2006. Nicos M. Timotheou. An Overview of Key Success Factors in Entering a Foreign Market. CEE-Wirtschaftsforum 2006. Forum Velden.

An Overview of Key Success Factors in Entering a Foreign Market Nicos M. Timotheou CEO, CYTA 21 st September, 2006

Content The Incumbent Challenges & Options Start-ups and the Entrepreneurial Cycle Developing Markets Characteristics Micro Environment Macro Environment Non Organic Growth by M&A Market Entry Key Success Factors for Actel Communications, Hungary

The Incumbent’s Environment Future growth uncertainty due to Accelerating technological innovation (disruptive technology v.s. legacy systems) Regulation of the sector aiming to increasing market competition and price reduction Empowered and knowledged consumers Underestimating the above challenges leads to: Non flexible and old fashion services Decreased profit margins Increased customer churn and hence shrinking market share Increased corporate risk

The Strategic Options Operators are seeking scale and growth Incumbents are re-integrating fixed, mobile, internet divisions/subsidiaries and are seeking costs synergies Organic Growth in Home Market by Investing in disruptive technology: deploying new infrastructure and letting go the legacy systems Increasing brand value and developing customer retention schemes Investing in the development of local and relevant content Non Organic Growth in Foreign Markets Investment in start-ups Acquisitive growth by M&A

The Entrepreneurial Cycle Must first Identify a Market Opportunity Assess Resources & Strategy Required in order to enter the market & exploit the opportunity Keep up with Market Dynamics Avoid x-innefficiencies Generate Unique Resources Combinations so that to achieve Sustainable Competitive Advantage

Identifying a Market Opportunity Need to evaluate the macro environment Is the political, legal, regulatory, economic, societal, technological environment going to be supportive, neutral, non-friendly? But also need to assess the micro environment Is there too much competition and can we foresee market shakeouts? Is there substantial market size and opportunity to growth? Are the incumbent’s prices high? Is there a high chance to capture a high market share? Evidence of correlation of EBITDA Margins with Revenue Market Share. The highest the revenue market share the highest is the EBITDA margin

Correlation between EBITDA Margin and Revenue Market Share Reference: Dr. M. Reif, T-Mobile International, M&A in the Communications Industry Conference, Prague, May 2006

Do I have the Resources and Strategy in place to Explore the Market Opportunity? What physical, financial and human resources are required to be combined? Are there any synergies with current operations? Can we develop a comprehensive marketing strategy to address the market gap: Product, price, promotion, distribution, processes What is the fit between existing resources and synergies with those required to exploit the market gap?

Can I create Unique Resources Combinations so that to achieve Sustainable Competitive Advantage? Local distribution network and sales channels Collaboration Internet Local partners knowledgeable of Country specific market conditions Regulatory framework Legal environment Local personnel recruitment Language, Cultural and Corporate Governance Fit Own expertise in engineering, procurement, finance Usage of other synergies International Points of Presence – the building of an IP/MPLS international network by CYTA Hellas, UK, USA.

Developing Markets Characteristics Large population (millions) High economic growth rates (>5%) Leads to increasing disposable income Low to medium mobile penetration (<80%) Low broadband internet penetration (<5%) Relatively low competitive intensity (<3 players) Leads to high revenue market share and hence high profitability Experienced management and personnel Economies of scale in procurement, marketing, branding Sharing of R&D in services

Developing Markets Characteristics Developing markets offer opportunities to grow But also in most developing markets there are challenges to overcome Unstable and non transparent legal systems Lower standard of regulatory regime Weaker corporate governance Fuzzy corporate tax regime CEE countries have already aligned their legislation and regulation with EU, thus minimising the above risk.

