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Application of Expansion and Retrenchment Strategies: A Case Study of Zain Group

Maryam Alsbaity Kuwait University, College of Business Administration /Kuwait

Ulfa Alvianti Narotama University

Sindy Hengkeng State University Manado

Siti Hajar Nurlaila Narotama University

ABSTRACT

Zain Group is a telecommunication company based in Kuwait. Zain has been dealing with many problems in its supply chain, especially its geographic divisions. the decisions made for growth and defense were applied with poor vision and strategy, poor management and strategic decision making process, In addition to economic, political, social, technological and legal factors which led to a decrease in Zain's financial performance. This paper analyzes the issues of Zain's application of the expansion and retrenchment strategies and aims to advocate alternative solutions regarding its divisions as a part of the supply chain. Based on the data collected and analyzed for the period 2012-2016, this paper shall Employ descriptive analysis, and Quantitative analysis (e.g. Market Cap., Market Share, Financial Ratios).The branches of Zain Group that shall be the focus of our study are spread in eight geographic divisions (Kuwait, Saudi Arabia, Jordan, Lebanon, Morocco, Bahrain, Iraq, South Sudan, Sudan). The Findings of the research indicates that great strategic management and better understanding of environmental factors have a groundbreaking impact on the Groups overall performance.

Keywords: Divisions, Expansion, Kuwait, Management, Retrenchment, Strategy,

Telecommunication, Zain Group.

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Introduction

Organizations around the globe seek different opportunities in different areas. If they find a potential in certain

market, they will initiate entering it to achieve their goals. A management team that applies strategic

management1 will start with a clear vision and strategic planning. They will start with screening the

environment for opportunities, threats and for entry, exit barriers in certain markets. Once they decide the

degree of attractiveness this market has, implementation starts. Some would decide to apply Expansion

strategies; when it attempts to achieve a high growth as compared to its past achievements. In other words,

when a firm aims to grow considerably by broadening the scope of one of its business operations in the

perspective of customer groups, customer functions and technology alternatives, either individually or jointly,

then it follows the Expansion Strategy (Business Jargons, 2016). In this way they will have geographic

divisions in multiple markets, this will grant them market shares and greater revenues. For some cases of

unstable environment or bad decision making, companies are forced to close their divisions for survival of

major losses, they apply the Retrenchment Strategy. This strategy is often used in order to cut expenses with

the goal of becoming a more financial stable business. Typically the strategy involves withdrawing from

certain markets or the discontinuation of selling certain products or service in order to make a beneficial

turnaround (Business Dictionary, 2018).

In this report we shall study Zain Group's application of these two strategies and the entry/exit barriers they

faced in the markets they have expanded in. What issues their geographic divisions have faced, and how did

they choose to implement such strategies.

The report's structure starts with introducing the telecommunication industry as a whole, the

telecommunication industry in the MENA region since Zain Group operates its services there, an introduction

to Zain Group and its geographic divisions. After the Introduction, there will be an analysis that includes

quantitative information collected and calculated from the financial statements and annual reports of Zain

Group for the years 2012-2016. Finally, a summary of the findings and a conclusion.

1 Strategic Management : Is the art and science of formulating, implementing, and evaluating cross -functional

decisions that enable an organization to achieve its objectives. (David & David, 2015)

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A. Telecommunication Industry

Today, the world is witnessing a real revolution in the field of communications and information technology,

and no country that looks forward to achievement and development with the aim of achieving sustainable

development at all levels can achieve it without being one of its main pillars. Also communications are an

expression of the progress of countries. The modern state is the state in which the means of communication

are advanced and keep abreast of the different changes and challenges, while the delay of communications

means the delay of countries and their backwardness on the path of civilization and technology.

B. Telecom industry in the MENA:

MENA refers to the Middle East and North Africa region it covers an extensive region extending from

Morocco to Iraq, including all Middle Eastern, East and West countries however, the population in the Mena

is 6% of the total world population and this percentage considered an effective Ratio. Moreover, The

Economy of the MENA is ensured by its vast reserves of petroleum and natural gas, which is considered to

be a vital source of global economic stability. The MENA region has 60% of the world’s oil reserves, and

45% of the world’s natural gas reserves and the instability in the MENA region (Political),due to its rich

resources and location, the MENA has been in conflict since the Ottoman Empire, notably due to the creation

of Israel. The conflict has increased rapidly with the incidents happening such as; the U.S Intervention of

Iraq in 2003, the rise of ISIS, the Arab Spring that spread war to the whole region including the Syrian Civil

War, Iraq War, Libyan Civil War, and Yemen Civil War (Oil and Gas Journal, 2015).

C. The Economy of the MENA. (PEST Analysis)

Economical

The MENA region has low economic growth, fluctuating currency exchange rate, and high-unemployment

rate in the jobs related to the telecommunication.

Sociological

The MENA region has growing number of youth, an increase in the number of refugees, a frequent change

of the customers’ habits because of the use of new technology, also a decline in the customer's confidence in

certain topics such as; data privacy and security.

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Technological

The MENA region has a low ranking in the global innovation indicators, although it’s a growing sector with

new technology advancement every day.

Ecological

The MENA region is water-stressed area, which means that the demand for water exceeds the amount

available. It considers several physical aspects related to water resources, including water scarcity; water

quality, environmental flows, and the accessibility of water.

