CHAPTER III INTERNAL & EXTERNAL ANALYSIS 3.1 Vision & Mission Vision To be the most respected Internet Company. Earn the respect of consumers by listening, satisfying and exceeding their needs and expectations. Earn the respect of employees by continuously improving our corporate reputation so that Tencent is a company employees are proud to work for. Earn the respect within the industry by promotion the healthy development of the Inernet industry and win-win collaboration with partners. Earn the respect of society by actively assuming corporate responsibility and contributing to community development. Mission To enhance people’s quality of life through Internet services. Treat the Internet like electricity: a reliable service that makes life easier and more enjoyable. Address the diverse need of different regions and consumers by offering differentiated products and services Build a healthy and win-win Internet ecology based on open collaboration with partners. 12 3.2 PEST Analysis PEST, as an analysis framework of macro-environmental factors, which can be considered as macro-environmental factors and its usefulness line in the assumption that the success of a particular organization or management solution cannot be understood without having the information relevant to the specific business environment (Buchanan and Gibb, 1998). 3.2.1 Political factors As a majority of Tencent’s operations are located in China, therefore its results of operations, financial condition and prospects are subject to regulatory developments in China. The China’s Internet and telecommunications industries are highly regulated. Regulations issued or implemented by the State Council, MIIT, MOC, GAPP and other relevant government authorities cover many aspects of its telecommunications and Internet information services, including entry into the telecommunications industry, the scope of permissible business activities, licenses and permits for various business activities and foreign investment. For example, because a significant portion of our revenue from online games and other products and services rely on large Internet user communities, any regulation that affect Internet access and usage, such as those relating to online game addiction, operations of Internet café and other establishments, Internet privacy, important games, mobile subscriber cancellation policies and other regulations will affect the ways the company operation and provide its services and products. 3.2.2 Economic factors Most of Tencent’s operation and financial conditions are affected by economic conditions in China and, to a lesser extent, the economic conditions of the rest of the world. The socialist marketing economy of China is the world’s second largest economy by nominal GDP and by purchasing power parity after the United States. It is the world’s fastest- growing major economy, with growth rates averaging 10% over the past 30 years. China’s 13 GDP growth eases to 7.8% in the year 2012, reaching a total 51.93 trillion Yuan ($8.28 trillion) (National Bureau of Statistics, 2012). (See Figure 3.3) Figure 3. 1 Annual Variation of gross domestic products (GDP) in % Source: National Bureau of Statistics of China and Focus Economic calculations Since the second half of 2008, the global economic slowdown has resulted in an adverse impact on the overall China’s economy. Although the price of most of Tencent’s products and services at an affordable level for the average users, which also result in the earnings and cash flows being more resilient to economic cycles, macroeconomic conditions such as the debt crisis in the European Union, the unprecedented downgrade of the U.S. credit rating and increasing concern about a global recession, may impact the growth of the China’s economy and China-focus business like Tencent. The advertising industry is particularly sensitive to economic downturns and a negative economic outlook could cause expenditures for Internet access, infrastructure improvements, and consumer discretionary spending to decrease, thereby affecting the online advertising business. Further, it is unclear how China’s economic conditions could impact China’s regulations, taxation or monetary policies, which could also affect the company’s growth strategies, business operations and access to additional capital. 14 3.2.3 Social factors After experiencing over ten years of rapid development, Internet has seeped into every aspect of China’s citizens’ life, and become an indispensable part of daily life. According to statistics concerning China’s Internet development over the years, China’s netizen population surged from 59 million in 2002 to 564milion by 2012, suggesting the Internet penetration rate rose from only 4.6% in 2002 to 42.1% 2012. As the penetration rate trade up, the growth in netizen population progressively slowed down to 10%. Nevertheless, China Everbright Limited (CER) forecast Internet penetration rate will keep growth and reach to 55% by 2015. Figure 3. 