Micro environment Supportive industry for collaboration and outsourcing non core tasks Clustering of related industry firms such as marketing & advertising, network deployment engineering firms Existing number of competitors and danger of eminent or future shakeouts Strengths and weaknesses of competitors Prospective new competitors and new entrants barriers Alternative products and substitutes Consumer unmet needs market research is a must Absolute addressable market size Market growth stage Minimum efficient scale and determination of the long run number of competitors

Macro environment Political Issues Legal Issues Regulatory Issues Economic Issues Societal and Environmental Issues Technology Issues Being able to efficiently collect accurate information for the above issues is a key success factor in evaluating a prospective investment

Political, Legal & Regulatory Political stability and democracy assists in: Transparency of decision mechanisms Fairness of political decisions An EU aligned Legal Framework helps in: Protecting foreign investors and dividends Intellectual Property Rights Tangible property protection The Regulatory Regime sets: The intensity of Competition The incumbent’s role in the market

Economic Willingness to Pay is determined by: Unmet needs of consumer Quality of product/ service offerings Disposable income for electronic communications expenditure Spending power is a function of: GDP per capita purchasing power parity Unemployment rate Inflation index Country’s roadmap towards joining the Eurozone

Economic Key Economic Policies affecting investment risk and viability of business Tax incentives for foreign direct investment Double tax treaties Dividends exporting restrictions Existence of Local Financial Markets Expansion capital source Exit opportunity for initial investors

Societal Green Behavior Increasing green societal behavior leads to: Fear by the public of being exposed to electromagnetic waves Resistance in building antenna towers Delays in radio network deployment Bureaucracy leads also to delays: License to build antenna towers from municipalities Electricity provision to sites

Technology Disruptive Technology Convergence of fixed/mobile/internet Community networking based services Increasing network externality effects in place Examples of today’s disruptive technologies: Voice over the Internet Protocol (VoIP) See Skype and community based applications WiMax wireless access technology will initially complement wireline xDSL technology but eventually rigorously compete it.

Non Organic Growth by M&A Why M&A for an incumbent? Gain competitiveness in new business areas rather than developing them internally Support existing business operations Expand scope of business to related sectors so that to leverage operational and financial synergies Horizontal and vertical integration to achieve operational gains Enhance the asset Enhance the product portfolio

Non Organic Growth by M&A What synergies? Merging overlapping functions, networks, premises Scale effects by common procurement and one brand marketing Revenue complimentarity Centralisation of supportive functions Tax benefits

Non Organic Growth by M&A Key Success Factors in M&A Must have an M&A function within the corporate division being able to cooperate with all other business line units of the organisation, the general management and the board of directors M&A function must be small and flexible: 1 head and 5-8 professionals actively seeking business opportunities and monitoring specific targets Must focus on Post Acquisition Integration in order to realize synergies

Non Organic Growth by M&A Key Success Factors in M&A Scale and Scope One brand, one services generation platform, common processes Successful combination and integration of networks Realisation of synergies

Market Entry Key Success Factors for Actel Communications, Hungary Large addressable market size Low broadband penetration hence opportunity to grow High incumbent prices Available local content Collaboration prospective with small Cable TV companies unable to offer triple play Triple play (voice, data and multimedia) a new offering in the market Transfer of CYTA’s IPTV knowledge

Market Entry Key Success Factors for Actel Communications, Hungary Possible to capture a good market share before the incumbent reacts. In place supportive regulatory regime Local loop unbundling enforced Co-location enforced Interconnection rules in place Transparency of information regarding costs and tariffs Having a local top management team Knowledge of market specifics Incentives to achieve targets Inter-cultural HRM Local financial markets allow further expansion

Thank you for your attendance For more information please contact [email_address] See also CYTA’s website at www.cyta.com.cy

2006. Nicos M. Timotheou. An Overview of Key Success Factors in Entering a Foreign Market. CEE-Wirtschaftsforum 2006. Forum Velden.

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2006. Nicos M. Timotheou. An Overview of Key Success Factors in Entering a Foreign Market. CEE-Wirtschaftsforum 2006. Forum Velden.