Provide Recommendation and Implementation Plan

Introduction

Tencent Holdings Ltd. is a Chinese multinational company that was established in 1998. The organization provides internet-related products and services, technology, entertainment, and artificial intelligence. The company operates globally and is headquartered in Shenzhen. Tencent Holdings Ltd. is the largest company for video games in the world. It is also one of the most valuable and most significant social media organizations. The company offers services, such as social work, mobile games, payment systems, internet services, e-commerce, social work, web portals, music, and online games. In China, the company owns a large portion of musical services and web portals. There are more than 120 million subscribers of the Tencent subscribers and around 700 million people users (Ran, 2018). The paper explores Tencent Holdings Ltd., the strategies and situations around the organization.

Problem Statement and Main Issues

Tencent has had to fight off allegations that it is infringing on the intellectual property rights of others (Chin, 2015). The business model of Tencent appears to be feeding off the sweat of others. From a strategic standpoint, this is not strategic thate organizations spend billions of dollars on research and development to come up with their products. If other companies infringe on their intellectual property rights, it will stifle growth.

Changes in the Company

When the company was incorporated in 1998, its main revenue stream was advertising and premium users of its instant messaging platform – QQ. However, the company diversified its revenue streams and is not among the top ten most valuable brands globally. Tencent moved from QQ and ventured into online video games. The firm also launched WeChat – a mobile-based social media application that has nearly one billion active users monthly. The company also launched WeBank – the first online-only b

Mission and Vision

The mission of Tencent Holdings Ltd. is to “improve quality of life through value-added internet services.” The company is focused on providing internet products and services that help individuals to improve their livelihood. Almost 1 billion citizens globally have benefited through the services offered by Tencent Company. The organization aims to build a win-win and a healthy internet ecology that is grounded in collaboration with other partners, address the increasing demand of internet products and services in different regions, and provide reliable services to customers (Che, 2018). The vision of Tencent Holdings Ltd. is to be an internet company that is most respected in the globe. The respect to the organization is to be earned through satisfying the needs of the customers, exceeding and listening to their expectations and needs. Employees’ respect would be gained through improving their corporate reputation, making the employees proud of their work. Also, compliance is enhanced by promoting healthy and appropriate developments in the internet industry. Contribution to corporate responsibility and community development is another way that the company gains respect.

Current Strategy

Various strategies are employed by the company to enhance the productivity and sustainability of Tencent. To begin with, the company has appropriate marketing methods that enhance the consumers’ knowledge of the products and services. Advertising and enhanced designing of the products and services are core marketing strategies that make the organization outshine other competitors in the internet industry and attract more customers, hence increased sales. Secondly, the operations of the company are technology-based, leading to improved quality of the services and products offered by the company (Ran, 2018). Also, there is continuous improvement in the services depending on the changing demands of the customers, improving consumer satisfaction. Besides, the company pays keen attention to the complaints of the customers, employees, and the community as a way of enhancing its operations and enhancing the quality of the services and products provided.

Changes in the Company

Tencent Holdings Ltd. has shown enormous growth in profit, sales, and company expansion. The changes have been experienced due to changes in operations, marketing, finance, and human resources. In the past five years, the company has experienced a 30% rise in sales (Tencent). The organization has expanded the online users for the applications causing a 37% rise. The annual profit for the company is about $4 billion. Besides, the sale margin for the organization has grown more prominent through the sales of online games, such as Legend of Yulong and League of Legends. Moreover, funds from non-mobile online games have risen by 34% in the previous year, and other e-commerce services improved by 14% (Tencent). Tencent has maintained a forecast in China to increase sales since the country presents a large number of consumers for the products and services due to its large population.

                                External Environment Analysis

Opportunity:

The popularity of the Internet and the rapid growth of mobile phone users put companies focused on mobile clients in a good position. The value of instant messaging has also been maximized. Secondly, the threshold of mobile games is low, suitable for game time fragmentation and other advantages. Therefore, the number of players of mobile games is much larger than that of computer games and console games, and the frequency of playing games is relatively high.

Threat:

With the increase of mobile phone sales and the rise of mobile phone games, PC game players and usage frequency are significantly reduced. According to Aurora, console games account for 1.9%, computer games for 17.3%, and mobile games for 80.8%.

