An Analysis on DoComo
DoComo- The Japanese Wireless Telecom Leader
Introduction
NTT DOCOMO is Japan’s premier provider of leading-edge mobile voice, data and multimedia services. With more than 56 million customers in Japan, the company is one of the world’s largest mobile communication company. DOCOMO also is an influential force in the continuing advancement of mobile technologies and standards. In 1999, DOCOMO launched i-mode™, the world’s most popular platform for mobile Internet services including e-mail, browsing, downloading and more. Over 48 million DOCOMO subscribers now use i-mode.
In 2001, DOCOMO introduced FOMA™, the world’s first 3G commercial mobile service based on W-CDMA, which has transformed the mobile landscape in Japan while bringing the DOCOMO brand global recognition. The role of mobile phones as “lifestyle tools” was cemented when DOCOMO launched Osaifu-Keitai™, a mobile wallet platform enabling quick, contactless transactions for cash, credit, ID, and more. More than 37 million phones equipped for Osaifu-Keitai services are now in use.
Building on a solid foundation of research and development, and guided by its customer-first philosophy, the company leverages the power of mobile communications to enable customers to enrich their lives. DOCOMO is expanding its global reach through offices and subsidiaries in Asia, Europe and North America, as well as strategic alliances with mobile and multimedia service providers in markets worldwide.
Quick Facts
Established: August 1991
President and CEO: Ryuji Yamada
Headquarters: 2-11-1 Nagata-cho, Chiyoda-ku, Tokyo, Japan 100-6150
Capital: 949.68 billion yen
Synopsis
DoCoMo’s history can be traced back to 1949, when the Ministry of Communication in Japan was split into the Ministry of Telecommunications (MTEL) and Ministry of Posts (MPosts). A few years after its formation, MTEL was renamed as Nippon Telegraph and Telephone (NTT). NTT operated as a legislative monopoly for telecommunication operations in Japan. The Ministry of Posts and Telecommunications acted as a regulatory authority for NTT’s operations. According to reports, NTT took all accolades for rebuilding the Japanese telecom infrastructure after the Second World War.NTT ran a monopoly regime in Japan till the 1970s. However, in the 1970s, the Ministry of International Trade and Industry (MITI) began pressurizing the Japanese government to break the NTT’s monopoly, claiming that the convergence of communications required the opening up of the regulatory regime in the country.
This argument picked up momentum in the 1980s when US politicians also began exerting pressure on Japan to open gates for foreign players. This was largely because Japanese telecommunications players were free to enter the US telecom market right from the 1970s, while the strict regulatory norms of Japan continued preventing foreign players into Japan. In the late 1980s, Japan finally decided to reform its telecom regulatory framework to allow the entry of foreign players into Japan’s telecom market. To reduce its monopoly in the telecom sector, NTT’s mobile communication network was spun-off in 1992 to form DoCoMo (initially named as NTT Mobile Communications Network, Inc.; the name DoCoMo was adopted in 2000).
The initial product portfolio of DoCoMo included mobile phones, car phones, maritime phones, in-flight phones and pagers. DoCoMo formulated its policies in line with this corporate philosophy of creating a new communications culture (Refer Table I for DoCoMo’s basic management policies).
The case examines the phenomenal growth of DoCoMo, a Japan-based wireless telecom company, into Japan’s largest company and the world’s second largest wireless carrier on account of its i-Mode service. It discusses in detail the highly successful business model followed by DoCoMo for i-Mode. The case examines the globalisation strategy and the 3G initiatives of the company, which led it to financial problems during the early 2000s. The case also examines other problems the company faced during the period such as intensified competition and decreasing revenues on account of the saturation of Japan’s cellular telephony market. It discusses the various initiatives undertaken by DoCoMo to retain its leadership in the market. The case also observes the future prospects of DoCoMo in the light of these initiatives. The case is designed to enable students: (1) to identify the factors that enable a company to become a market leader (first mover advantage, innovative/user-friendly/affordable products and services); (2) to understand the importance of an effective and appropriate business model to the success of a product or a service in the market; (3) to appreciate the need to understand changing customer needs on a continual basis through customer focus, as a differentiating strategy; (4) to highlight the importance of technological innovations and advancement (especially in the wireless telecom sector) as a tool for gaining the leadership position; (5) to understand the implications of global strategies and their impact on the overall performance and survival of a market leader; and (6) to analyse how and why certain strategic decisions might need to be revised/reformulated based on the market’s reactions. The case is aimed at MBA/PGDBA students and is intended to be part of the business strategy curriculum. There is a Spanish translation (E303-159-1) and a Russian translation (R303-159-1) available.
