An empirical evaluation of the comparative advantage of cost measures on performance of the telecommunication industry in Rwanda

Abstract

Although tactical advantage may be gained by reducing price it is likely to be followed by competitors. In the long run, a low price-strategy cannot be pursued without a low-cost base. The key challenge is how costs can be reduced in ways which others cannot match such that a low-cost strategy might give a sustainable competitive advantage. The study aimed to assess the cost leadership strategy on organizational performance of the Telecommunication Industry in Rwanda. This study was guided by the following specific objectives: To compare the cost effect of hiring skills; sourcing for services; office space and telecom infrastructure on the performance of the telecommunication industry in Rwanda. The study was based on four theories namely; insider-outsider theory, agency theory, managerial risk aversion theory and information society theory. The study adopted a comparative research design based on secondary data of Mobile Telephone Network since the study is intended to gather quantitative data on cost leadership strategy on performance of the telecommunication industry in Rwanda. The population of the study was the three telecommunication industries in Rwanda in 2016. Simple random sampling was done to pick a sample for the study thus Mobile Telephone Network was picked. Secondary data for sixty data costs of the sample were aggregated for the four strategy variables for five years from 2012 to 2016. The data in this study was modeled around the modern interpretation of the classical Ricardian model for the following comparative variables, hiring expatriates verses working with only local experts, when outsourcing has been done verses when outsourcing has not been done, leasing verses constructing a building and sharing infrastructure verses not sharing infrastructure. These were compared for percentage cost saved as well as periods. Fundamentally the study concludes that expatriates should be hired for short periods only ideally to train the locals and commence high technology firms after which the locally trained experts who cost lesser can then be left to continue their respective jobs using skills learnt. Although outsourcing does not save cost over time it does so in the short term and thus can be used for situations that require to be done urgently and effectively thus cost effective. Leasing should be done in the initial stages where equipment is not much and less space is utilized but after several months when more space is needed and thus costly, building a permanent structure is advised. For the case of sharing infrastructure all the relative values were undefined thus comparative advantage could not be derived leading to the absolute advantage for infrastructure and the prudent to conclusion that sharing infrastructure is overwhelmingly favored and thus should be adopted. This is particularly good news for the telecommunication industry in Rwanda which has continuously relied on price leadership to market their commodities in Rwanda as the well determined cost saving strategies in the study shall encapsulate their markets not only in Rwanda but even across boundaries because they will lead to the adoption of prudent cost saving strategies leading to lower priced service provision.