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CHAPTER ONE

INTRODUCTION

1.0 Introduction

This chapter presents background of the study, the problem statement, Purpose, objectives of the study, research questions, study scope, and significance of the study.

1.1 Background to the Study

The history of competition in Business can be traced from the earliest business dates between 2400 and 2800 B.C for 50 jars of fragrant smooth oil for 600 small weights in grain written on a red clay tablet found in Syria (Coe, 1989, p. 87). Also another evidence of historical competition in Business includes the development of the silk trade between China and a Greek colony in 800 B.C. Furthermore, in the United States, according to Page (1980), competition in Business is a common issue and intense competition in Business started in the industrial revolution between mainly railroad companies at the time (Koske, Wanner, Bitetti, & Barbiero, 2015).

The complexity and volume of competition in Business drastically increased globally in the recent years. Some of the causes that can be attributed to this include globalization, out sourcing, intense competition for existing markets as well as complicated and numerous partnership. Over the last fifty years many, of the world’s largest firms have advanced from being simple manufactures of hard goods, or providers of basic services, to being sophisticated vendors using advanced business models. This means that commitment of customers and suppliers to contractual obligations has increased, thus, the need for sustainable competition polices (Cusumano, Gawer, & Yoffie, (2019).

In most African countries like Nigeria, the competition in Telecommunication Industry is now increasing in importance as customers demand quality and low prices. Organizations are increasingly relying on critical services and production contracts as their key to maintaining competitive advantage, the organization’s competence and process capability in offering affordable products in timely manner is often viewed as a key strength in enhancing the capability of the organization to win over customers (Rendon, & Rendon, 2016).

Since the telecommunication companies have been coming to Uganda there has been an increasing demand for quality at low cost by Ugandans this has thus ignited the need to adopt better and sustainable competition practices to enhance their survival even though the telecommunication companies view competition in business as something that has been in existence since trade was started by humans, this has been mainly because of the need to win over competitors and widen their market base.

The study used transaction cost theory. The transaction cost approach to the theory of the firm was created by Ronald Coase. Transaction cost refers to the cost of providing for some good or service through the market rather than having it provided from within the firm. Coase describes in his article “The Problem of Social Cost” the transaction costs he is concerned with:

In order to carry out a market transaction it is necessary to discover who it is that one wishes to deal with, to conduct negotiations leading up to a bargain, to draw up the contract, to undertake the inspection needed to make sure that the terms of the contract are being observed, and so on. More succinctly transaction costs are: search and information costs, bargaining and decision costs, policing and enforcement costs. Coase contends that without taking into account transaction costs it is impossible to understand properly the working of the economic system and have a sound basis for establishing economic policy. Coase observes that market prices govern the relationships between firms but within a firm decisions are made on a basis different from maximizing profit subject market prices. Within the firm decisions are made on through entrepreneurial coordination. Coase quotes D.H. Robertson on there being,

There are a great variety of arrangements in producing goods. In agriculture often most of the labor force works on a day-to-day basis. In other industries the labor force may be permanent, tied to the firm with long-term contracts. Repair services in some firms may be supplied by an internal organization; in others it is provided by specialized firms from outside. A firm is a system of long-term contracts that emerge when short-term contracts are unsatisfactory.

MTN Uganda has reported a 9.1% increase in net profit to Shs442.6billion for the first six months of 2020. According to company’s latest interim results, the performance was driven by a strong performance of mobile money, data and digital income. Overall, the company’s revenues grew by 7.6% to Shs900billion in the period while data incomes jumped from Sh128billion to Shs167billion representing a 30% growth.

Voice revenues grew from Shs458billion to Shs471billion as the company reported a 10% growth in subscriber base to 13.2 million, up from 13 million last year. Meanwhile, mobile money revenue, which has been another cash cow for the firm grew by 6.5% to Shs214billion as its active mobile money subscribers hit 7.4 million. Prior to this reporting period, the company’s active mobile money clients were 7.3 million. In terms of data, the number of active users went up to 3.2 million from 3.1 million in the period under review as more individuals gained access to internet enabled devices to browse the internet for different reasons.

Financial performance measures are outlined in the financial statements of companies. The income statement, balance sheet and cash flow statements can be used in a variety of ways through horizontal, vertical and ratio analysis to determine the best ways for companies to grow, set goals and become more profitable (Kourtis, Kourtis, & Curtis, 2019).

Telecommunications are the means of electronic transmission of information over distances. The information may be in the form of voice telephone calls, data, text, images, or video. Today, telecommunications are used to organize more or less remote computer systems into telecommunications networks. These networks themselves are run by computers. A telecommunications network is an arrangement of computing and telecommunications resources for communication of information between distant locations (Willner, 2019).

1.2 Statement of the Problem

The financial performance of MTN Uganda overall has been on a down ward trend since 2012. This is observed by the fact that in 2012 MTN reported a profit of 400.4 billion dollars with a large market share of more than 60% and this reduced to UGX 302 billion in 2013, though in 2014 MTN sales performance yielded a profitability higher than 2013 of 331.6 billion it was still much lower than 2012 and more to that poor financial performance has led to a profit reduction by 46.7% to UGX 176.8 in 2015 and in 2016 the profitability which is as a result of poor sales performance reduced further to 96.3 billion shillings until 2017 the financial performance of MTN Uganda overall has failed to pick up and this has led to the narrowing of the MTN financial performance this has also led to the narrowing of its market share to its main Rival (Airtell) to about 54% by 2017 (MTN Uganda, 2019).

The MTN, Records, (2017) further indicates that the percentage growth of sales of the company has been declining ever since Airtell and Warid merged this has thus made the company face stiff competition from its close competitors and this has puzzled experts of what could be the cause.

It’s against this background that this study intended to investigate into impact of competition on financial performance of telecommunication companies, with specific reference to MTN Uganda, Head office.

1.3 General Objective

The purpose of this study was to examine the impact of competition on financial performance of telecommunication companies a case study of MTN Uganda.

1.4 specific objectives

1. To assess how market share affects the company’s financial performance.
2. To establish the relationship between competition and financial performance.

• To establish the best practices in dealing with competition.

1.5 Research Questions

1. How does market share affects the company’s financial performance?
2. What is the relationship between competition and financial performance?

• What are the best practices in dealing with competition?

1.6 Scope of the Research

Geographical scope 

The research was conducted at the MTN Head offices in Kampala District..

Time scope

The study investigated a period of five years from 2015 to 2020

Content scope

The scope of the study included; How market share affects the company’s financial performance, the relationship between competition and financial performance and the best practices in dealing with competition.

1.7 Conceptual frame work

   COMPETITION                                                FINANCIAL PERFORMANCE    

Source : Mathenge, J. (2013).