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ADVANCING DIGI COMPANY 2018

Experiment Findings · December 2018

DOI: 10.13140/RG.2.2.31661.74729

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 RESEARCH REPORT 2018

ADVANCING DIGI TELECOMMUNICATIONS SDN. BHD.

Syahirah Mustafa,
syahirah96@gmail.com

Nabila Sofea Bt Mohd Nasir

sofeanabilasofea@gmail.com

Nisha Nabilah Bt Shamsuri,

nishanabilahs@gmail.com

Siti ‘Aisyah Binti Abd Rahim,

scha.ct@gmail.com

Hajerah Rahi,
hajerah.rahi@gmail.com

Shyma Alshaerif,
alshareifshyma@gmail.com

Suhaimi Mhd Sarif

suhaimims@iium.edu.my

International Islamic University Malaysia

Abstract
Advancing Digi Company as important telecommunication company in Malaysia is necessary
to create, maintain and sustain competitive advantage. Superior value in terms of contents
and services are essentials. Telecommunication in the digital age is beyond merely tele-
conversation. It is about multimedia, social networking, business, gaming, and so on. This
report aims to recommend strategies for Digi Company to consider in securing competitive
advantage. The report uses strategy generation and selection framework as basis to generate
and recommend strategies. Ukhuwwah fi Allah or group cohesiveness guided by Allah
through Tawhidic paradigm and Maqasid al-Shariah provides contingency perspective to this
report. The results of the report are essential for Digi Company to advance with elegant and
style.

Keywords: Competitive advantage, Telecommunication industry, Malaysia.

1
1.0 INTRODUCTION
1.1 MISSION, VISION, VALUES AND OBJECTIVES

VISION
To become the preferred digital provider for Malaysians
VISION (proposed)
To be seen as stars in excellent customer experience by enhancing communications to
improve customers’ quality of life, at home, work and play.
MISSION
- Delivering Internet for all as part of our commitment to building a connected Malaysia -
enabling access to mobile internet.
- Offering customers the right combination of devices and value pricing, as well as the best
usage.
DIGI MISSION (proposed)
- It’s offering customers specific solutions to meet individual need and has provided an
environment where our employees can grow and be fulfilled in position. However, Digi has
provided superior returns to shareholders and contribute to improving life in Malaysia.
VALUES
- Keep Promises
Take ownership for delivering on our goals and responsibilities, and pride ourselves on
driving quality into everything we do.
- Make It Easy
Aim for simplicity in the way we work, and in offering products and services that are easy to
understand and easy to use.
- Be Respectful
We are open-minded and professional in our conduct, and appreciate differences in cultures,
opinions, and outlook.
- Be Inspiring
Bring passion, energy, and creativity into everything we do, and make every effort to
constantly drive change and continuous
OBJECTIVE
Digi long term objectives is to create long-term shareholder value through providing
innovative, easy-to-use and best value telecommunications services in the Malaysian market.
Besides that, digi try to get market share in Malaysia

2
1.2 BACKGROUND OF COMPANY
Digi Telecommunications sdn bhd, a mobile communications company, it provides
wireless telecommunications services such as mobile and fixed telephony products and
services or variety of mobile communication service including prepaid plans, post-paid
plans, and international services, massages, data plans services to individual and corporate
customers, international roaming, international calling card and wireless application
protocol(WAP). Digi was founded in May 1995 and headquartered in Shah Alam Malaysia.
The Company was formerly known as Mutiara Telecommunication sdn bhd and it changed
its name to Digi Telecommunication sdn bhd in January 1999. Furthermore, in Malaysia Digi
Telecommunications operates as a subsidiary of DiGi.Com.
Digi telecommunications was the first telecom in Malaysia launch and operates a fully
digital GSM 1800 MHz services. On the other hand, it’s the largest shareholder is Telenor
ASA of Norway with 49%. Digi on 7 May 2008 has obtained a 3G spectrum license with all
of its rights and benefits via a transfer from TIME dotcom for a consideration of 27.5 million
new shares. In March 2009, digi launched 3G broadband services for PCs, while 3G voice
and data services for mobile phones.
Furthermore, digi was the only Malaysian company of telecommunication operator in
among all Asian countries in 2014 and it was ranked 100th in Forbes (American business
magazine) among world’s most innovative company. However, according channel news Asia
in 2015, this company has ranked the one the 3 top companies in Malaysia and 40th in Asia
top 100 Sustainability Ranking. Based on Thomson Reuters global Diversity and Inclusion
(D&I) Index ranking in 2018, Digi was ranked 46th and it was the only Malaysian company
of telecom which make the top 50 of the index.

2.0 INPUT STAGE

2.1 IFE MATRIX

Internal Factor Evaluation (IFE) Matrix is strategic tool used to summarize and
assess the major and minor strengths and weaknesses within the functional areas of a
business. As well as the relationship among these functions.

