The process of globalization has spread the effects of the global economy to every country of the world (Ritzer, 2011). Thus, economic changes in one country permeate the international borders and influence businesses in other nations. Consequently, a corporation must be responsive to the global economic trends to remain relevant and competitive (Aras & Crowther, 2012). Some of the global economy’s effects may be negative, but one can transform them into an advantage using a well-crafted strategy. One of the ways through which the global economy has affected Verizon Wireless is the concept of sustainability.
Businesses around the globe are concerned with the sustainability of their ventures and resources. Consequently, world business leaders are focusing on initiatives that will minimize negative business impact on the environment and communities (Tencati & Perrini, 2011). The renewed focus has reached the United States where Verizon Wireless operates. Since the corporation is one of the leading telecommunication organizations in the world, it has undertaken an initiative to promote sustainable business practices. The global sustainability trend motivated Verizon Wireless to participate in the global economy. In fact, it was imperative for Verizon to participate in sustainability initiatives to remain relevant to the clients. The principal action that Verizon took to become competitive was the beginning of a global sustainability challenge in 2014.The winner of the challenge would be a person with an innovative business idea that highlighted sustainability. The prize that Verizon would present to the winners was called Verizon Powerful Answers Award.
In February this year, a winner emerged with a business dubbed Eco-Fuel Africa from Uganda. Eco-Fuel Africa has an agenda for the process of fuelling a financially and environmentally sustainable Africa (Tomaszewski, 2015). Therefore, the venture creates charcoal from agricultural wastes. The charcoal is about 65% cheaper than the wood and burns clearer. Since the raw materials are extracted from waste, it has little negative impact on the environment. Hereby, it reduces the chances of deforestation and air pollution through smoke. Additionally, it creates local jobs and saves money. Therefore, the enterprise promotes sustainability on three levels, namely socially, economically and environmentally. It is worth mentioning that Verizon awarded the business $ 1 million. Apparently, the involvement in the global economy may seem costly to Verizon, but the company can recover the money spent on the initiative through positive publicity generated by the venture. The media attention on the award portrayed Verizon as a responsible corporate citizen. Thus, customers who are concerned with sustainability are likely to become loyal to Verizon, which would insure that the company gets repeat business even during difficult economic times. Moreover, philanthropic organizations are likely to support Verizon’s business activities because of its aim to restore the society through such initiatives. The goodwill is critical because such organizations have social influence on the users of telecommunication services. Therefore, Verizon became more competitive by differentiating itself from competitors as a responsible organization concerned with sustainability.
Verizon’s financial performance is excellent because its financial ratios are better than those of its major competitor. Some of the ratios that reflect this performance are presented in the table below.
Return on Assets
The return on assets ratio shows how profitable a company is in relation to its assets (Sinha, 2009). It signifies the efficiency of a corporation’s managers in using assets to create earnings. Thus, it is possible to say that Verizon Wireless’ performance on this ratio is very good because it is above average at 4.14%. While the average is 3.13%, AT&T return on asset is 2.13%, which is below average. From the comparison, Verizon Wireless is more efficient at converting assets into earnings than AT&T. Although AT&T had more assets which should have yielded a higher percentage of returns than Verizon Wireless which had fewer assets, it was not the case.
Return on Equity
The return on equity ratio measures the percentage of net income earned in relation to the shareholders equity. The ratio measures the efficiency of a company in utilizing each unit of shareholders’ equity to generate profits (Gibson, 2012). Verizon’s performance on this ratio is excellent at 78.26%. On the contrary, the performance of Verizon’s largest competitor AT&T is below average at 7.21%.
The current ratio measures the ability of an organization to meet its long-term and short-term liability obligations (Vernimmen, Quiry, Dallocchio, le Fur, & Salvi, 2009). It compares the total assets and total liabilities of a firm. When the value is above one, the financial health of the company is good, while a value below one indicates poor financial health. Thus, Verizon’s performance on this ratio is very good at 1.06 compared to AT&T’s ratio at 0.86. Verizon can, therefore, comfortably meet its long-term and short-term obligations.
Net Profit Margin Ratio
The ratio expresses the net profits as a percentage of the revenues earned by a corporation. It shows how much profit is obtained from each dollar that a company earns (Damodaran, 2010). Verizon’s net profit margin ratio of 7.57% is excellent compared to its main competitor’s ratio of 4.71%.
PEST analysis is an analytical model that assists firms in evaluating their external environments to determine their suitability for business. The analysis evaluates the political, economic, social and technological environments.
