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Saudi Telecom Company SWOT & PESTLE Analysis

ID : 52352753 | Feb 2018

COMPANY PROFILE - Saudi Telecom Company

Business Sector : Telecommunication

Operating Geography : Saudi Arabia, Middle East.

About Saudi Telecom Company : Saudi Telecom Company is a telecommunication company headquartered in Riyadh, Saudi Arabia founded on April 21, 1998. The company provides telecommunication services in the Middle East and North Africa. As per Forbes report, the company has employee strength of 21,316 as of May 2016. Its services include card telephone, video streaming on demand, 3G and 4G services, pre-paid and post-paid mobile services, leased transmission circuits, etc. It had the monopoly in mobile phone services until Etihad Etisalat received its second license.

Saudi Telecom Company Revenue : $13.8 billion – Dec 2016

Competitive Analysis of Saudi Telecom Company

The SWOT analysis for Saudi Arabia Company is presented below:
Strengths
Weaknesses
1. Established market position across Middle East
2. Wide portfolio of services
3. Strong brand value in the Arab markets
1. Limited International presence
2. Declining bottom line
3. Reducing assets liquidity
Opportunities
Threats
1. Expansion to Asian countries
2. Increase in smartphone users
3. A rise in the adoption of 4G
4. Rapidly evolving technology
1. New entrants post liberalisation
2. Cyber security
3. Political instability due power concentration

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Detailed SWOT Analysis of Saudi Telecom Company

 

Strength

1. Established market position across Middle East: According to financial reports of Saudi Telecom Company, the company’s revenue was $13.82 billion for the year ended December 31, 2016, which was more than 50% of the total revenue of the Telecom sectorof Saudi Arabia for the duration.The company’s high-speed 4G network has covered more than 75% of Saudi Arabia and has become the largest network provider in Saudi Arabia.The company has established a strong presence in Saudi Arabia and North Africa and has expanded in Malaysia through a 25% stake inBinariang GSMSdn Bhd. STC also hasa stake in Oger Telecom UAE which fully controls Turk Telecom, Avea in Turkey. STC has a 100% ownership in Viva, Bahrain and 26% stake in Viva, Kuwait. STC has also established its position in services such as IT, media content, distribution and real estate which support its telecom investments throughout the Middle East.

2. Wide portfolio of services: STC offers a wide variety of services including mobile phone, landline, data services, etc. The company’s GSM network services offer prepaid cards, 3G and 4G, international calling. Its data services include DSL and leased data transmission. In December 2017, STC and Thales Critical Information Systems and Cybersecurity announced their cloud encryption service. The cloud services area new addition to the existing portfolio of services. The wide service portfolio reduces the risk of being dependant on a particular type of offering.The company has also entered into aSAR7.3bn ($1.95bn)agreement with the government of Saudi Arabia for providing high-speed fibre optic broadband services to more than 1.3 million households by 2020.

3. Strong brand value in the Arab markets: Saudi Telecom Company (STC) enjoys a strong brand value in the Arab world. In the 2016 Brand Finance Global 500 rankings, STC stood at 252nd place in the global rankings which made it the most valuable brand in the Middle East. STC’s brand valuation increased by 11% during 2016 to $6.2 billion and it was ahead of Emirates, the UAE based, world’s largest airline. The strong brand value has helped STC in its expansion in the Middle East markets and demonstrates the goodwill it has accumulated with its stakeholders.

Weakness

1. Limited International presence: The company generates about 90% of its revenue from Saudi Arabia and North Africa. Their presence in our parts of the world is very little. This dependence on a particular region for revenue generation can lead to company’s risk exposure to political, economic and social conditions of that region. There is a need to diversify into other geographies.

2. Declining bottom line: There has been a trend of declining bottom-line in the past few years. The net income for thefinancial year 2014-15, thefinancial year 2015-16 and financial year 2016-17 was 10,959 million SAR, 9,258 million SAR and 8,532 million SAR respectively.The financial year 2016-17 saw a reduction innet profit by about 8% in comparison to its previous year.With the increasing competition, the company needs to take concrete steps to regain its position by increasing its bottom line.

3. Reducing assets liquidity: Though the total assets have grown over the years, the free cash with the company has reduced from 5,467 million SAR in FY 2015 to 3,594 million in FY 2017.This trend has also beenaccompanied by increasing cash flow from financing and investing activities from 14,274 million SAR in FY 2015 to 19,486 million SAR in FY 2017. This trend indicates that the company has reduced its free cash for increasing its capital. If the company needs cash for some new initiative, then the company may need to raise fresh capital. Lower cash availability will reduce the company’s ability to expand into other regions.