IFE can be created by following five steps. First, we make a list of all the internal key
factors obtained from the internal audit, and we must write the strength before writing the

3
weaknesses. Second step is to assign weights that measures the importance of each factor to
the success of the company. The weights start from 0.0, which mean not important, to 1.00
which means very important. The total weight for all factors must equal to 1. Third, we rate
the factors from 1 to 4, which shows whether the factors are major weakness (1), minor
weakness (2) , minor strength (3), and major strength (4). To rank Strength we must use 4 or
3, while weaknesses is ranked used 1 and 2. Fourth step is finding the weighted score by
multiply the weight of each factore with its rate. And the final step is to sum all of weighted
scores to find the total weighted score.

Key internal factors Weight Rating Weighted score

Strengths

1- Postpaid revenue increased by 0.12 4 0.48

12.1%

2- Internet revenue increased by 0.11 4 0.44

16.5%

3- Provide wide overseas coverage 0.07 4 0.28

4- Good reward systems to 0.10 4 0.40

subscribers

5- World class R&D 0.10 3 0.30

Weaknesses

1- Prepaid service revenue decreased 0.11 2 0.22

by 12.9%

2- High dependency on strategic 0.07 2 0.14

sharing between mobile producer,
application writer and etc

3- Latest info on new technologies 0.10 2 0.20

seldom/late to reach end users

4- Lack of base station compared to 0.10 1 0.10

other competitors

5- Internet speed is not consistent 0.12 2 0.24

Total 1.00 3.03

4
 This table shows five strengths of Digi , the two most important ones are the increase
of percentage for both postpaid revenue and internet revenue. Moreover, Digi have a good
reward system for customer and provide overseas coverages. In addition to this, Digi
company have world class R&D. Hence, These factors considered the strongest spots for
Digi.
Moving on to the weaknesses, Digi has 4 major and one major weaknesses. Their major
weakness was the inconsistency of their internet speed. While the minor weaknesses were
first the lack of base stations compared to competitors, second they are late in providing
informations on the newest technologies to end customers. Lastly they high reliance on
strategic sharing.
The overall score for IFE matrix for digi is (3.03), which make sense because digi is
ranked on the top 3 to 4 best telecommunication companies in Malaysia. Hence, digi have
control over their strength and weaknesses (internal factors.

2.2 EFE MATRIX

External factor evaluation (EFE) matrix is a strategic management instrument
frequently used to evaluate the current business conditions. The EFE is a great tool to assess
the major opportunities and threats which the company is confronting. The focus of EFE is on
the external factors that affect the company, such as, economic, political, legal, and
demographic factors. Moreover, just like IFE, the steps to make EFE matrix are the same.
The first step in EFE is to list the factors, second assign weights for each factor, third
rate the factors, fourth multiply weights by the rates, and finally add all of the weighted
scores in order to find the total weighted score. .

Key external factors Weight Rate Weighted score

Opportunities

1- Smartphone users increase 0.10 4 0.40

2- Increase in growth of LTE in 0.08 4 0.32

Malaysia

3- Rival companies offer higher 0.09 4 0.36

prices on their services

5
4- Global telco market expected 0.10 2 0.20
to grow at 2%

5- IDC encourage the usage of 0.07 3 0.21

telco in Malaysia

6- Malaysian higher standards of 0.11 3 0.33

living

7- High capital investment 0.07 3 0.21

Threats

1- Churn rate expected to 0.07 2 0.14

increase by 2-5%

2- Mobile network (5G) expected 0.05 1 0.05

to be used widely by 2022-2023

3- Number of port-in customers 0.09 4 0.16

of U-mobile grew by 34%

4- Celcom increases its LTE 0.07 4 0.14

population coverage to 85%

5- TM cut 25% in retail 0.01 3 0.03

broadband prices by year

Total 1.00 2.55

There are seven opportunities listed for Digi. the three most important ones are, first the fact
that smartphone industry is growing fast in recent years. Thus, Digi can consider this as an
opportunity to target the new smartphone users.
Second is the increase of LTE ( 4G mobile communication standard) in malaysia.
LTE stands for Long Term Evaluation which is a technical process that involve high speed
data for smartphones users. Therefore it's a good opportunity for Digi to take advantage of
increasing number of the LTD users. Third important opportunity is that the rival companies
charge higher prices so digi can offer lower competitive prices to attract and encourage
customers to use and shift to Digi.
On the other hand, there are 5 threats digi is facing, the most critical one is that
although digi can take advantage of LET, but its rival company Celecom is increasing the
coverage of LET to 85% which can be worrying for Digi.

6
 Next major threat for digi is the growing number of customers for U-mobile by 34% which
can be a bit disturbing for Digi .
Lastly form the table we can see that the total weighted score is (2.55) which indicate
that Digi is slightly above average. Meaning their ability to respond to external factors
relatively strong. However they need to improve their external position more.

2.3 CPM
Competitive profile matrix ( CPM) is a strategic tool that enable companies to identify
the areas where they are strong in and the areas which they are not. With the use of CPM we
can analyze the market and assess the main competitors based on different critical successful
factors. for digi the main rivals are Maxis and Celcom. Moreover, after deciding on who are
the rivals and the critical factors to succeed, we proceed with creating the CPM by
assigning weights and rates for each factors, then we multiply the weights with the rate,
resulting in the score. Furthermore, the company with the most noteworthy score
demonstrates to be more grounded than its competitors in the market.

