The communication industry is showing rapid development with the advancement of information technology and communication technology. Consumers are receiving great benefits from the development of smart phones and ultra high-speed internet. However, the consumers have increased anxiety from high household communication expense, and increased competition in the communication market has led to decrease of sales performance. Service providers are experiencing difficulty in securing profitability compared to investment. Accordingly, it is necessary to place efforts to increase efficiency in terms of overcompetition and sustainable growth of the communication market.
This study used DEA and Malmquist productivity index to measure business management efficiency of 17 communication business operators in South Korea. DEA is intended to analyze efficiency at different time points, and Malmquist index is used to analyze the change of efficiency between two time points. The period of analysis is recent five years from 2011 to 2015. Input variables for analysis are number of employees, fixed assets, and selling and administrative expenses. Output variables include sales and current term net income.
The results of analysis on efficiency and change of efficiency of communication business operators in South Korea are as follows. First, the technical efficiency of ten companies was 1 in all analysis periods except for 2014. Despite the heated market competition, many companies was 1 in technical efficiency and maintained stable efficiency within five years. These companies showed constant ratio of output to input. Pure technical efficiency, which refers to operational efficiency, ten companies was 1 in all analysis periods. This indicates that such companies achieved efficiency of business operation excluding the scale efficiency, suggests that small companies can show adequate operational efficiency.
Second, the results of analysis on return to scale are as follows. “SK Broadband Co., Ltd.”, classified as a conglomerate, was had decreasing return to scale for three years. This allows for the prediction that the company increased its investment in order to take competitive advantage in the market but failed to secure dominant position in the saturated communication market. Companies with increasing return to scale can produce more with smaller investment. It would be necessary to restructure input variables or reduce cost to satisfy efficiency or obtain high output compared to investment in the saturated communication market.
Third, for the change of efficiency of communication business operators was analyzed, productivity index of most companies were found to increase and had a value higher than 1 between 2011 and 2013. All companies except for one showed productivity index below 1 between 2013 and 2014. This suggests that efficiency was decreased in 2014 compared to 2013. Productivity index of all companies except for two companies was above 1 between 2014 and 2015, indicating that efficiency in 2015 was higher than efficiency in 2014.
The implication of this study was follows. First, all large-scale communication business operators don’t have high efficiency or profitability. In other words, although large-scale companies tend to show large-scale investment aimed to increase sales, they cannot achieve adequate increase of sales volume. Second, overcompetition is continuing in the communication market. That is, excessive competition for speed and service to attract and satisfy consumers is leading to excessive input of internal resources. Accordingly, advantages of communication business are diminishing due to such inordinate investment. Third, communication business operators need to focus their management policy more on internal growth than sales growth. They must try to maintain competitive advantage in the saturated communication market instead of prioritizing sales growth, which requires pursuit of internal growth measures such as restructuring.