cooke 2000).


            Moreover, another cause of its problems is the reduction of its staffs and workforce, which contribute to the decline of its operations. An additional cause is the failure of the bid between the company and China, for at the time, China resisted to make negotiations with a company that is connected to the Singapore government, which also became the cause of the problems of the Sing Tel’s bid in the past. What the company did was to sold Cable and Wireless HKT for about billion to a one-year-old Internet start-up that had no profit and no consumers (Greenlees 2006). 


            Furthermore, the problem for the company is the overall failing revenues in Hong Kong, with its failure to make significant progress to the China mainland. With this, heavy investment in infrastructure throughout East Asia must be needed before the full potential of PCCW can be appreciated. In the meantime, the company has focused more on newer target markets, specifically in e-commerce, which contributed to the its revenue of 146%, from the new Internet and Interactive Multimedia Services market (Darlington and Cooke 2000).


 


Environmental and Drivers of Change


A. Environmental Analysis


General


            The external environment of PCCW must be analyzed to be able to understand its internal environment. Understanding its external environment would enable the company to generate and come up with strategies and responses, which would contribute to its success in the market and in its industry. In addition, knowing its external environment would enable the company adopt to its changes that would determine either its success or failure in the market.


The external environment of PCCW is one dynamic environment, which are subject to continuous changes in different aspects, including technology, communication, marketing, and management. The changes happening in the society and economy of Hong Kong can be attributed to its characteristics, such as retaining a distinct superiority over human resources, the legal system, languages, currency and general infrastructure, having an impressive array of human resources that includes not only mainland Chinese who have been educated and trained in the West, but also a standing force of lawyers, accountants and other professionals hailing from every corner of the world, inheriting the British legal system, with its international financial transactions upholding the laws and regulatory standards that apply to the financial markets in London or New York, using the English language, which has long been integrated into its socioeconomic fabric, and the Hong Kong dollar that is convertible to participate in capital transactions (Kwan 2002). Changes also include the arising problems in its society and economy, such as the collapse of asset prices, slow economic growth, rising unemployment, and unending deflation in Hong Kong (Wong 2002). In addition to this, the external environment of PCCW is considered dynamic due to the existence of competition and rivalry. Because of the continuous improvement and development in relation to technology and communications, competition in the market increases, thus, becomes one of the factors that must be given importance by companies to be able to adapt to changes in its environment.


            Moreover, aside from being dynamic, the external environment of PCCW is also complex. One can readily observe and conclude that the environment of Hong Kong is one complex environment, for with its characteristics mentioned above, it will be able to accommodate a variety of changes in technology and communication to adapt to globalization and international trade. Being one of the busiest cities in the world, its complexity grows to cope with the changes outside its domain. Part of the environment’s complexity is the use of the Internet, which is continuously reinventing the whole customer process, from information to after-sales care (Heller 2006). The use of the Internet in Hong Kong made negotiations faster, developed new high-tech tools, enhanced Research and Development, hastened operation and production, and contributed to the improvement of analysis and decision-making processes in companies (Heller 2006). Because the use of the Internet is one of the most useful tool in closing negotiations in Hong Kong and in establishing communications, it has largely contributed to the complexity of PCCW’s external environment.


 


External


PEST Analysis


            The PEST Analysis establishes a good analysis of the external effects on a company by breaking them into essential and obvious sorts.



  • Political – restrictions in the policies set by the Chinese government in making negotiations and mergers; choice of China in accommodating a company that is not affiliated with the Singapore government

  • Economic – development of infrastructures of East Asia as a whole; monopoly; debt of PCCW; changes in the inflation-deflation rates of the dollar; financial crises; collapse of asset prices

  • Sociological – conflict with consumers that are major stockholders of the company; unemployment

  • Technological – impacts of e-commerce to the company; development and improvement of its website


 


Competition Analysis: Porter’s 5 Forces Model of Competition


            The model of pure competition suggests that risk-adjusted rates of return should be stable across firms and industries. Nevertheless, a number of economic studies have asserted that different industries can sustain varied levels of profitability, through knowledge of the structure of the industry. With this, Porter’s 5-Forces Model is useful for understanding the context of the industry, in which the firm operates (‘Porter’s Five Forces’ 2006). 