Digi Maxis Celcom

Critical Weight Rate Score Rate Score Rate Score
successful factors
Advertising 0.20 3 0.60 4 0.80 3 0.20
Quality of service 0.25 3 0.75 4 1.00 3 0.75
Customer loyalty 0.15 3 0.45 3 0.45 2 0.30
Financial position 0.15 4 0.60 4 0.60 3 0.45
Price 0.10 3 0.30 2 0.20 3 0.30
Competitiveness
Operating 0.10 4 0.40 3 0.30 3 0.30
Management
Diversification 0.05 2 0.10 3 0.15 3 0.15
Market Position 0.10 3 0.30 4 0.40 4 0.40

Total 1.00 3.50 3.90 2.85

With the use of CPM matrix we can see that there were 8 factores selected for the
telecommunication industry. And they were advertising, quality of service, customer loyalty,
financial position, price competitiveness, operating management, diversification and market

7
position. For Digi their major strengths are financial position and operating management.
However the have a minor weakness which is in diversification.

Furthermore, the highest CPM score is for maxis with (3.90) weighted score, followed
by Digi with (3.50) weighted score and the lowest weighted score is for Celcom with (2.85).
Hence, the score shows that maxis is a very strong competitor of Digi as well as celceom.

2.4 FINANCIAL REPORT/ RATIO ANALYSIS

Financial Report (billion):

2016 2017 Differences

Revenue 6.597 6.34 Decreased by 3.9%

Profit After Tax 1.59 1.41 Decreased by 11.32%

EPS (sen) 21.0 19.0 Decreased by 9.5%

Total Assets 5.50 5.83 Increased by 6%

Total Equity 0.519 0.519 -

Total Liability 4.98 5.31 Increased by 6.6%

According to the annual financial report of Digi Bhd in year 2017, the components
that needs to be highlighted to be compared with the previous year are revenue, profit after
tax, EPS, total assets, total equity, and total liability. First and foremost, the most reluctant
changes can be seen in the profit after tax which shows a decrease of 11.32%. This is mostly
due to high cost of sales and the decreasing revenue through the years. Although the overall
revenue is showing a negative performance, the postpaid service revenue is showing a great
increase of 12.1% which indicates that Digi have a strength in that market and they should
focus on that to sustain a growth increase for a long term period. In addition, the earnings per
share has shown a decline of 9.5% in 2017 and that stipulates a reduce in the profit margin.
Lastly, despite a decreasing revenue, the equity shows no reaction as it is supposed to follow
the pattern of the revenue while the total assets and liabilities increases in a slightly similar
amount from year 2016 to 2017.

Financial Ratio Analysis (%):

8
 2017 2016 Differences (%)

PROFITABILITY RATIO

Gross profit margin 0.76 0.75 1

Return on asset 0.24 0.28 4

Return on equity 2.72 3.06 34

LIQUIDITY RATIO

Current ratio 0.83 0.76 7

Receivable turnover 3.95 2.90 105

LEVERAGE/SOLVENCY
RATIO

Debt to total asset ratio 0.91 1.10 19

Debt to total equity 10.25 9.59 66

Liquidity Ratio
Liquidity ratio refers to ability to satisfy the company’s short-term obligations using assets
that can be most readily converted into cash. A reasonable level of liquidity is crucial for
company survival as poor cash control can lead to business failure.
For the current ratio, it refers to ability to satisfy current liabilities using current assets. The
higher the current ratio, the more capable the company in paying its obligations due to larger
proportion of asset value compared to the value of its liabilities. Generally, Digi has low
current ratio, which is below 1.0, which means the total current assets of the company are
unable to cover all the current liabilities of the company. Overall, for the company’s liquidity
ratio, the company still cannot cover all its current liabilities using its current assets. So, this
means that the company’s liquidity level is not that high for the company to be stable in the
future.

Profitability Ratio
One way to measure company’s success is through their profitability. However, the figures
shown in the statements of comprehensive income for gross profit and net profit is not that
significant unless it is expressed as a percentage of sales, then it will be more useful. This is
because this percentage can then be use to compare with those of previous years, or with the
percentages of other similar companies.