The political environment comprises issues that arise from the government intervention in the economy. They include taxes, political stability, trade tariffs, restrictions, and environmental and labor policies. Talking about Verizon, it has been affected by the political environment in the United States in a number of ways. First, the current administration has undertaken to regulate the internet sector through the net neutrality policy. The policy requires internet service providers to avoid limitation of access based on content, applications, websites and sources. In fact, the regulation is a threat to the wireless telecommunication industry because companies like Verizon would not control packets to conform to the contractual conditions with its customers. As a result, it is likely to incur losses because the customer usage of data may exceed the purchased package. Apparently, the move by the government is being interpreted as a move by progressive activists to advance their political agenda. With regard to this, Verizon aims to finance conservative politicians who would quash the decision to regulate the internet. Therefore, the possibility of having a favorable government that would not support the new policy is an opportunity that Verizon should maximize. Since it is not illegal for corporations to fund political parties and candidates, it is imperative that Verizon take the opportunity to shield itself from the consequences of the unfavorable policy.
The economic environment is composed of factors such as the inflation rates, economic growth, interest and exchange rates (Henry, 2008). Changes in each of these factors affect business to some degree. Therefore, when the interest rates are high, corporations incur high costs to secure capital. Moreover, the exchange rates affect the exportation of goods, while a slow economic growth reduces the spending power of the customers. There are various economic changes that have taken place in the United States that have affected Verizon. For instance, a weak economic growth in 2009 made Verizon’s corporate customers limit their spending. Consequently, the company reacted to the changes by cutting costs in areas such as staffing. When the economy started growing, Verizon took measures to exploit the opportunity. Hereby, it created strategies to penetrate the market and gain a large market share. One of the moves included closing deals with mobile phone manufacturers such as Apple to sell their products through Verizon’s stores. The plan was successful and gave Verizon a competitive advantage that only its rival AT&T had. Since AT&T had an exclusive deal with Apple to sell the iPhone, the contract with Apple provided Verizon with a chance to compete for the iPhone market with its rival.
The social environment relates to aspects such as culture, career attitudes, population growth, demographics, ethical issues, and ethnic/religious factors. It reflects the dynamics of life and trends influencing behavioral patterns. Changes in the social environment affect corporations because they shape perceptions of products and services. One of the social changes that have threatened Verizon is the increased customer awareness about the environmental impacts of businesses. Corporations’ impact on the environment is an ethical concern for many customers. The clients opt to buy from companies that contribute to the conservation of the environment. Thus, Verizon identified the threat of negative environmental effects on its operations and started the global initiative for sustainable businesses. The second change is the composition of the US population, which has become increasingly multicultural. In fact, the shift offers Verizon an opportunity to maximize the benefits of the diverse workforce that originates from the multicultural society. Diversity at the workplace provides a firm with different problem-solving perspectives and a better understanding of its markets. Apparently, Verizon has responded to this change by embracing diversity at its workplaces. The company holds several global diversity and inclusion conferences, which highlight the gains made in terms of perfecting inclusivity and the challenges. The diverse workforce is a powerful tool with which Verizon can gain competitiveness by leveraging workers with varied experiences.
The technological factors that affect the business environment include changes in technology, automation and innovation. When technology changes, it can be disruptive and make the current goods and services obsolete due to the emergence of a superior technology. With regard to automation, it can make the previously manual activities irrelevant, while innovation can improve competitiveness. In case the competitors adopt the new technology before Verizon, the change in technology will threatens the company’s dominant position in the market. As a result of the constant changes in technology, Verizon has taken the lead in adopting the newest technologies. For instance, the company adopted the 4 G LTE network ahead of competitors. Allowing competitors to take the lead can make customers switch loyalties because they want superior products and services. Thus, the technological changes present an opportunity for Verizon. The company can enjoy the first-mover advantage by investing in research and development. When it creates innovative products and services before competitors, it will enjoy the sales for a time before imitators can replicate the effort.
Verizon Wireless’ products and services include such services as voice minutes, video and text messaging, sale of mobile devices, cloud storage, and data allowance. The firm’s competitors are AT&T, T-Mobile US Inc., and Sprint Corporation. The company holds a market share of above thirty percent. Moreover, it has a wide geographical coverage in the country and uses local companies to reach areas in which it has no offices. The operating divisions cover equipment and services with the equipment’s sector earning more revenues and profits than the service sector. The changes that the company underwent were mainly acquisitions aimed at empowering it to be able to face market competition.
The global economy’s focus on sustainability has affected Verizon Wireless by requiring it to conform to the trend. The company has responded to the global economy by initiating a global competition to award the most sustainable business ventures. The response is motivated by the likelihood of gaining a competitive advantage. Verizon’s financial performance is excellent because the ratios are better than those of its primary competitor. The political factors affecting Verizon Wireless include the net neutrality policy of the current government. Some of the responses to such policies include the regular funding of conservative political parties. The weak economic growth of 2009 reduced Verizon customers’ spending power. The company responded by downsizing to cut costs. When the economy became strong, Verizon expanded its revenue base by signing deals with companies like Apple Inc. The social factors that had an influence on Verizon include the clients’ increased environmental awareness. Verizon responded by participating in global initiatives that promote sustainability.