DoCoMo’s announcement did not come as a major surprise to industry observers, as media reports had been forecasting losses for the company since early 2002 itself. What was noteworthy about this development, however, was the fact that the company was largely believed to be performing exceptionally well in the recent past. The fact that DoCoMo had roped in as many subscribers as the leading US-based media company AOL, but much faster, was often cited as a proof of Japan finally waking up to the challenges of the ‘new’ economy.
While DoCoMo was still lauded for it’s well designed and executed strategic and marketing game plan that had helped it build a huge subscriber base over the years, these developments had raised many doubts about its future prospects and its ability to turn itself around.
Problem Definition
Faced great loss
In may 2002,NTT DoCoMo Inc. Japan’s largest mobile phone company faced great loss because DoCoMo was paying the price for its aggressive overseas expansion drive, which showed the general decline in Average Revenue Per User for voice services and slower growth in new cellarer subscribers across the country, it hampers company’s expectations.
Overconfidence
DoCoMo was overconfident about their service rather than focusing on competitors.
Aggressive global expansion
DoCoMo aggressively focused on global expansion rather than their domestic business.
Depression in the global communication market
DoCoMo had to take a huge write-off in its books on account of a decline in the value of its foreign investments.
More focus on 3G
They more focused on 3G rather than 2G technology.
High completion and lower rate of sales
Entry of foreign players like Motorola into the Japanese cellular phone market
Capacity Problem
Due to its easy-to-use nature and affordability, the subscriber growth was so fast and so high that the company faced capacity problems in early 2000.
Disruption in I-Mode service
DoCoMo suffered 16 disruptions in its I-Mode service by April 2000, casting doubts on the ability of the service to accommodate the increasing subscriber base.
Host Of problems
The company began taking initiatives to make I-Mode compatible with the wireless standards used in US.
Facing problems on account of its aggressive overseas investment drive.
In early 2001, though DoCoMo still remained the largest company in Japan by its market capitalization and the second largest mobile phone company in the world (after Vodafone), it was DoCoMo was forced to write off $7.7 billion, due to the decline in the value of its investments in various foreign wireless companies.
DoCoMo was facing problems in launching FOMA
Their base stations and networks are ready for commercial launch. But, they did not have enough time to complete further testing to ensure 100% network quality for our customers.
Technical Problems in 3G network
They faced technical problem when the number of users skyrocketed and exceeded their expectation
DoCoMo engineers had rectified 448 problems associated with the FOMA network
Delay in launch
Delay in launch might prove disadvantageous because competitors like J-Phone Communications were also planning to launch 3G services by early 2002. If this happened, DoCoMo would have very little time to establish itself in the market and reap the first-mover advantage.
Unable to retain customers
Analysts said that customers might not be interested in buying costly 3G enabled handsets, just to have faster service and view pictures and video. They felt that mobile phones might not be suitable as multimedia devices as they had small screens and weak batteries. People would not like to stare at video on a tiny screen for a long time.”
Faced severe criticism from its customers
DoCoMo phones enabled with FOMA services had a very short battery life, insufficient network coverage and they crashed easily.
Difficulty in adapting European Markets
DoCoMo was also facing problems in Europe on account of a scarcity of I-Mode compatible handsets. Meanwhile, DoCoMo was going ahead with the launch of I-Mode services in other countries such as Netherlands and Germany, in collaboration with its partners.
Incompatibility of I-Mode
DoCoMo’s I-mode was in compatible with the digital transmission standard used worldwide.
High cost
the high cost of the new service (including subscription amount, costs of data transmission and handset) was a big hurdle. They pointed out that FOMA lacked the two very essential elements – affordability and ease of use – that had made I-Mode the phenomenal success that it was.
Failed to meet customer expectation
FOMA failed to meet the expectations of DoCoMo as customers still complained of its short
battery life, lack of coverage across the country and nuisance from hackers.
Commenting on the factors, preventing FOMA’s success, Hideki Nomura, Executive Vice President (Marketing), DoCoMo, said,
Development of handset
The development of handsets; the availability of handsets is quite limited – the variety is limited and the prices are also relatively expensive.
Technology development
The battery life is too short.” On account of such problems, FOMA’s subscriber base amounted to only 89,000 by the end of March 2002, much below the expected 150,000 for fiscal 2002. Many customers complained of hackers manipulating FOMA phones. According to reports, when the FOMA service was accessed, the customer got an email attachment, which caused the phone to automatically call another phone number, and then forward the email to other mobile users.
Lack customer loyalty
With the customers shifting to cheaper wireless e-mail services from DoCoMo’s expensive voice-mail services, and with I-Mode also losing its initial pull, the ARPU figures were reportedly rather depressing.
Lack partnership relationship
DoCoMo was facing problems on convincing its partners wireless companies in other countries to adopt its technology; Because they feared DoCoMo’s products and service might not attract many customers in their countries as expected .
Huge debts
They spent billions of dollars in acquiring license to operate 3G services
Decline in the value of stock
Decreasing revenues and failed global initiatives resulted in the value of DoCoMo’s stock.