9
3.0 THE MATCHING STAGE
3.1 SWOT MATRIX
OPPORTUNITIES
1- Smartphone users increase
2- Increase in growth of LTE
in Malaysia
3- Rival companies offer
higher prices on their services
4- Global telco market
expected to grow at 2%
5- IDC encourage the usage
of telco in Malaysia
6- Malaysian higher standards
of living
7- High capital investment
THREATS
1- Churn rate expected to
increase by 2-5%
2- Mobile network (5G)
expected to be used widely by
2022-2023
3- Number of port-in
customers of U-mobile grew
by 34%
STRENGTHS
1- Postpaid revenue increased
by 12.1%
2- Internet revenue increased
by 16.5%
3- Provide wide overseas
coverage
4- Good reward systems to
subscribers
SO Strategies
1. Market penetration –
increase customer rewards
and provide consistent good
services to existing customers
(s4,o6)
2. Market development –
attract new subscribers with
their cheap prices as
standards of living is getting
higher (s5,o3)
3. Develop more internet
plans for foreigners
(s3,o7,o4)
ST Strategies
1. Produce new and tech
savvy product to prevent
going outdated overnight
(s6,t2)
2. Spend on R&D to provide
wider coverage (s6,t4)
3. Improve postpaid service
to sustain loyal customers
WEAKNESSES
1- Prepaid service revenue
decreased by 12.9%
2- High dependency on strategic
sharing between mobile
producer, application writer and
etc
3- Latest info on new
technologies seldom/late to reach
end users
4- Lack of base station compared
to other competitors
5- Internet speed is not consistent
WO Strategies
1. Forward integration – utilize
latest technology by marketing
new products through dealers
instead of ambassadors (w4,o7)
2. Put more effort in marketing
new technologies with the help
of high capital investment
(w4,o7)
3. Develop more base stations
since there is high capital
investment (w5,o7)
WT Strategies
1. Spend on improving coverage;
it might be a bit pricier but
decent for targeted market (w5,
t4)
2. Approach active users of
smartphones by introducing
products through booths
10
4- Celcom increases its LTE
population coverage to 85%
5- TM cut 25% in retail
broadband prices by year
(s1,t1) (w3,t1,t3)
3. Develop new creative product
to attract consumers (college
students) (w1,t3)

3.2 SPACE MATRIX

Financial Position (FP) Ratings

Strong profits and net cash flow from operation 7.0

Digi paid out total of RM1.46 billion of cash dividend to shareholders 4.0

EBITDA margin increased to 46% from 4.0

Postpaid service revenue increased by 12.1% 5.0

In 2017, sought to distribute a minimum 80% of Digi annual net profit to 5.0
shareholders from financial year 2016

25.0

Industrial Position (IP) Ratings

Malaysia telecommunication industry is expected to reach US$6.7 6.0

BILLION IN 2010, a growth of 4.4% over 2009

Tense telecommunication industry rivalry does not hinder profit potential 5.0

All key telecommunication industry rivalry does not hinder profit potential 4.0

All key telecommunications operators optimized resource utilization by 4.0

signing MoU to share infrastructure

19.0

Stability Position (SP) Ratings

Continuous technology advancement in wired and wireless -3.0

High inflation rate -3.0

Price range of competing products -2.0

Increasing competitive pressure facing global telco -3.0

11
 -11.0

Competitive Position (CP) Ratings

Digi is still trailing behind Maxis and Celcom in market share -2.0

Reasonable good product and service quality -3.0

Somewhat high customer loyalty and reputation -2.0

-7.0

Conclusion:
FP Average is 25.0/5 = 5.00
SP Average is -11.0/4 = -2.75
2.25 : Directional Vector Conclusion y-axis

IP Average is 19.0/4 = 4.75

CP Average is -7.0/3 = -2.33
2.42 : Directional Vector Conclusion x-axis

DiGi should pursue Aggressive Strategies

Digi falls into the aggressive quadrant of the SPACE Matrix. Thus, Digi should adopt an
aggressive strategy such as forward integration, market penetration, market development,
product development and also possible concentric diversification (related or unrelated).

3.3 BOSTON CONSULTING GROUP (BCG) MATRIX

Next, we will analyze Digi Telecommunications using Boston Consulting Group

(BCG) Matrix. In this matrix, we need to analyze the company and take a look at its business
or operating segments. We analyze each of the segment in terms of it relative market share
position and its industry sales growth rate. Then, we will position each segment in the four

12
quadrants matrix. The quadrants can be categorized as question marks, stars, cash cows, and
dogs. Each quadrant represents strategies that Digi Telecommunications can use for their
business segments.
For this matrix, we identified six operating segments of Digi Telecommunications
Sdn Bhd. the operating segments are postpaid service, prepaid service, internet,
telecommunication network, sales of devices and digital solutions.

STARS - Smartphones ( postpaid plan service)

High relative market share
Digi’s postpaid plan service comprises of smartphone device along with an internet data. It
offers the latest flagship smartphones such as Samsung, Huawei, Oppo, and Apple which are
the Malaysians’ favourite brand of smartphones that have a high market share globally.
Vendor 1Q18 Units 1Q18 Market Share 1Q17 Market Share
Samsung 78 564.8 20.5% 20.8%
Apple 54 058.9 14.1% 13.7%
Huawei 40 426.7 10.5% 9.0%
Xiaomi 28 498.2 7.4% 3.4%
Oppo 28 173.1 7.3% 8.2%
Others 153 782.1 40.1% 44.9%
Total 383 503.9 100% 100%

Other than that, the number of subscribers increase up to 2.5 million subscribers resulted in
12.1% high growth in the postpaid service revenue. Moreover, 90.6% of the postpaid
subscribers composed of in postpaid internet revenue growth by 30.8%.

13
High market growth rate
Smartphone users in Malaysia during 2017 is predicted to reach almost 19.9 billion and the
number is forecasted to increase to more than 20 million in 2020 from 14.5 million in 2015.
According to the Statistics Department, households across Malaysia with mobile phone
access rose to 98.1 per cent, compared with 97.9 per cent in 2015.