Legal

In the MENA Region the telecommunication sector is a well-regulated one with too many local regulations

that differ from one country to another.

Table 1 Shows how the telecom industry is effective in the MENA countries.

Table (1): Calculations

Growth Rate = (X2-X1)/(X2)

= (MV 2013-MV 2012)/(MV 2013)

Rate of Return= (X2/X1)-1

MENA Region 2012 Growth

Rate 2013

Growth

Rate 2014

Growth

Rate 2015

Growth

Rate 2016

Market Value

MENA Region

Converted from

EURO to IDR

1,297,240,169,

717,879 7.60%

1,403,947,255,

712,253 3.16%

1,449,820,831,

551,054 4.04%

1,510,388,182,

026,784 2.95%

1,556,408,456,

049,879

Rate of Return 8.22% 3.26% 4.21% 3.03%

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= (MV 2013/MV2012)-1

(The amounts were exchanged from EURO to IDR which is equal to 1 EUR = 16,706 IDR at May 5th 2018).

Recourse of market value : Statista.com (2010). Through the first table we note that the growth rate of the MENA is much higher than the rate of growth in

the world and that for many reasons:

• Geographical, Because the Middle East is the only region in the world to be divided between three

continents of Asia, Africa and Europe.

• Wealth in gas and petroleum where it is Core energy and the nerve of the global economy.

• Political and social stability in the Middle East.

As shown in the table, there has been a decline in the growth rate in 2014 and that caused the Global economy

to fall and caused the political revolutions in the Arab world, which began in Tunisia and followed by Egypt.

This indicates that although the MENA region is attractive, yet its entry and exit barriers are high and the

risks are also high.

D. Zain Group

Zain Group was the first mobile telecommunication company in the State of Kuwait under the name Mobile

Telecommunications Company (MTC). In 1983 it rebranded as Zain in 2007. Zain holds a 50% interest in

the consortium, which will have to be reduced to 25% following a mandatory Initial Public Offering (IPO) of

the new mobile operator in Saudi Arabia and allocation to two government entities. The company underwent

drastically different structural changes and restructuring until it reached to its desired as Zain in 2007.

Moreover, in 2008 Zain Company became the fourth huge mobile operator in the world in terms of

geographical presence, with operations in 15 African countries and 7 in the Middle East. Zain expanded

regionally and internationally as Zain Bahrain, Jordan, KSA, Iraq, Morocco, Sudan, and South Sudan and in

Lebanon as touch (under a management contract). With a leading customer market share in Kuwait of 62%

as of 31 December 2016, the operator was able to improve its market position in 2016 reporting year on year.

(Wikipedia, 2018)

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I. Zain’s mission

“To be the leading global mobile operator, providing professional, world-class mobile and data services to all

our customers, we aim to achieve this by exceeding our customers’ expectations, rewarding our employees,

and providing sound return for our shareholders. Meeting these objectives, we believe, will be key to creating

a wonderful world” – (Zain Group, 2018)

II. Zain’s vision:

One of the most important assets of Zain is their brand. With their brand they have described their vision and

what is their focus within the company. Having a strong brand that will imbed an image in the customer’s

mind that their products and services are served in high quality.

Zain’s vision is to be the dominant and leading provider for newness and digital lifestyle that the customer

can enjoy. They focus mostly on their customers and what they want to achieve is for their customers to have

the finest and smoothest experience. Also another thing Zain is passionate about is their operational

effectiveness, business growth and the development of the people around them.

E. Zain Group Geographic Divisions

Zain has initiated expansion strategies and retrenchment strategies in the previous years. Now the operate in

eight geographic divisions (Kuwait, Saudi Arabia, Jordan, Lebanon, Morocco, Bahrain, Iraq, South Sudan,

Sudan).

Zain Group remains one of the Gulf’s biggest telcos by subscribers — in the first half of this year it said it

had 46.3 million active customers and 108 million under license — and is the market leader in six of its eight

operations in Kuwait, Bahrain, Saudi Arabia, Iraq, Morocco, Lebanon, Jordan, Sudan and South Sudan.

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Financial Performance of Zain Group 2012-2016

Table 2 :

Zain Group

Financial Performance

2012-2016

(Values in Millions)

Currency: Kuwaiti Dinar

Financial Ratios 2012 2013 2014 2015 2016

Market Capitalization (Millions) 3,375,105,949 2,985,670,647 2,293,341,221 1,514,470,618 1,774,094,15

3

Liquidity Ratios

Current Ratio% 0.789 1.034 0.87 0.815 0.856

Quick Ratio% 0.77 1.014 0.85 0.787 0.835

Asset Management Ratios

Inventory Turnover Ratio% 107.6 83.1 74 41.2 66.2

Total Assets Turnover Ratio% 0.43 0.4 0.37 0.32 0.35

Debt Management Ratios

Debt Ratios% 2.21 2.44 0.24 0.27 0.33

Profitability Ratios

Profit Margin (Millions) 0.196 0.174 0.16 0.135 0.145

Return on Assets (ROA)% 0.086 0.069 0.059 0.044 0.051

Return on Equity (ROE)% 0.14 0.12 0.1 0.09 0.11

Price/ earnings (P/E) 1.200 1.232 1.060 0.875 1.025

Earnings per share EPS (Fils) 65 56 50 40 40

Volume (Millions) 2,581,827 891,805 1,683,221 153,621 3,200,386

Revenue (Millions) 1,281,903 1,240,035 1,213,229 1,137,547 1,087,774

Net Income (Millions) 252,145 216,445 194,301 154,314 158,735

Growth Rate% -0.13 -0.3 -0.51 0.14

Table (2) Analysis

As you can see from the table above, the ratios differ from 2012 to 2016. Comparing the current ratio from

2012 till 2016 it fluctuated slightly. That indicates that Zain is doing well, since it means that the company is

more liquid that the company can easily convert assets to cash. The Current ratio has a positive relation with

the current assets that caused it to increase and inverse relation with the current liability.