2 China’s netizen population growth Source: Historical Internet Development Status Statistics Reports, CER Given the growth in netizen population levels out due to higher Internet penetration, the boost from new Internet users to the development of the whole industry is very limited. Nevertheless, as Internet seeps into every aspect of our work and life, web traffic usage per user is set to increase further, bringing huge business opportunities to the Internet industry. Internet is not only a communication tool and also is lifestyle. When a lot of people can`t meet face to face, chatting on the Internet has become the best lifestyle to communicate with each other among young people, even some old people. And at that moment, Tencent 15 give those people a chance to do this on the Internet, So Tencent catch this trend to become popular in our life. According to CNNIC’s data in 2008, 75.4% of Internet users use IM, while only 56.8% use e-mail in China. It means Chinese Internet users are more turned to IM than e-mail, while the situation in US is the opposite. There are few factors contribute to the situation: (1) a reliable and free IM platform has been offered by Tencent since early days of Internet development, while free e-mail services in early days were not very reliable. (2) From a cultural perspective, Chinese users prefers IM over email, given IM is a real-time communications tool versus e-mail. (3) Viral networking effects helped IM growth, with more users already on the IM platform. Therefore, in the future, with the popularity of mobile broadband, IM will be well positioned to integrate into mobile devices through a real-time connection. These advantage should continue to drive the popularity of IM as a cross-platform community tool. As the instant messaging in China, Tencent should be able to benefit from the long-term growth of IM. 3.2.4 Technological factors Information technology processes can drive sully chain efficiency and save on costs: for example, Internet companies can reduce real estate and labor cost as well as foster improved communication. When the third time the science and technology revolution coming, the computer and the Internet and the prevalence of greatly promoted the development of science and technology, for the development of the Tencent Company to provide the necessary foundation. Today， people have a lot of scientific programming appearing in people's vision, let Tencent technology products more perfect and human nature. All that the progress of science and technology for the development of Tencent has brought great to help and inspiration. In Januray 2009, 3G came to China, the telecommunications operators iin China have making substantial investments to develop their 3G mobile networks. According to MIIT, 3D mobile service subscribers increased from approximately 12 million to approximately 81 million between December 2009 and 16 2011. Right now 4G network is expected to further facilitate increased penetration of mobile Internet usage. It will be another chance and challenge for the related companies like Tencent. Modern science and technology is an information revolution affect deeply. Modern science and technology revolution's core is information revolution. We can also say it is computer network and communication technology's revolution. In one hand, modern science and technology can combine with manufacture. Tencent can make full use with modern science and technology .In another hand, modern science and technology make Tencent's resource allocation has a great change. Information and knowledge improve Tencent's development. People through those information technology can enjoy an interesting Internet life. Now, more and more people know about Tencent because of information technology. Tencent is so popular to modern people. 3.3 SWOT analysis 3.3.1 Strength Tencent has diversified the product and service to offer various communications and media service to different market segment. The products have a rather close relationship with the netizens’ life. These products and the services include Tencent QQ, QQ Enterprise, Tencent Massenger, Real Time eXchange, Tencent Traveler, QQ Doctor, QQMail, Foxmail, QQPlayer, QQ Pinyin, QQDownload, QQ Software Manager. Tencent diversified business portfolio, to fulfill in the complex online lifestyle needs, has a great influence on netizens’ daily life. Tencent is strength on the platform. QQ instant messenger is one of the most popular IM platforms which attracted 789.2 million active Tencent QQ instant messenger user accounts The company keeps adding new products and services to its IM platforms, which increase user stickiness and monetization. 17 Tencent has mature technology and rich experience. In 2007 Tencent established China’s first Internet institute- Tencent Research Institute whose chief task is the research and development of core technology on Tencent. As the 11th ranked at the Forbes the most innovative companies in the world, Tencent has its own excellent facility with strong research and development ability. 3.3.2 Weakness Among Tencent diversified product and services; some of them have similar function features. Therefore, different departments of Tencent have competition for users.