NET_CASE_v2 - BUSINESS REPOSITIONING AND STRATEGIC OPTIONS...

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1 BUSINESS REPOSITIONING AND STRATEGIC OPTIONS: THE CASE OF NET CHINA TELECOM LTD. Wing Sun Li BNU-HKBU United International College SYSNOPSIS High tech companies can enjoy super profits from their products when only a few competitors can compete with them technologically. However, these companies also nurture a high cost operational culture that sets a constraint for their further growth when superiority of the technology can no longer be maintained. High tech companies may reposition their businesses with a strategic shift from differentiation strategy to cost focus strategy. The attendant shift as well as synchronization problem in an organization may require a larger effort to revamp. This case describes a global telecom infrastructure company with successful business performance in China in her early establishment with a pre-emptive technological edge. Mitigation of technological superiority and the rise of local competitors have forced the Company to opt for a cooperative strategy with a local player in the establishment of a low cost joint venture. Does the new joint venture facilitate the strategic shift or just create an illusion of collusion? LEARNING OBJECTIVES The objectives in this case are: 1. To examine the cost issues of high tech companies in China and their inflexibility in the face of business market conditions influenced by the Chinese Government and fierce competition with local players. 2. To identify the problems of strategic shift from price differentiation to cost focus strategy. 3. To discuss problems of a Sino-foreign joint venture and explore solutions to keep the balance of interest for all parties. 4. To discuss the problem of valuing local service companies in China. APPLICATION This case is useful for undergraduate and master degrees in strategic management, financial management, joint venture management, business valuation, China management studies. KEY WORDS Strategic management, joint venture management, corporate governance, China telecom industry, business valuation. CONTACT Dr. Wing Sun Li, Division of Business & Management, BNU-HKBU, United International College; Email: [email protected]
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2 BUSINESS REPOSITIONING AND STRATEGIC OPTIONS: THE CASE OF NET CHINA LTD. When the ink had just dried up on the document after the signing of the contract, John Brown, the CEO of NET China, had a mixed feeling whether he had made a right choice for the company to have a joint venture agreement with ICT which sold 50% of its shareholding to NET China in exchange for technology and market expansion. Background NET China (“NET”) was a foreign owned company in China. Its parent company was NET- Telecom, a European telecom equipment supplier and a global leader in telecom technology with market presence in over 100 countries. NET had been in China market since China ’s opening in 1978. In the early years, it sold public switches to the Post and Telecom Bureau (PTB) of provincial governments and gradually established good social networks. NET’s golden time came in the recent decades both in terms of market share and contribution margin. Thanks to the
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