The quick ratio and the current ratio are somewhat different. Comparing 2012 to 2016 it increased, which

indicates that Zain has been paying its current liabilities rapidly. The inventory turnover has decreased from

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2012 to 2015 because the current liability had increased. Having a higher total assets turnover ratio, the better

the company is performing. But as you can see from the table above, it had decreased as well from 2012 to

2015 but increased slightly, which means Zain had a minimum amount of total asset account. Since Zain

received its money from Bharti Airtel in 2016 and bought Fasteleco and that caused for its current assets to a

slight increase and its current liabilities to decrease with the debt ratio. As the debt ratio decreased from 2.21

to 0.33 its good for the company that means that the company is associated with less risk with the firm’s

operation and it is possible for them to borrow in the future with a little amount of or with no risk. The profit

margin decreased from 2012 to 2015 then increased in 2016 since the net income increased as well. The profit

margin has a positive relation with net income so since the net income increased it increased the profit margin.

As for the ROA and ROE, since they have a positive relationship with the net income and it increased in 2016

so by that it increased the ROA and ROE. The P/E has a positive relation with the price per share, which is

the closed trading price of the stock; it had increased in 2016 so it caused the P/E to increase in 2016. EPS

has decreased from 2012 and it has been stable from 2015 to 2016.

Putting things into perspective, In 2010 Zain had faced huge losses because of Zain in North Africa due to

the Civil wars that Sudan is facing, the hyperinflation and the currency devaluation in Sudan with the political

and economic tension in Egypt in 2011.Zainthen decided to sell its operations there to the Indian

telecommunication company Bharti Airtel but Zain didn't gain its money of the sale until 2016, according to

that Zain had faced real major losses causing a decrease in Growth rate, The net Income and the revenues

also their profits decreased due to the ROA, ROE ratios and the profit margin as shown on the table above

and mentioned above during the years 2012 until 2016 The slightness of the increase is because Kuwait's

economy is suffering from low oil prices but it didn't stop Zain from ridding itself from the crisis it had been

facing as mentioned before and regained its power back.

Refer to Appendix 1.

1. Kuwait division

In February 2006, Zain acquired the outstanding 61% stake of Mobitel, Sudan’s first mobile operator, in a

deal valued at USD 1.33 billion. The company was rebranded to Zain in September 2007 and subsequently

renewed its license for a period of 20 years. (Zain Annual report, 2017)

Based on AL-Rai newspaper 13\1\2016: A report by HSBC's research and research department estimated

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"If the price of oil falls further or continues to decline in the long term, Mobily, SSC and Zain will have a

higher risk because of their geographic concentration,". And the report said that the presence of three

telecommunications companies in Kuwait led to increased competitiveness in the domestic market, which is

characterized by high average per capita revenue and penetration rate of 200%. Zain is the local leader with

a market share of 62 per cent, while the other two have two market shares of more than 30 per cent, leading

to a decline in average per capita revenue, while the company has a strong 4G networks and coverage of

100%. Kuwait is an attractive market characterized by high margins and average ARPU, and it is one of the

most competitive markets in the telecommunications industry. For its launch in 2008, Viva Kuwait broke the

dual monopoly of Ooredoo and Zain and intensified local competition. Since its inception, VIVA Kuwait's

subscription base has increased by 50 percent at the annual compound growth rate. In a short period of time,

Viva Kuwait managed to acquire a third of the market. The competitive environment in the telecom sector

allowed the rapid launch of 3G and 4G services and Kuwait now has one of the highest penetration rates for

4G in the world.

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Table 3: Structural Factors for Telecommunication Industry in Kuwait.

Number of

Competitors in

the Industry

Competition is high in this industry between the three dominating companies (Zain, Ooredoo and Viva).

Sizes and Growth The more competitors are equal in size and capabilities and the more the demand for products and services declines causing prices

to decline, the higher the competition.

Brand Loyalty

&product

differentiation

- The greater brand loyal the customers are, the higher the competition.

- The more differentiated the products/services from those of rivals, the lower the competition.

Exit Barriers The cost of leaving the Telecom industry in Kuwait is high due to

legal and economic factors. Causing the company to remain in the market, which increases competition.

Cost Structure of

the Industry

When Fixed costs such as Salaries, Rent, Insurance etc. are high,

the companies will compete on the volume to get the largest market share of the others in order to cover costs. The higher the fixed costs the higher the competition on market shares.

Market share in Kuwait's Telecom industry in 2016:

Strategies The more diversified the companies strategies, the more they acquire competitive advantages among others, Which leads to high

competitiveness in the industry.