The general environment

Demographic:

China has a large population base. China is a populous country with more than 1.4 billion people. With the rapid increase of mobile phone users, the number of app installation per capita has increased, and the average daily usage time is up to 5.1 hours. In 2019, the number of apps installed per capita by mobile Internet users continued to grow to 60. In the fourth quarter, the number of apps used per capita per day reached 5.1 hours, an increase of nearly one hour compared to the same period last year.

Political:

China bans the use of foreign social networking software. For example, Facebook, instagram. Since 2000, the Chinese government has gradually formulated a number of laws on the Internet and administrative orders have been implemented. (CNNIC)

Socio-cultural:

With the increase of people’s demand, people are relying more and more on the Internet. The price of mobile phone, computer and WLAN drops, which makes the Internet popularized and contributes to the prevalence of Internet cafes.

Due to social pop culture, red envelopes are given out by instant messaging during the New Year. And people’s preferences and needs, TV stations produce e-sports programs.

Technology:

The Internet is becoming more stable and developing, such as Huawei’s development of a fifth-generation wireless system.

The industry environment

Bargaining power of suppliers: high

Whether it’s instant messaging or games, vendors typically have features that make it difficult for buyers to find alternatives to their offerings. For example, League of Legends is developed in the United States by a company call Riot games, and Tencent Games operates as an agent in mainland China. Moreover, due to the large number of buyers or agents, Tencent cannot become an important customer of Riot games.

Buyer’s bargaining power: low

The total number of buyers is large, while the purchase volume of each buyer is small. The single buyer does not account for a large proportion of the seller’s sales volume.

Entry potential of new entrants: low

Barriers to entry are high, because entering the industry requires scientific and technological development or certain capital and acting out products different from existing products on the market to form product differences, so as to gain market share.

Substitute:

The pressure of substitute, short video industry and the rapid rise of online video industry. For example, tiktok. According to Aurora, the share of short video has increased for the fourth quarter in a row. Looking at the changes in the proportion of time used by users in the past year, the overall trend is towards the concentration of the head industry, while the proportion of time scattered in “other” industries continues to decline. In Q4 of 2019, the proportion of users’ time in the instant messaging industry was compressed to 27.1%, and the time pressure mainly came from short video and online video industry. The percentage of short video users increased by more than 6 percent compared with the fourth quarter of last year. Driven by the great promotion of e-commerce, the length of comprehensive mall accounted for 5.0%

Complementary products:

Apple app Store and Android Store. Apple takes a 30% cut of any product that pays through the App Store, whether it’s downloading a paid App or charging for a game. The Android Store also takes a 30% cut from app developers.

The competitive environment:

In instant messaging, Tencent is in an oligopolistic position. However, NetEase is an important competitor in the Chinese game industry, especially in the mobile game market. Because they are both releasing a variety of different games and free to download, they allow users to buy them within the app for the same price. And the same market positioning is mobile games. NetEase has the advantage that they launch the game, especially when they downloaded a few games are of the highest with Tencent game launched by different, although their market positioning is the same, but different product strategy, NetEase game of target customers to pay more attention to style, focus on user perception experience, gain market share. The downside is that NetEase does not have the massive user base that Tencent does.

KSFs of the industry

Instant messaging has changed people’s way of life, making the distance between people no longer far, easier for others to keep in touch, more convenient to use. For the game industry, first of all, because of the improvement of people’s living standard, the entertainment demand is also changing. Secondly, the large scale of users is closely related to the popularity of the Internet and the growth of mobile phone users.

appraisal of existing issues

SWOT Analysis 

Strengths

Tencent owns more than half of revenue from VAS business, which is also the Global 500 company. Tencent’s platform provides the advantage and contributes to the core competitiveness of the company, which attracts many customer bases and builds a strong user relationship. Independent research institutes allow Tencent to increase the R&D, which have a better understanding of customers and the market and help to address the business strategy.

Weaknesses

The target market for Tencent is the Chinese market, which makes the company lack international strength and a lack of users from other countries, which limits the development of Tencent. Also, the development of the TenCent’ new business development is inflexibility, which is caused by the product diversification and dispersion.