According to a survey by the Malaysian Communications and Multimedia Commission

(MCMC), smartphone is the most usable device to access the Internet for many purposes
such as social media, online shopping and online banking. Based on Statistics Department,
Malaysia's Internet penetration rose to 85.7 per cent from just 70.0 per cent in 2015 and
smartphone users for internet access also increased to 97.7 per cent from 97.5 per cent in
2015.

Question mark (Wireless broadband and Prepaid service)

Low Relative Market Share
Digi’s prepaid service revenue declined to 3.72 billion in 2017 from 4.27 billion in 2016 due
to higher postpaid conversion.

14
First 3 months in 2018, the broadband penetration dipped to 115 per cent from 117 per cent.
According to the Malaysian Communications and Multimedia Commission (MCMC), based
on its latest statistics of Telecommunication market in Malaysia, 2.7 million fixed broadband
subscriptions and 77.9% household broadband penetration dropped from 3.1 million
subscriptions in 4Q15 and 78.7% in 1Q16 respectively.

High market growth rate

In prepaid service, all the three mobile providers experienced a lost in 2017, however, DIGI
remains as the first player for prepaid segment due to the higher number of subscribers.

As for the wireless broadband, MCMC is planning to increase the coverage of wireless
broadband penetration across Malaysia by 2020 under a project called High Speed Broadband
Project.

15
Cash Cows ( Digital solution)
High relative market share
Digi is exploring new area which is the financial technology that will contribute 10% of its
revenue by 2020 claimed by the Digi’s CEO. Therefore, Digi developed the new digital
services called v-cash and iFleet which successfully acquired 60 corporate customers from
various industries.

Low market growth rate

Digital service by DIGI has a slow growth because it is still new products in the financial
technology market compared to Jirnexu, iMoney and HelloGold which the top fintech
companies in Malaysia. V-cash and iFleet are not included in the fintech map below.

Dogs ( Fixed telephony)

Low market share
Digi has a smaller market share than Maxis which is lower of 0.9 percent with new entries
such as UMobile and Telekom Malaysia.

16
Low market growth rate
In fixed line telephony market is declining due to the smartphone market expansion therefore
Digi will not invest too much for this service.

3.4 IE MATRIX
The next matrix will be internal external (IE) matrix. In this matrix, we will analyze
the company based on its operating segments familiar with BCG matrix. However, instead of
looking at relative market share position and industry sales growth rate, we examine each
segment by calculating the scores of IFE and EFE each. Through the scores, we will position
the segments into the nine quadrants matrix and take a look at the strategies that are suitable
which represented by each quadrant.

Based on the IE matrix, we can see that Digi Telecommunications was positioned in the
fourth quadrant. This is due to their high IFE scores and average EFE scores. Thus, the
strategies that are suitable for that segment is “grow and build” strategies. In “grow and
build” strategies, the segments can do integration strategies for instance, forward integration,
backward integration or horizontal integration. They can also strive for product development
which means creating or innovating a new kind of product line. Market development is also
one of the strategy in the “grow and build”. Each segment can try to enter and develop new
market especially international market. Lastly, they can also penetrate deeper into existing
market by doing more promotions or expansions.

17
3.5 GRAND STRATEGY MATRIX

After the evaluation, Digi Telecommunication Sdn Bhd have a strong competitive
position which they compete with Celcom and Maxis. Digi also known as the cheapest
compared to their competitors yet they still take care of quality and customer value.
As a conclusion located in Quadrant I of the Grand Strategy Matrix are in an excellent
strategic position. Digi continued concentration on current markets like the strategies that can
suit to the company such backward, forward, horizontal integration, market development,
market penetration, product development and diversification.

4.0 THE DECISION STAGE

4.1 QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

Market penetration in Spend on R&D for a

postpaid service wider coverage

Strengths Weight Score Total score Score Total score

1. Postpaid revenue 0.12 4 0.48 4 0.48

increased by 12.1%

2. Internet revenue 0.11 3 0.33 3 0.33

increased by 16.5%
3. Provide wide overseas 0.07 2 0.14 1 0.07
coverage

4. Good reward systems to 0.10 2 0.20 3 0.30

subscribers

18
5. World class R&D 0.10 4 0.40 3 0.30

Weaknesses Weight Score Total score Score Total score

1. Prepaid service revenue 0.11 2 0.22 1 0.11

decreased by 12.9%
2. High dependency on 0.07 1 0.07 1 0.07
strategic sharing
between mobile
producer, application
writer and etc
3. Latest info on new 0.10 2 0.20 2 0.20
technologies seldom/late
to reach end users

4. Lack of base station 0.10 2 0.20 1 0.10

compared to other
competitors

5. Internet speed is not 0.12 2 0.24 2 0.24

consistent

Total 1.00 2.48 2.20

Market penetration in Spend on R&D for a

postpaid service wider coverage

Opportunities Weight Score Total score Score Total score

1. Smartphone users 0.10 1 0.10 1 0.10
increase
2. Increase in growth of 0.08 3 0.24 2 0.16
LTE in Malaysia
3. Rival companies offer 0.09 2 0.18 3 0.27
higher prices on their
services
4. Global telco market 0.10 4 0.40 4 0.40
expected to grow at 2%
5. IDC encourage the 0.07 1 0.07 1 0.07
usage of telco in
Malaysia