2. Sudan & South Sudan divisions

globalization caused a negative impact on Zain’s profit worldwide. First was the Economic situation in South

Africa- Sudan. Zain had dealt with a business problem due to the devaluation of the Sudanese pound against

the dollar and a major difference between the official and actual exchange rate caused a big disturbance when

62%21%

16% 1%

Zain Ooredoo Viva Hits Telecom

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purchasing of assets. That caused the economy of Sudan to suffer from extensiveness and difficulties plus the

major increase in taxations on telecom industry; which Zain has been suffering for years now. 2

Another negative impact of globalization that affected Zain in the South Africa region is the Egyptian

revolution of 2011, which caused political and social problems to the country. Having a political issue will

cause an effect on the economic issues as well. So by that it caused chaos in the government of Egypt that

affected all the industries which Zain was one of it. 3

Zain in 2004 suffered from financial difficulties due to the deterioration of the value of the Sudanese pound

against the US dollar, and many observers accused Zain as one of the reasons for the deterioration of the

Sudanese pound and because of its entry to buy the dollar from the black market and the transfer of its huge

assets of the pound in defiance of the laws of the Central Bank of Sudan, which adversely affect the Sudanese

economy. This is why Zain lost its sharp loss in Africa.

Zain had suffered losses in years (2012-2015) because of the challenges faced by the Kuwaiti economy due

to low oil prices. Moreover; in this year’s Zain received huge losses because of Zain Africa Company in 2010

:

• Due to economic and political tension in Egypt in January 25, 2011

• Zain Sudan’s full-year performance was affected by further currency devaluations of 60% against

USD because of the inflation. And there was a civil war in south Sudan, which started in 5thof June

1983 till the 9th of January 2005. But in 2016 it regained its power in terms of the currency value.

• In 2010 Zain concludes the sale of its African operations to Bharti Airtel.

• And in 2016 Zain used the rest of the value of returns to serve its operational policy for the next stage

and in this year Zain bought Fastelco Company, which support her to increase the profit and the

market share in this year.

3. Saudi Arabia division

2Alrakoba news, Iszain Sudan stopping its operations, Alrakoba.com, 2013.

3Wikipedia, Egyptian revolution of 2011.

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Zain launched commercial operations in the Kingdom of Saudi Arabia on August 26, 2008, a year after it

was awarded its mobile license. The Group holds a 37% equity stake in the operation, while the remaining

ownership is distributed between a Saudi consortium, which owns 21%, and 42% that is free floating on the

Tadawul stock exchange. Zain Saudi Arabia (Zain KSA) is listed on the Saudi Tadawul Stock Exchange

(MTC KSA, 7030) with a market capitalization approximately USD 1.3 billion (share price SAR 8.3) as of

31 December, 2016. (Zain annual report, 2017)

Saudi Arabia is Zain Group’s largest market with $913m of revenues for the first half of 2015 and 11.3 million

customers but it is also loss-making. One of the reasons for this is that the kingdom has some of the cheapest

data in the world and this is unsustainable.

“Data usage in Saudi Arabia is huge. It has the highest usage of [video sharing website] YouTube per capita

in the world and some people are using a terabyte of data a month. That’s a lot of data. If they’re paying their

fair amount that’s fine, but at the moment they’re not.”

Zain Group sought to raise data prices in Saudi Arabia earlier this year by pulling out of promotions and

reassessing mobile packages. Scott Gegenheimer, the CEO of Zain Group is vague on the exact increase

(“Around 10 percent in Q1 2015 and a second uplift in Q2”) but says Saudi data is still 50 percent cheaper

than other parts of the region and “significantly less” than other parts of the world. For example, in Europe

and the US the price of 1 or 2 GB is the same as you pay in Saudi Arabia for 500GB.

Another reason why Zain KSA is still waiting to turn a profit in Saudi Arabia (its two competitors are Saudi

Telecom Company and Etisalat’s Mobily, also loss-making) is that is that it paid an extremely high price for

a licence. “The licence was very expensive — $6.1bn — and it’s taking us longer than expected to build a

sustainable business model and break even,” Gegenheimer says.

“However, the losses are shrinking and we are continuing to grow our revenue. Some of the biggest

opportunities are in Saudi Arabia — it is the biggest market in the GCC and although penetration rates for

voice are still high there are pockets of growth, including data

.

“Our hope is that, as we start to capture the data market, we can convert the Saudis from using just the data

on their handsets to using voice, too.”

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resource : Arabian Business Website, 2015.

4. Iraq division

Zain has been providing mobile services in Iraq since December 2003. After securing a 15-year license in

August 2007, the company acquired Iraqna’s network, becoming the largest mobile operator in the country.

Zain Group subsequently increased its ownership in the Iraq entity from 30% to 76%, maintaining

management control and attaining majority control. Zain Iraq (Al Khatem Telecoms) is listed on the Iraq

Stock Exchange (ISX) with a market capitalization of more than USD 5 billion (share price of IQD 3.3) as of

31 December, 2016. (Zain Annual Report, 2017)

Leading the Iraqi mobile market with a 40% market share with a customer base of 12.7 million, which grew

by 14% in 2016, Zain Iraq represents the Group’s largest overall customer base, accounting for 27% of its

total base at the end of December 2016.