New Law
In April 2003,the Japanese Government passed a new law which was Japanese companies inflate their balance sheet by including items such as deferred tax items.
Refuse the request of investment partners
They refused the request of partners because of their adverseness towards DoCoMo;s global investments..As a result they might be faced problems in earning adequate returns on its investments.
Besides,
· They focus more on 3G initiatives rather than increasing the ARPU;
· DoCoMo Have straggled to gain ground abroad against Nokia and Ericsson;
· Investors losing their interest in 3G services;
· Declined share price;
· Limited service of coverage.
Though DoCoMo still dominated the market (59%) it was facing fierce competition from the existing players and the new entrants in the market.
Situation Analysis
General environmental analysis
Information technology continues to become cheaper and have more practical applications.
- Database technology allows DoCoMo of complex data and distribution of information.
- Telecommunications technology and networks increasingly provide fast transmission of all sources of data, including voice, written communications, and video information
Demographic Trends
- Computerized design and manufacturing technologies continue to facilitate quality and flexibility.
Economic Trends
- Interest rates
- Inflation rates
- Savings rates
- Trade deficits
- Budget deficits
- Exchange rates
Political/Legal Environment
- Anti-trust enforcement
- Tax Policy
- Extent of regulation/deregulation
- Developing countries privatizing state monopolies
Socio cultural Environment
- Concern for the environment
- Concern for customers
Global Environment
- Currency exchange rates
- Free trade agreements
- Trade deficits
Industry analysis
Figure: Porter five forces
Threats of new entrants
With the entry of foreign players like Motorola into the Japanese cellular phone market, the number of subscribers increased from 2.13 million in 1993 to 31.4 million in 1997. However, as the competition intensified, DoCoMo registered a drastic decline in sales during 1992-94;
Competitive Rivalry
DoCoMo Have straggled to gain ground abroad against Nokia and Ericsson.
its major competitors KDDI and J-Phone were left far behind on account of I-Mode.
Bargaining power of suppliers
DoCoMo partners did not want to invest for their wireless network when DoCoMo needed the support of their partners.
Bargaining power of customers
Their customers did not want to purchase 3G technology product because of its high price.
Threat of substitute product
KDDI and J-Phone gave more focus on 2G technology. Which cause problem for DoCoMo. Because totally concentrated on 3G.
Competitive environmental analysis
DoCoMo thus realized the need to shift to a higher-level technology, to differentiate its services from those of its competitors KDDI2 and J-phone3 to sustain its growth in the market. Following this, the company began focusing heavily on Research and Development (R&D) to develop advanced second generation (2G) wireless products.
Its nearest competitor KDDI’s Au and Tu-Ka services had captured 17.7% and 5.7% respectively, of the total cellular market in Japan. Vodafone’s J-Phone, which launched the camera-equipped mobile phone Sha-Mail in 2001, had also increased its market share to 17.6% by early 2002. Delay in launch might prove disadvantageous because competitors like J-Phone Communications were also planning to launch 3G services by early 2002. If this happened, DoCoMo would have very little time to establish itself in the market and reap the first-mover advantage.
To further derive competitive advantage, it developed a unique, value adding wireless product.
For DoCoMo the competitions not only come from the direct competitors like but also from the companies proving the communication facility like
|
The traditional Competitive Box
New Customers Conventional Value New Customers
Proposition
Existing Customer Base
New Customer Base
Identification of Environmental Opportunities and Threats and Firm Strengths and Weaknesses
(SWOT Analysis)
Strength
|
Weakness
Low customer Retention Unreliable product and service Technical problem to introduce 3G technology.Inability to keep promises |
| Opportunities
Changing customer taste Technological advances Changes in government policy The market of Japan is relatively untapped. Introduction of new 3G &4G technology in the market. High potentiality in the international market. Population density is high with relatively low PC penetration. |
Threat
Changing customer threats Technological advances Changes in government policy Changes in population age structure Fierce competition Enter of new technology in the market. Existing service lose their uniqueness. Little differentiation among the services provide by the competitors. |
Objectives
- Business Expansion through realizing rich and dynamic society.
- To provide voice communication service by enhancing its core business.
- To make people convinced about mobile multimedia service.
- To prove itself as a global company.
Solution
· Before investing into a new or foreign market DoCoMo always should conduct a Market Research is necessary.
· Consumer acceptance, ease of use, affordability is important for a new product.
· As the cellular phone industry is in saturation stage in Japan, so the company now needs to diversify their products.
· Increasing average Revenue per User (ARPU) can help the company to increase its profit.
· Company should focus into the need of the customer that setter satisfy the needs of the customer rather than introducing new product that is difficult to use for the customer.
· DoCoMo succeeds its global market through FOMA.