19
6. Malaysian higher 0.11 3 0.33 1 0.11
standards of living
7. High capital investment 0.07 1 0.07 1 0.07

Threats Weight Score Total score Score Total score

1. Churn rate expected to 0.07 1 0.07 2 0.14
increase by 2-5%

2. Mobile network (5G) 0.05 2 0.10 2 0.10

expected to be used
widely by 2022-2023
3. Number of port-in 0.09 3 0.27 1 0.09
customers of Umobile
grew by 34%
4. Celcom increases its 0.07 3 0.21 2 0.14
LTE population
coverage to 85%
5. TM cut 25% in retail 0.1 4 0.40 3 0.30
broadband prices by
year

Total 1.00 2.44 1.95

Sum total attractiveness score 4.92 > 4.15

5.0 IDENTIFICATION OF STRATEGIES AND DISCUSSION

According to the Quantitative Strategic Planning Matrix, it indicates a higher score of

4.92 for the market penetration. Therefore, DIGI can implement their market penetration in
postpaid plan service because based on their annual report, DIGI ‘s postpaid service
contributed the highest revenue in their service revenue which is increase of 12.1% compared
to previous year. There was an incremental of 16.5% in DIGI’s internet revenue that consist
of 8.7 million of internet subscribers.Consequently, DIGI can increase their market share
through market penetration in postpaid plan service that comprises of internet plan because
Malaysia is a mobile-oriented society. There is almost 70% of smartphone penetration and
,hence, DIGI can promote their existing products which postpaid plan service because the

20
demand for this service will be in the growing phase because it remains necessity to 32
million of Malaysians.
The current existing product is the DigiUp, the new device programme that offers the
customers a convenient way to have a smartphone device along with the mobile plan with
Digi Shield at a reasonable price. Moreover, it is not only focusing for the local subscribers
but also the international subscribers because DIGI provide a borderless connectivity to 10
countries. However, its quality postpaid plan is not satisfying among its subscribers because
of their internet speed still in 3G while the competitors offer at 4G or 4G-LTE internet speed
for their subscribers. Therefore, when DIGI executes the market penetration strategy, DIGI
only need to fully utilize of their existing product in existing market to attract more potential
customers and provide a consistent quality service at affordable price to the existing
customers.
DIGI need to improve their quality in postpaid plan service by expanding their
coverage from 3G network to at least 4G network for their potential and existing customers at
an affordable price hence DIGI can penetrate extensively among the youngsters and low-
income family. Besides, Digi need to increase in promotion of their services that requires a
lower cost which means DIGI can approach the social media platforms such as YouTube and
Instagram compared to rental for the billboard in order to create the brand awareness. Other
than that, DIGI can increase their customers rewards for every month. For example, DIGI can
give a promo code for Lazada, Zalora and many other popular e-commerce business on their
birthday and seasonal events.
Market penetration strategy outweighed product development because it incurred less
cost compared to product development strategy especially in terms of research and
development expense. Moreover, we chose market penetration strategy based on Maqasid
Shariah which is a darruriyah for Digi because it needs to increase their profit immediately in
order to sustain in the telecommunication market as there will be new and strong comers such
as the UMobile. Moreover, based on their financial statement, the profit keeps on decreasing
since 2014 until 2017, hence it is a darruriyah for DIGI to improve the profit but still incurred
less cost through market penetration strategy in postpaid plan service.

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6.0 IMPLEMENTATION ISSUES

1. Strategic Marketing
In relation to the new strategy which is market penetration, Digi can make advertisements
more interactive to be more effective by investing in their website, social medias and display
ads on sites so that it can have direct interaction with their existing and targeted customers as
well as outdoor advertising whereby it can be seen everywhere daily and make the offering
hard to forget. Furthermore, they can make use of Facebook and Twitter conversations as it is
a low cost to advertise their new offers and plans and if followers click Like and tag a friend,
the advertisement is free to post and makes people aware of what company has to offer. In
terms of distribution, Digi already has multiple channels of distribution to provide
convenience to existing and potential customers by maximising the reach of latest prepaid
offering such as open booth, partnership with retailer including myNEWS.com, newsplus,
MAGBIT and The Front PageDigi’s services. Digi has planned to use light to no TV
advertising by 2020 and focus more on online advertising.

2. Social Media Marketing

Social media marketing has become an important strategic issue. It is because marketing has
evolved to be about a two-way relationship with customers than just informing customers
about the existing products. Therefore, Digi has become the leader in the telco industry in
two-way interactions through social media engagement to provide informations on the latest
product development and offers, customer service and ideas of their services. Digi should
enable customers to interact directly with them through Facebook, Instagram, Twitter,
Pinterest, Google+, Gmail and LinkedIn. Digi should hire social media manager to manage
all issues related to social medias such as responding to comments and problems, managing
online discussions and gathering valuable information about customers’ opinions. They also
should improve company’s website that include all sorts of important information so that they
can inform the customers on the background of the company, latest updates on the services
offered and enable customers to provide feedbacks and participate in giving suggestions. In
relation to the new strategy, Digi can offer rewards or coupons to customers who give
feedbacks and suggestions so that customers will be encouraged to participate in the
website’s conversations. Next, Digi should encourage their employees to create wikis so that
they can immediately update latest content and information on the company.