The continued political instability in Iraq during the year has resulted in regular network interruptions and

associated higher network operational costs. These unavoidable occurrences coupled with heightened levels

of price competition and the 20% sales tax levied on mobile services as well as wide-ranging tax increases

on other sectors in Iraq, all contributed negatively on Zain Iraq’s key financial metrics.

Revenues for the year reached U S D 1.1 billion, down by 11% , which still represented a valuable 31% of

Zain Group’s total consolidated revenues for the year. EBITDA amounted to U S D 394 million, down 18%

Y-oY. Zain Iraq ended 2016 with a net loss of U S D 5.2 million, severely impacted by a one-time hit of U S

D 93 million payment of a capital gain tax settlement and other taxes, which resulted in the lifting of the

restrictions on the company’s blocked cash in Iraq.

For the first time in the country, November saw Zain Iraq, in cooperation with Huawei, announcing the

successful commission of the installation of a state-of-the-art converged billing and charging platform that

replaces legacy infrastructure with a modern, unified charging, billing and CRM (customer relationship

management) solution. This system is capable of effectively handling all services and customer types,

bringing a fluidity to services including voice and data, billing options, and customer segment offerings.

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The time-to-market from concept to product launch has been dramatically reduced and customers will now

enjoy a wider range of services at attractive price points. Another highlight for Zain Iraq during the year was

the award of CommsMEA’s Best Marketing Campaign of the Year to the company for its ‘ Hassa Eliya’ (

Now for Me) campaign, which inspired and empowered young Iraqi talent by encouraging them to explore

their potential, and helped equip them with the necessary tools to achieve their goals. Among many distinctive

new customer centric services and numerous Corporate Sustainability initiatives, Zain Iraq launched the

country’s first online payment solution, “ZainCash”. This life-enhancing service is set to boost e-commerce

and support families in sending and receiving much needed funds. The service has been recognized by

multiple award-giving institutions, all acknowledging the importance that such a service fuels in Iraq.

Zain Iraq is also actively working at increasing its geographical presence, coverage and capacity within the

country. The operator invested U S D 96 million in CAP EX in 2016, mainly in network expansion in the

northern region of Iraq. Zain Iraq counted 4,327 sites across the country at the end of the year, with population

coverage of 99%. Data revenues (excluding S MS & VAS) represent 9% of total revenues, reflecting an

annual growth rate of 21%.

5. Jordan Division

In 1994, Zain Jordan revolutionized the telecom sector in the Kingdom by becoming the first to introduce

mobile services (as Fastlink). In 2003, the operator notched up another first by joining Zain Group’s Middle

East portfolio, and despite intense competition in this liberalized market, the operator has remained the

leading telecom player in the country. (Zain Annual Report, 2016)

Significant competition and falling voice prices characterize the telecom market in Jordan, though Zain Jordan

maintained its market leadership of 36% as of the end of 2016. The operator served 4.3 million customers, a

base which grew by 5% , representing 9% of Zain’s total customer base at the end of 2016. For the full-year

2016, revenues improved by 5% , to U S D 483 million, as compared to U S D 459 million 2015, while

EBITDA decreased by 5% to U S D 240 million with an impressive EBITDA margin of 50%. The strong

EBITDA margin was mainly due to improved gross margins, with net income for the year reaching U S D

105 million, down from U S D 122 million in 2015.

Data revenues (excluding SMS & VAS) represented 34% of total revenues, and grew by 23% as compared

to 2015. Zain Jordan’s strategy is focused on identifying new revenue streams and exploring new

opportunities and concepts such as home security. During the course of the year the operator became a major

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player in the enterprise and connectivity management arena. The operator’s strategy is to become a one-stop

shop to customers, where all communication services can be accessed. To raise awareness of this, massive

campaigns were undertaken to educate customers about the range of services and products offered at Zain

shops across the country.

Zain Jordan recognizes that enterprise technologies and services powered by 4G/LTE will be the major

revenue drivers in the coming years, compensating for the decrease in voice revenues. The company is

investing in fixed LTE service, which will allow it to increase data revenues especially in lower A R P U

regions in the Kingdom. Zain Jordan’s network covered the entire population, increasing its total number of

network sites to 2,401, of which 1,482 are 4G sites.

There were many highlights throughout the year for Zain Jordan as it continued to be recognized by

establishments across the globe for its innovation in providing customers with compelling digital services and

products. Innovations that we introduced include multiple attractive data packages such as a new youth

product “Social Mix”; and a postpaid product named Private, in which customers can customize their

packages based on their needs by choosing a special optional bundle. The package also delivers a choice of

numerous OTT video services with MBC Shahid, Starz Play and I CFLIX. Content also extends to OSN and

beIN services provided over Zain Fiber and Zain Ethernet products as part of a full Home Product solution

which includes the OTT video content. 2016 also saw Zain Jordan recognized at the Global Telecoms

Business (GTB) Innovation Awards in London and at the Telecoms World Middle East Awards in Dubai for

offering the best consumer service with respect to its efforts to expand access to financial services. Zain

Jordan introduced a mobile wallet offering to hundreds of thousands of unbanked people through its “Zain

Cash” secure and convenient mobile money service, which was launched in partnership with eServGlobal.