Opportunity

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Threat

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References

1. http://www.albilad-capital.com/Research_EnglishReport/STC-Q3%202017EN.pdf

2. https://www.reuters.com/article/saudi-telecom-ma-idUSL5N1F74RY

3. https://businesswireindia.com/news/fulldetails/the-brightline-initiative-announces-addition-saudi-telecom-company-stc/55933

4. https://www.statista.com/statistics/330695/number-of-smartphone-users-worldwide/

5. https://www2.deloitte.com/content/dam/Deloitte/sg/Documents/technology-media-telecommunications/sea-tmt-2017-global-mobile-consumer-survey-sea-edition.pdf

6. https://www.strategyand.pwc.com/trend/2017-telecommunications-industry-trends

7. https://www.strategyand.pwc.com/trend/2017-telecommunications-industry-trends

8. https://www.prnewswire.com/news-releases/5g-wireless-market-to-reach-5-billion-for-rd-and-trial-investments-by-2020-541785622.html

9. http://www.stc.com.sa/wps/wcm/connect/english/stc/investorRelations/annualReport

10. https://www.forbes.com/companies/saudi-telecom/

11. http://gulfnews.com/business/economy/2017-and-beyond-biggest-risks-to-the-region-outlined-1.1976162

The PESTLE/PESTEL analysis for Saudi Arabia Company is presented below:
Political
Economical
1. Political stability in Saudi Arabia
2. Need to revamp policies
3. Growing ties with China
1. 10th Development plan and Saudi 2030 vision
2. Oil-dependent economy
Social
Technological
1. Young population1. Investment in R&D
2. Strategic partnership with foreign companies
3. Technical education
Legal
Environmental
1. Intellectual property rights
2. Labour laws
3. Lift of ban on internet calls
1. Environmental standards
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Detailed PESTLE Analysis of Saudi Telecom Company

 

Political

1. Political stability in Saudi Arabia: The political power in Saudi Arabia is held in the hands of the Al Saud dynasty. Since there are no elections held in the country, the government is stable in the last couple of years. This stability reduces the political risk associated with the business. Hence the company can form its strategy for their domestic market with more certainty.The political crackdown taken place in November 2017 may have upset most of the influential people and royal families who were arrested in the crackdown. There is a possibility that they join hands together against the current ruler to destabilise the currentgovernment. As a significant portion of the company’s revenue is generated from Saudi Arabian market, the political stability of this region is a critical factor determining thesuccess of the company.

2. Need to revamp policies: Though the government policies are not entirely against the telecommunication sector, there is a need for the policy-making process to be transparent to develop an efficient market and effective policies. Due to the opaqueness of the policy-making process, there are no proper means to hold administrators accountable for faults in the system. Sometimes policies are implemented without any public discussion and prior notice leaving firms very little time to prepare themselves.

3. Growing ties with China: The diplomatic relationshipsbetween China and Saudi Arabia started in thelate 1990s and haddeveloped over the years. On October 27, 2016, a joint anti-terrorism exercise was conducted to enhance relations between China and Saudi Arabia to address issues related to terrorism. There have been many MoUs signed between these two countries in the recent past to boost their economies and balance their strategic posture. If Saudi Arabia allies with China, then they can get benefits from China’s low-cost manufacturing of telecommunication products.

Economic

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Social

1. Young population: Unlike most of the countries, Saudi Arabia does not face challenges due to an ageing population. As per statistics of 2016, about 4.2% of the population is above the age of 65 years while about 27.6% of the population is below the age of 14 years. These numbers indicate that a majority of the population is young and dynamic. This young population will set up massive demand for latest technological products related 4G and faster internet speeds.

Technological

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Legal

This section is available only in the 'Complete Report' on purchase.

Environmental

1. Environmental standards: Saudi Arabia has signed many regional and international pacts towards environment conservation like the United Nations framework convention on climate change, the Basel Convention on transboundary movement of hazardous waste, etc.All telecommunication corporations need to abide by the rules and maintain their business processes aligned towards a common goal of environmental conservation. As per latest Environmental Performance Index (EPI), Saudi Arabia stands at rank 35 out of 178 countries with a score of 66.66 out of 100.The government has taken measures to reduce pollution due to production processes. To ensure that the company’s goals are inclined with those of the government, STC has established a supplier code of conduct. As per the code of conduct, the supplier needs to ensure that they adopt environmental management system that ISO 14001or similar standards. This will ensure that the suppliers use low energy consumption processes during their entire production lifecycle.

References

1. http://www.bbc.com/news/world-middle-east-14702705

2. https://www.forbes.com/sites/ellenrwald/2017/09/26/the-economics-behind-saudi-arabias-decision-to-permit-women-drivers/#16ee2a1b1884

3. https://www.oecd.org/sti/broadband/1810112.pdf

4. https://www.spratings.com/documents/20184/1481001/ITT+2018+Telecommunciations/8c4f585c-e071-4345-9a0a-662e95832ed3

5. https://thediplomat.com/2016/09/china-and-saudi-arabia-a-new-alliance/

6. http://www.scoop.co.nz/stories/HL1701/S00097/growing-relations-between-saudi-arabia-and-china.htm

7. https://www.stats.gov.sa/en/page/72

8. https://www2.deloitte.com/us/en/pages/technology-media-and-telecommunications/articles/telecommunications-industry-outlook.html

9. http://www.pewinternet.org/2017/05/17/tech-adoption-climbs-among-older-adults/

10. https://www.export.gov/article?id=Saudi-Arabia-Protecting-Intellectual-Property

11. http://archive.epi.yale.edu/epi/country-profile/saudi-arabia

12. https://www.reuters.com/article/us-saudi-telecoms-ban/saudi-arabia-to-lift-ban-on-internet-calls-idUSKCN1BV128

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Saudi Telecom Company SWOT and PESTLE analysis has been conducted by Siddhesh Suhas Salkar and reviewed by senior analysts from Barakaat Consulting.

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