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3. Market segmentation
Digi ‘s existing market segmentations are psychographic and geographical location
segmentation. For psychographic segment, customers will be segmented based on the social
lifestyle such as daily lifestyle, social class and individual attitudes. Digi in this section
differentiated their customers to high income or low income customers. In terms of market
penetration, Digi may lure their existing customers away from other telcos competitors by
establishing differentiation between Digi and the competitors, increasing advertising efforts,
or cutting their prices so that customers will continue using Digi. For geographical segment,
customers will be segmented based on their locations like region and density of the
population. In order to implement market penetration, Digi may focus their business more in
the most used postpaid area such as Kuala Lumpur and Kota Kinabalu by improving their
existing products, specifically internet speed and postpaid price.

4. Product Positioning and Perceptual Mapping

After knowing the market segmentation, the next step is to find out what customers
want and expect of the products. In order to be successful, Digi has to fill the gap between
what customers versus Digi see as good products. Product positioning entails developing
schematic representations that reflect how products compare to those of the competitors most
important to succeed in the industry. In terms of Digi and competitors which are Maxis,
Celcom and U Mobile, their product positioning is determined based on the price of mobile
data and the internet speed of the postpaid plan as well as quality and price of products within
Digi themselves.

Figure 1

In figure 1, it gives idea to Digi on where are they standing in the telecommunication industry
and it shows that Digi’s main competitor would be Celcom as Celcom offers higher internet
speed with cheaper price of mobile data compared to Digi. In order to implement market
penetration, Digi might want to improve their postpaid plan in terms of the internet speed and
price of mobile data so that existing customers will not go to Celcom.

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 Figure 2
In figure 2, Digi should improve in the quality of internet speed so that it can attain existing
customers as customers really concern about internet speed quality.

5. Strategic Finance/ Accounting

If Digi is to carry out market penetration, Digi will need a capital to implement the
strategy. Based on estimations and discussions, we decided that we need RM90 million to
implement this strategy. This new strategy can possibly increase the market share of Digi by
strengthening customer relationship. Gaining market share via word of mouth increases a
company’s revenue without concomitant increases in marketing expenses. One of the strategy
under market penetration is improving existing products. It will make products offered appeal
more strongly while increasing sales revenue as more new customers are aware and start to
consume the products.
EPS/EBIT Analysis:

100% debt 100% stock 50:50 debt/stock combo

Recession Boom Recession Boom Recession Boom

EBIT 2,000,000,000 2,600,000,000 2,000,000,000 2,600,000,000 2,000,000,000 2,600,000,000

Interest 1,188,000 1,188,000 0 0 594,000 594,000

EBT 1,998,812,000 2,598,812,000 2,000,000,000 2,600,000,000 1,999,406,000 2,599,406,000

Taxes 519,691,120 675,691,120 520,000,000 676,000,000 519,845,560 675,845,560

EAT 1,479,120,880 1,923,120,880 1,480,000,000 1,924,000,000 1,479,560,440 1,923,560,440

# Shares 7,780,000,000 7,780,000,000 7,800,979,021 7,800,979,021 7,790,489,510 7,790,489,510

EPS 0.190 0.247 0.1897 0.2466 0.1899 0.2469

Input data The number How to determine

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$ amount of capital 90 million Estimated cost of recommendations
needed
EBIT range 2 billion – 2.6 billion Estimate based on prior year EBIT and
recommendations for the coming
year(s)
Interest rate 1.32% Estimate based on cost of capital
Tax rate 26 % Use prior year %: taxes divided by income
before taxes, as given on
income statement
Stock price 4.29 Use most recent stock price
Shares outstanding 7.78 billion For the debt columns, enter the existing #
shares outstanding. For stock
columns, use the existing # shares
outstanding + the # new shares that
must be issued to raise the needed capital
(i.e., based on stock price).
So, divide the stock price into the $ amount
of capital needed.

We can basically conclude that the best way to implement the strategy is by raising the
capital by 100% loan as it shows the highest score of 0.247 in the EPS/EBIT analysis.

Projected Financial Report (billion):

Year 2016 Year Projected Remarks
2017 Year 2018
Sales 6.597 6.34 6.47 2% increase

Cost of goods (1.64) (1.52) (1.55) 23.97% of sales

sold
Gross margin 4.96 4.82 4.92

Selling & admin (0.68) (0.69) (0.78) 10.88.8% of sales

expenses increased to 12%
Other operating (1.99) (2.05) (2.09) 32.33% of sales
expenses
EBIT 2.29 2.08 2.05
Interest 0.07 0.13 0.13 2%
Other income 0.03 0.04 0.04 0.006%

EBT 2.19 1.91 1.88

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Taxes 0.6 0.5 0.45 24%
Net income 1.59 1.41 1.43

