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. 22 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) 23 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. 24 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. Growth Growth Growth Growth MENA Region 2012 2013 2014 2015 2016 Rate Rate Rate Rate Market Value MENA Region 1,297,240,169, 1,403,947,255, 1,449,820,831, 1,510,388,182, 1,556,408,456, 7.60% 3.16% 4.04% 2.95% Converted from 717,879 712,253 551,054 026,784 049,879 EURO to IDR Rate of Return 8.22% 3.26% 4.21% 3.03% Table (1): Calculations Growth Rate = (X2-X1)/(X2) = (MV 2013-MV 2012)/(MV 2013) Rate of Return= (X2/X1)-1 25 = (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) 26 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.