6. Bahrain Division

Zain Bahrain began commercial operations in the Kingdom in December 2003. At the time, it was known as

MTC Vodafone. With its progressive introduction of 3.5G, WiMAX and most recently 4G LTE, Zain has

tapped into a rich seam of telecommunication records, placing the company and Bahrain on the global telecom

map. Zain Bahrain is listed on the Bahrain Bourse (ZAINBH) with a market capitalization approximately

USD 98 million (share price BD 0.100) as of 31 December, 2016. (Zain Annual Report, 2016).

Despite the high rate of mobile penetration in the Kingdom, Zain Bahrain’s customer base surged to 971,000

at the end of the year, up 22% from 795,000 at the end of 2016 as innovative products and services offering

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a fully integrated digital lifestyle continued to attract customers. The operator also benefited from growing

awareness of the compelling performance of its world-class 4G LTE network. For the full-year of 2016, Zain

Bahrain’s financial results were impacted by the fierce competition in the Kingdom, with revenues reaching

U S D 175 million, down from U S D 191 million in 2015. EBITDA for the period amounted to USD 66

million, reflecting an EBITDA margin of 38%. Net income for the year fell by 17% to U S D 11 million.

Data revenues (excluding SMS & VAS) represented 41% of overall revenues, up 11%.

The operator’s network currently covers the entire population, with a total of 499 network sites. With severe

competition in this dynamic mobile market, Zain Bahrain’s A R P U amounted to U S D 15 for the year in

2016. The operation was active throughout the year in its service promotions, which included a New Year

offer of a free television and PlayStation 4 with certain home broadband packages. Several tie-ups with major

content and service providers, including Google Play, I CFLIX, MBC Shahid, and Booking.com, added value

to Zain Bahrain’s digital lifestyle offerings. In line with its commitment to innovation and enhancing customer

experience, Zain Bahrain introduced the Kingdom’s first ‘ Truly Unlimited Social Media’ prepaid and

postpaid packages, with customers not being billed for data used via social media applications beyond their

initial subscriptions.

With respect to Corporate Sustainability, Zain Bahrain worked in collaboration with the Ministry of Labor

and Social Affairs and the Ministry of Industry, Commerce and Tourism, together with various educational

institutions to help jobseekers better compete in the job market. The company also continued its support of

the Zain Bahrain E - Learning Center. 2016 saw the signing of a partnership with AIE S EC, the world’s

largest youth run organization, with the aim of fostering youth empowerment and development. Zain Bahrain

continued its support of Bahrain’s burgeoning entrepreneurship community, participating in the ‘Kun

Muntijan’ event organized by Tamkeen in which the Kingdom’s micropreneurs were invited to participate in

Zain Bahrain’s in-house learning and development courses. The entrepreneurs were also invited to participate

in ‘Khameesna Zain’ (Zain Thursdays), a showcase for local startups held every week at the company’s

headquarters. Additionally, Zain Bahrain rolled out cutting-edge mobile learning (mLearning) and

Augmented Reality (A R) technologies to enable all employees to access learning materials on-the-go via

their smart phones, laptops, and tablets.

7. Morocco Division

Zain invest in Moroccoan operator ‘Wana’ (2009). US $324 million co-investment with Al-Ajial investment

Fund holding as a consideration for a 31% stake in Wana. Zain in a 50/50 partnership with Al Ajial Investment

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Fund Holding (“Al Ajial”) has agreed to invest through a newly established joint venture “Zain Al Ajial” an

amount of MAD 2.850 billion (USD 324 million) in return for 31% of Wana Corporate SA (“Wana”), the

third mobile telecom operator in Morocco.

This new investment by Zain and Al Ajial will provide Wana with the funding requirements and operational

contributions to continue on its ambitious growth plan and to successfully launch its new GSM license in late

2009. Under the agreement Zain will assist Wana for the deployment of the new GSM Network. Wana is an

integrated telecom operator currently offering fixed and restricted mobility wireless services (branded as

“Bayn”), full CDMA mobility services (branded as “Wana”) and Internet and data services throughout

Morocco.

According to Wireless Intelligence data, Wana had 1.95 million mobile connections by the end of 2008,

giving it an 8.1 percent market share. The market leader is Maroc Telecom, which had 14.5 million

connections (60 percent share) by year-end, while second-placed Meditel had 7.8 million (32.3 percent

share).“With 22.5 million mobile customers representing about 70% penetration, Morocco is an exciting new

region for Zain to extend our footprint to 23 countries,” said Dr. Saad Al Barrak, Chief Executive Officer of

Zain.

Along with the investment, Wana and Zain will enter into an operating framework agreement that will give

Wana the possibility to access Zain’s expertise, purchasing power, products and services, including Zain’s

‘One Network’.One Network is the world’s first borderless mobile telecoms network service launched by

Zain in September 2006 now offering over 500 million people in 17 countries preferential communications

across geographical borders without roaming call surcharges and without having to pay to receive incoming

calls, enjoying the benefits of being treated as ‘local’ customers in any of these countries. These countries

are Bahrain, Burkina Faso, Chad, the Republic of Congo, the Democratic Republic of Congo, Gabon, Ghana,

Iraq, Jordan, Kenya, Malawi, Niger, Nigeria, Saudi Arabia, Sudan, Tanzania and Uganda.4

Key Investment Highlights

Favourable Strategic factors:

· Exposure to the attractive and growing Moroccan telecommunications market

· Total population of approximately 35 million

4 Resource : Zain invests in Moroccan operator ‘Wana’. (n.d.). Retrieved May 30, 2018, from

https://zain.com/en/press/zain-invests-in-moroccan-operator-wana/

Zain enters Morocco via 31% stake in Wana |. (2009, October 26). Retrieved from

https://www.mobileworldlive.com/latest-stories/zain-enters-morocco-via-31-stake-in-wana/

39

· Young population with more than 30% under the age of 14

· A stable political background, advanced regulatory and legal environment

· Moderate mobile penetration at c.70%

· Fast growing economy (11% per capita GDP growth during 2008)

· Only two other national competitors

· Wana has fixed, 2G and 3G telecom licenses

· Wana has more than 2 million active customers by the end of 2008

· More than 420,000 customers adopted Wana’s full mobility services by the end of 2008

· More than 20% market share on the internet access.

8. Zain Lebanon (Touch Lebanon)

In June 2004, Zain Group won a four-year management contract to operate one of Lebanon’s two GSM

networks. The operation is branded ‘touch’, and Zain has developed the operation in Lebanon to a high

level by providing unprecedented services.

At the end of 2016, touch counted 2.3 million customers – an increase of 1%, accounting for 5% of Zain

Group’s total customer base. With 1,307 network sites, the operator covers all the populated areas of

Lebanon. Touch’s strategy is based on working closely with the country’s Ministry of

Telecommunications with the view to further enhance the operator’s customer experience, diversifying

its product portfolio, and monetizing data to strengthen the operator’s leadership position while

maintaining earnings. One of touch’s driving objectives is to become a significant digital player in

Lebanon, focusing on innovation in its offering of new services and enabling a digital lifestyle experience

for its customers.

The operator also aims to develop enterprise ( B2B) services and actively participate in the smart city

revolution sweeping the region. Touch is also eyeing entering the e-market ( E-health, E-education, etc.).

Several highlights for touch during 2016 include winning two prestigious awards at the Global Telecoms

Business Innovation Awards in London. The first in recognition of the company’s strategy to develop its

digital portfolio having introduced the touch app on Apple watch. Created by FOO Solutions, a mobile

solutions entity in which Zain took a strategic investment, the distinctive app allows customers to check

their online balance, credit and validity, in addition to bundles (voice, SMS and/or data) consumption, on

the-go and in real-time.

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The application builds on touch’s strong app positioning, having achieved in excess of one million

downloads since its launch. The second award recognized touch for introducing an augmented reality

feature to engage customers using a unique mobile app, again created by FOO Solutions that saw over

800,000 downloads during the holiday seasons. Furthermore, touch received an award from Teknotel for

the “best customer service offered by a telecom operator in the Middle East”. In December, and following

a Zain Group master agreement, touch partnered with Booking.com, the world leader in online

accommodation bookings to provide its customers with cash back rewards.

Customers can simply access the dedicated section of the touch website/mobile app to book their next

stay anywhere in the world and benefit from up to 4% cash back of the booking value on their touch line.

Additionally, touch introduced the Vinli solution bringing in-car Wi-Fi, cloud-based connected car apps,

and advanced safety services to vehicles in Lebanon. The offer consists of a device that plugs into any

vehicle’s On Board Diagnostics-II port to connect any car to touch’s 4.5G advanced high-speed internet

network. Passengers can then enjoy a wide range of applications from Vinli such as car diagnostics and

maintenance, vehicle locator and theft alert, driver monitoring and family locator. To enhance customer

experience, touch is currently renovating six service centers into a more personalized and digitized

experience including a digital kiosk, Smart Quality Management.

Conclusion

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Global expansion has always been the strategy to go for, It's risky but promising over the long term.

Seeking this opportunity will grant businesses greater revenues to generate due to acquiring a market

share, growth opportunities, exposure to new culture, knowledge of different legal, and economic factors,

and granting a strong competitive advantage among competitors. Also, many businesses expand globally

to diversify their assets, as a way of protecting the company against unforeseen events. For instance,

companies with global operations can offset negative growth in one market by operating successfully in

another. Companies also can utilize global markets to introduce unique products and services, which can

help maintain a positive revenue stream, an take the opportunity of utilizing local human resources to

support their product/service diversification strategies.

That has been Zain's goal from the beginning, when decided to expand, but did these entry and exit

strategies succeed. As we have seen in the previous key divisions, Zain hasn't always made successful

entries and exits, especially in Sudan and South Sudan. Until today, Zain Group hadn't recovered from

its losses of 14 branch in Africa. This was due to lack of strategic planning, they applied the same

strategies used in Kuwait on other geographic areas, neglected the culture, and neglected the political

situation Sudan is going through at that time.

The previous key subjects had shown us that although Zain had gone through many obstacles, they tried

to surpass it by adopting and introducing technologies in different regions to enhance the infrastructure,

it used different marketing tools and corporate social responsibility to support it. With the not so great

competition in the areas Zain expanded to, It is enjoying a great market share of revenues. Its expansion

strategies hadn't always succeeded or were implemented correctly, but they worked eventually due to

lack of competitors and global businesses legislations effectiveness. Zain is still the market leader in its

homeland Kuwait.

APENDICIES

42

Key Financial

Definitions

it is the market value of a company's outstanding shares. Calculation: the stock price multiplied by the total number of shares

outstanding. The higher the better.