Opportunities

China has a large population base which contributes to a large potential market. Tencent can still explore the market to maintain sustainable development. Increasing the usage of the e-commerce operation rate also provides an opportunity for Tencent to increase the consumer base, especially during the COVID-19. Furthermore, the government encouraging the IT industry with compensation will increase the development of the technology, which offers Tencent an opportunity to implement differentiated pricing strategies in new markets. Lastly, the bargaining power of the buyers is low, which customers have less thought toward the company.

Threats

Tencent lacks innovation, which is the essence of the technology company, which will provide a threat to Tencent’s sustainable development.

Alternatives:

1.

Maintain the same strategy:  Tencent’s investment heavy strategy it adopted in 2018 helped offset the losses in its gaming sector due to the 9-month gaming approval freeze.  However, tougher competition and increasing number of competitors in 2019 caused reduced revenue flow.  With less available capital, Tencent reduced investments by approx. 33% from ’18 to ’19 and focused on expanding its fintech and business services sector.  Maintaining this strategy would involve continuing to reduce investment expenditures and focus on its fintech and industry businesses.  By reducing investment expenditure, Tencent can decrease the volatility of its returns.  This is because, upon comparing Tencent’s GAAP to non-GAAP earnings of recent; its earnings from non-GAAP, isolated from one-time divestments and acquisitions (investments), are relatively consistent whereas its GAAP, which includes those sources, is much more volatile.  Moving capital from investments to industry businesses means investing that capital in steadier returns.  Tencent’s main issue is the high degree of competition it faces; this option addresses the implications of that fact on revenues and focuses on the area where Tencent is seeing best growth.

2.

Corporate and business level strategy: Focus on pouring even more capital and attention on overseas expansion.  By focusing on expanding internationally, Tencent can avoid some of the saturation it is currently experiencing in the hypercompetitive Chinese market and potentially open itself up to new growth opportunities.  Tencent’s products have significant potential for overseas expansion but have failed to do so due to strategic errors.  Tencent is learning from this.  It is consulting with Sea ltd to develop a greater understanding of western user demographics and preferences.  It has recognized that in the past it has offered diverging versions of games to western vs Chinese consumers, most notably with its flagship Honour of Kings, which uses different characters for the west vs China based on differing mythology.  This causes incompatibility in shared gaming experience.  To expand internationally it must look to create games that allow full immersion and interaction between Chinese and western players.  WeChat has failed to attract a non-Chinese userbase in the overseas markets Tencent has attempted to expand into, despite using footballer Messi as its brand face, and overseas is mostly used by Chinese foreign nationals to communicate amongst each other or with those from China.  However, the integrated concept of the WeChat app platform has tremendous potential for growth as no equivalent exists in the west.  Tencent has put over $2bil. into its overseas WeChat sector and is still committed despite setbacks.  The integrated concept is a potential goldmine but Tencent must focus on tailoring and rebranding the WeChat model to overseas tastes.  This will involve using intelligent business level marketing strategies based upon having a more thorough understanding of the differing markets in combination with the overall corporate strategy for taking the company beyond China.

3.

Corporate level strategy:  Consider restoring focus on investment activities back to 2018 and before levels.  Viewing the relatively lower investment allocation of 2018 as a temporary dip, focus on continuing Tencent’s behaviour of intensive, highly diversified investing from earlier.  The “phase one” trade deal between U.S. and China offers better prospects for future investments and Chinese videogame revenues are recovering.  Tencent can feed the growth around its fintech and industry businesses by investing further in those sectors, improving its ecosystem and connections.  Although investment returns have been more erratic, in successful years they offer the potential for much higher returns than from regular operations.  Continued investment in Tencent Cloud and AI start-ups offers the potential for Tencent to establish itself in quickly growing industries of the future.

The 3 decision criteria:

Risk– A quantitative assessment as to the relative weighting of likelihood of potential for reward vs loss.  The selected alternative must present an acceptable risk profile.

Ease of implementation:  The more drastic a shift from current strategy and operations an alternative is, the less easy it will be to implement it.  Some strategies seem to offer significant potential but are not realistic given the current predicament.  The path of least resistance is often the most favourable, but breakthroughs are only attainable when comfort zones are pushed.

Competitive advantage: How well does the alternative provide a (temporary) advantage that leads to producing goods or services in a way that outperforms rivals.

Result: Based on Table Below, Option 1 is preferred.