· DoCoMo should reach to its customers through specialty set up telephone service center
Recommendation:
· DoCoMo should revamp their global strategy. They should enter into the market where cellular industry is in its growth stage.
· Market sensing process should be used. ; ‘Knowledge–intensity ‘can be used. That is used to identify bath market risk and new opportunities for growth.
· Following a market driven strategy.
· They need better partner relationship management.
· DoCoMo need bring more differentiation in their product than its competitors.
· They need to apply more adaptation strategy so that they don’t need to face the same problem like in Europe.
· They need to strengthen their service..
· They should keep their cost down to lower the price on 3G so that customers can afford 3G.
Other Analysis
Theoretical Framework
Figure: Market sensing process
DoCoMo changes its strategy with the changes of the environment. It pays attention how customers are changing, and evaluating more deeply how markets are developing. It invest more on research for searching customer needs and also looks for new opportunities in the market and it builds culture and process around continuous curiosity and new ideas. Their sophisticated R&D efforts and the close ties with its huge customer base and partner network. While its R&D was engaged in the development of mobile communications and next generation wireless services, the focus on customers enabled it to listen to them. The partner network built with other companies helped DoCoMo improve its own applications and offer good content, besides providing technical and operational expertise.
So they launch car phones, mobile phones, maritime phone In-flight phones and pagers. It offers mobile Internet service under the brand name; I-mode and 3G services under the brand name, (FOMA).It launched its own handset
Conclusion:
DoComo had a massive up- front investment and customer acquisition cost. To prevent its customers from switching DoComo created a sticky business model. Under this model, the customers found the cost of switching to other service providers higher than the value gained by switching. After a critical mass was reached, there were added incentives for new consumers to come in, thus helping the network to grow.
Question Answer:
Q1: Analyze in detail the strategies adopted by DoCoMo during the early and mid 1990s in detail and comment on the factors that helped it establish itself as a market leader?
Ans: The strategies adopted by DoCoMo in the 1990’s period are
° Expanding the market through targeting the affluent and upper class of the society
° Emphasizing on to the core business of communication services.
° Promoting the 3G & 4 G technology among the public.
° The initial portfolio was taken with an objective of creating a new communication culture.
° Better market sensing then the competitors.
° Rigorous R& D efforts.
° Its plan to take up minority stakes in less evolved cellular industry world wide.
° Innovative products and services.
° Good pricing of I-mode
The above factor shelpd DoCoMo to become the market leader. We think it is very necessary to identify the need of the customer better the competitor and fulfilling this with innovative product and service is necessary to be a successful.
Q 2.Critically examine the role played by the I-Mode service in making DoCoMo the largest company in Japan?
Ans .Roles played by I-Mode are:
· It is easy to use in nature and affordability.
· It has efficient network access.
· Its billing based on the volumes of data received and by the subscriber rather than the amount of time.
· Its billing system was monthly.
· It uses WAP service.
· It allowed all and sundry to set up a site on its network.
For DoCoMo I-Mode was positioned as a simple, usable and fun to use service and that is the reason of its success.
Q3. Examine DoCoMo’s global strategies and 3G initiatives. Do you support DoCoMo’s global strategies? Why/Why not? Do you think DoCoMo was correct in advancing to 3G technology during the early 2000s? Justify your answer with reasons.
Ans. Yes We support DoCoMo’s global strategies. Because in today’s world during the market saturation period there is the only way to survive that is to be global company. Here also DoCoMo was suffering this problem because customers were no longer attracted to i-Mode and they did not want to accept 3G based cellular phone so here was the only option for DoCoMo to become global.
Yes we think that DoCoMo was correct to advance with 3G. Because it was totally anew technology in Japan and other competitors could not match it. So it was totally a product differentiation for DoCoMo.So it was justified to advance with 3G.
Q4. Critically examine DoCoMo’s initiatives to increase its revenues. In the light of the saturation of Japan’s cellular market, intensified competition and decreasing ARPUs, do you think DoCoMo would succeed in retaining its market share? What measures would you recommend for DoCoMo to increase revenues and retain its leadership?
Ans. DoCoMo’s initiative to increase its revenue was launching I-Mode and FOMA.Yes, we think DoCoMo would succeed in retaining market share because I-Mode was become so popular that it made a recode sale.
To increase its revenue and retain its leadership we recommend DoCoMo following steps:
· DoCoMo should revamp their global strategy. They should enter into the market where cellular industry is in its growth stage.
· Market sensing process should be used. ; ‘Knowledge–intensity ‘can be used. That is used to identify bath market risk and new opportunities for growth.
· Following a market driven strategy.
· They need better partner relationship management.
· DoCoMo need bring more differentiation in their product than its competitors.
References:
http://www.stanford.edu/group/sjeaa/journal2/japan1.pdf
http://www.pr-inside.com/ntt-docomo-inc-swot-analysis-r1752088.htm