In order to implement the strategy of market penetration, we need to increase the sales and
marketing expenses from 10.88% to 12% since usually big companies budgeted for their
marketing expenses to be 12% of the sales by using the percentage of sales method. Although
this action is to increase the sales by 2%, the net income will not show a positive impact at
the beginning of the implementation of strategy. However, in the long run, we can see a
positive impact towards the net income.
6. Corporate Valuation
By implementing market penetration, the corporate valuation of Digi might increase.
Thus, we estimate the corporate valuation of Digi by using projected financial statement
after it implemented the strategy as below:
Current corporate valuation: estimated corporate valuation:
Price-earning method RM5.10 x RM143 000 000
Stock Price x Net Income RM19
EPS =RM 38 384 210
= RM 5.10 x RM 141 000 000
RM 19
= RM 37 847368
Net income method
= Net Income x 5 years
= RM 141 000 000 x 5 RM 143 000 000 x 5
= RM 705 000 000 =RM715 000 000

7. IPOs, Cash Management and Corporate Bonds

Initial public offerings is the very first sale of stock issued by a company to the public
to raise a specified amount of money for the company in order for it to grow and expand by
improving existing products and marketing products more effectively. For Digi, its already
publicly listed in 1997, only two years after it was founded. As of 5th December 2018, its
share price is RM4.29 per share with total shares outstanding of 7.775 billion shares.
Digi has increased in its cash inflow by approximately 52% from RM376,588,000 in
2016 to RM575,045,000 in 2017. Their cash and cash equivalents include cash on hands,
cash at banks, deposits with financial institutions and foreign currency dominated in USD

26
 totalling RM10.3 million. Digi has foreign currency of USD because it is necessary in order
to gain access to resources and to create additional demand for goods.
According to our analysis of the financial statement of Digi, we found out that Digi
does not issue any corporate bonds unless the information is not disclosed by them.

8. Strategic Research and Development

Recommended strategy by QSPM, which is market penetration will determine how
Digi should carry out theur strategic research and development to be parallel with the
strategy. Therefore, Digi should emphasize on product improvement as they are still left
behind in terms of download and internet speed, latency and coverage. Digi also should
stress on applied research whereby they acquire knowledge on practical application or real
world situation of the theoretical base which is expected to solve specific problem so that
they can tackle specific issues or problems in Digi. Next, Digi should apply in-house R&D
as technology is changing very rapidly and this may cause technology becomes obsolete in
a short time. Plus, Digi should be a follower in R&D so that they can minimize risks and
costs of ‘startup’ and observe whether there is a market for the products as well as be an
innovative imitator of successful products. Furthermore, in order to be more efficient in
operating the business, Digi should use robotic processess such as self service kiosk, e-
payment system and offer Automatic International Roaming and General Packet Radio
Service (GPRS). Lastly, Digi should spend a considerable high amount of money in R&D
because, in order to be innovative imitator, they need excellent R&D so that they can
personalize existing products in the market.

9. Strategic Management Information Systems

A management information system (MIS) is a computer based information system
that produces routine reports and often allows online access to current and historical
information needed by managers mainly at the middle and first line levels. In order to
implement market penetration, they need to improve their machine to machine
communication so that Digi can be more efficient in transfering information, enabling better
management and troubleshooting on the go so that every problem can be solved immediately.
Furthermore, Digi also need to improvise its mPOS, a combination of handheld devices,
consisting of a payment card reader and a smartphone/tablet (communicating through
bluetooth/audio jack) that enables merchants to accept credit/debit card payments anywhere.

27
By doing so, customers will be able to pay their monthly bills more conveniently by using
debit/credit cards payment.

7.0 RECOMMENDATION
We recommend Digi to use market penetration strategy in postpaid services as it is the
highest sales revenue of Digi and the revenue keep increasing from year to year. They can
implement market penetration by improving existing products, lowering prices to attain
existing customers and attract potential customers, investing more in promotion and
marketing and using multiple distribution channels so that the products could reach easily to
the customers.

8.0 CONCLUSION
Firstly, the element of strategy formulation is an assessment of whether an
organization is doing the right things and how it can be more effective in what it does. We
have come out with a strategy of market penetration in postpaid service after constructing IFE
matrix, EFE matrix, CPM, financial report and all the matching stages and lastly the decision
stage, which is the QSPM. The purpose of constructing all the formulation is to provide the
company with quantitative information on the decisions that they have to make. It is proven
that, after weighing all the weights and estimating the ratings of the SWOT, market
penetration is the best decision for Digi to implement and execute as it score the highest
among the two strategies, with the total attractiveness of 4.92. From Islamic perspective,
market penetration can be illustrates as fiqh al-awlawiyyat, which means the theory of
priorities. As for now, the most important thing for Digi to do is market penetration in
postpaid services in order to sustain and gain more profit based on the formulation that had
been done.

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 9.0 REFERENCE
1. http://www.maxi-pedia.com/IFE+EFE+matrix+internal+factor+evaluation
2. http://www.maxi-pedia.com/EFE+matrix+external
3. https://www.marketing91.com/competitive-profile-matrix/
4. http://www.digi.com.my/annualreport/
5. https://new.digi.com.my/home

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