Market Capitalization

It measure a company's ability to pay off its short-term debt obligations.

Liquidity

Ratios

It is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. it indicates a very strong, safe

liquidity position. Calculation: dividing current assets by current liabilities.

Current Ratio

It is a measure of how well a company can meet its short-term financial liabilities.

Calculation: Deducting inventories from current assets and then dividing the remainder by current liabilities.

Quick Ratio

It measures how effectively the firm is managing its assets.

Asset

Management

Ratios

It is a key measure for evaluating just how efficient management is at

managing company inventory and generating sales from it. Calculation: Dividing sales on inventories.

Inventory

Turnover Ratio

It measures a company's ability to generate sales from its assets by comparing net sales with average total assets.

Calculation: Dividing sales over total assets.

Total Assets Turnover Ratio

It measures how much of a company's operations comes from debt instead of other financing, It measures the company's risk and likelihood of a default.

Debt

Management

Ratios

It indicates the percentage of a company's assets that are provided

by debt. Calculation: Dividing total debt over total assets.

Debt Ratios

It is used to assess a business's ability to generate earnings compared to its expenses and other relevant costs incurred during a specific

period of time.

Profitability

Ratios

It measures net income per dollar of sales. Profit Margin

APPENDIX 1

43

Calculation: Dividing net income by sales.

It illustrates how well management is employing the company's total assets to make a profit.

Calculation: Dividing net income by total assets.

Return on Assets (ROA)

It is a measure of profitability that calculates how many dollars of

profit a company generates with each dollar of shareholders' equity. Calculation: Dividing net income over common equity.

Return on Equity

(ROE)

They are used to evaluate the current share price of a publicly-held company's stock.

Market Value

Ratios

Is the portion of a company's profit allocated to each outstanding

share of common stock. It indicates the company's profitability. Calculation: Subtract the net income of dividends on preferred stock and dividing it over average outstanding shares.

Earnings per

share (EPS)

It is the amount of a security that were traded during a given period of

time.

Volume

It is the income that a business has from its normal business

activities. Calculation: multiplying the number of a product sold by the sales

amount.

Revenue

It is a company's total earnings.

Calculation: taking revenues and subtracting the costs of doing business.

Net Income

It is the percentage change of a specific variable within a specific time period, given a certain context.

Calculation: Subtract the present value of the past value and divide the result over the present value.

Growth Rate

It is the ratio for valuing a company that measures its current share price relative to its per-share earnings. Calculation: Dividing price per share over Earning per share.

Price/ Earnings Ratio

44

REFRENCES

JOURNALS

Kuwait University, Z. A., & Kuwait University, M. A. (2017). Strategic Management. Zain Group, 1-60. Retrieved May 5, 2018. Boursa Kuwait, Zain Group, (2012 - 2016). Zain Annual Report. Retrieved May 7th, 2018. Oil, Middle East, and the Global Economy, M. T. (2015). THE OIL MARKET, OPEC AND THE MIDDLE EAST. ECONOMICS AND POLITICS. Retrieved May 5th, 2018, from https://dornsife.usc.edu/assets/sites/955/docs/Takin_presentation_slides_USC_Conf_1-2Apr_2016.pdf. Zain annual report. (2016-2017). Retrieved May 5th, 2018, from https://d2eiv94jj0lpuu.cloudfront.net/media/filer_public/05/f0/05f03946-8257-4355-a591-33e2f9ccbd60/zain_annual_report_2016_english.pdf. BOOKS

David, F. R., & David, F. R. (2017). Strategic management: Concepts and cases ; a competitive advantage approach. Boston: Pearson. WEBSITES

Wikipedia contributors. (2018, March 19). Zain Group. In Wikipedia, The Free Encyclopedia. Retrieved 06:36, May 9, 2018, from https://en.wikipedia.org/w/index.php?title=Zain_Group&oldid=831222108 What is Expansion Strategy? definition and meaning. (2016, June 13). Retrieved from https://businessjargons.com/expansion-strategy.html retrenchment strategy. BusinessDictionary.com. Retrieved May 05, 2018, from BusinessDictionary.com website: http://www.businessdictionary.com/definition/retrenchment-strategy.html Statista.com, Statista portal, Global & MENA telecommunications services market value from 2012 to 2019, by region (in billion Euros). www.statista.com Kuwait Stocks Exchange, (2010) Market Capitalization, Financial Performances, Financial statements. Kuwait New Agency (KUNA). Bharti Airtel Buys Zain Africa Article. www.boursakuwait.com Doyen of data: Challenges facing the CEO of Zain Group. (n.d.). Retrieved from http://www.arabianbusiness.com/doyen-of-data-challenges-facing-ceo-of-zain-group-607855.html About Zain. (n.d.). Retrieved May 3, 2018, from https://www.zain.com/en/about-us/ Alrakoba news, (2013) Is zain Sudan stopping its operations (translated from Arabic), www.Alrakoba.com. Resource : Zain invests in Moroccan operator ‘Wana’. (n.d.). Retrieved May 30, 2018, from https://zain.com/en/press/zain-invests-in-moroccan-operator-wana/

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Zain enters Morocco via 31% stake in Wana |. (2009, October 26). Retrieved from https://www.mobileworldlive.com/latest-stories/zain-enters-morocco-via-31-stake-in-wana/