  • Rivalry – This is caused by several factors, such as the presence of a larger number of firms that compete for the same consumers and resources; low switching costs for a consumer can switch from one product to another; strategic stakes are high when a company is losing market position; a diversity of rivals with different histories, cultures, and philosophies; and industry shakeout (‘Porter’s Five Forces’ 2006).

  • Threat of Substitutes – Substitute products refer to products in other industries (‘Porter’s Five Forces’ 2006). The threat to PCCW is the price of the materials being used in order to render service to consumers, which include cables, telephone lines, and many others.

  • Buyer Power – This refers to the impact that customers have on a producing industry (‘Porter’s Five Forces’ 2006). In Hong Kong, buyer power is strong, such that this could provide PCCW’s rivals with a strong and efficient business.

  • Supplier Power – The power of suppliers over PCCW is also strong, as it also contributes to the decline of the business of the company. Due to the increase of prices in the market, prices of raw materials also increases, thus, give additional costs for the company.

  • Barriers or Threat to Entry – Threat to the entry of PCCW to the Chinese market is due to China’s preference of being not involved with any company related to the Singapore government. Another barrier to the company’s entry to the Chinese market is also brought about by the lack of development in the entire East Asia, which failed to accommodate the needs of company.


 


Internal


            The internal environment of the company must also be evaluated to be able to grasp and understand its potential for developing teamwork, coordination, and employee development. One of the problems of the company is the change in its ownership, and thus, management, which, in turn, will also change its organizational culture. Organizational cultures evolve slowly, imperceptible, over years, if not decades, and refer to the company’s collections of unspoken rules and traditions (Bennis 2003). With the problems encountered by PCCW, it can be understood that the although the company has its own culture in its internal environment, this has not fully contributed to the success of the company as a whole. In addition, although this culture has helped the company gain from its business, it is still not enough to support the growing demand of the company’s consumers and the growing competition in the industry. This culture was even lessened or altered with the reduction of the company’s workforce. Changes in the company’s organizational culture, thus, determine the company’s success and failure in implementing and adopting strategies.


 


Identification of Issues


            From the above analysis, several factors can be determined, which need changes. Primarily, the management or style of leadership in the company must be changed, which suits the style and preferences of its employees. The management style of the company’s managers must then be given enough attention to ensure the organization and control of the company’s employees. The scope of this change must be rooted to all of the functions of the company’s manager or its chief executive officer, whom includes planning that involves defining goals, establishing strategy, and developing sub-plans to coordinate activities (De Bono 2005). Function also includes organizing, which determines what needs to be done, how will it be done and who will do it, leading to directing and motivating all parties and resolving conflicts, controlling, and making sure that the organization has achieved its stated purpose (De Bono 2005). In short, the scope in the change of management entails the refreshing and reinforcing of the tasks and responsibilities of the manager of chief executive officer of the company.


            Another factor that needs changes is the company’s strategies of taking care of their employees or workers. Workers are the company’s valuable assets, for they are able to hasten the production and operation of the company. Without the company’s workforce, its functions and goals in the industry will never be attained. The scope of the change needed in this aspect must include the development of employees as a whole, to be able to contribute to the operations of the company. Changes are needed in the managing staffs or employees for based on the problems encountered by the company some of the members of the workforce of the company lack the capacity to perform well and take the pressure of the responsibilities assigned to them. For this reason, some of them were laid off. In addition, laying off employees is not always an answer to reduction of costs, for sometimes, the debt of the company can be repaid through the efficiency of the operation and the increase in production.   



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