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Q1) What are the managerial opportunities and challenges that firms face
when they wish to enter emerging markets? What are the key success factors?
Emerging markets in the recent years have become the integral players in
current world economy. For any business the next big opportunity seems to
rest with the emerging markets as the growth slowed down in US and
Europe. As there are growth opportunities so are enormous challenges
associated with these opportunities.
Strong growth opportunities: Superpowers of the world emerging from
recent recession are likely to face slower growth. The recession of 2008-09 is
far behind but the aftereffects still linger and are
expected to keep markets on the
edge in the near future. However the
emerging economies are still on the
track of strong growth and most
have rebounded well from the
recession years. Also as these
economies are mostly export driven,
hence pose opportunities with strong
inflows of capital and investment.
Near future growth is forecasted to
be strong and in fact it has been predicted that the next 70% of the
worlds growth in the next several years will come from emerging markets.
Q2) Critically examine the factors that led Bharti Airtel to acquire Zains
operations in Africa. What are potential sources of synergy?
For several months Zain group had been looking for a suitable buyer for its
assets in Africa and on the other hand Sunil Bharti Mittal had been looking
for an African venture for two years. He tried to negotiate with MTN twice
but it didnt work out. In 2010 Airtel finally acquired Zain Telecoms
operations in 15 countries excluding Sudan and Morocco. Following factors
led Airtel to acquire Zain telecom:
This acquisition gave Bharti Airtel its much desired presence in Africa
making it worlds 5th largest wireless company
This acquisition broadened Airtels reach which was earlier restricted
to Asia and Indian ocean region
Bharti Airtel got access to 470 million African population, out of which
only 1/3rd carried mobile phones, hence imparting huge potential for
growth
Airtel estimated the combined business to have $13 billion value
The combined business was expected to have around 180 million
customers, generating EBITDA of $4.7 billion estimated on $12.4
billion revenues.
Bharti was a nearly debt free company by the end of 2009 with net
D/E of 0.05 and hence there was low financial leverage
Bharti had used the high volume low cost model successfully in India
and become the market leader. With Africa sharing similar traits as
India , the market was expected to respond in the similar way
Capex with Indian operations had started to decline, Airtel had free
cash flows and so it decided to invest in potential high growth market
Penetration levels in Africa were only 33% with ARPU of around $8-
$12 as compared to $4 in India
Q3) What factors led Zain to sell? Would a strategic alliance have been
feasible between Bharti Airtel and Zain?
Zain was performing extremely poor in Africa. Even after putting all the
efforts it was not able to sustain and was up for sale for quite some time.
Zains Africa relative EBITDA was low and falling every month. The morale of
employee at Zain was very low which was affecting their performance. The
company was making losses and Bharti was paying a good amount for the
acquisition. Zain was aware of the ways the business works in Africa and
could foresee that the deal offered by Bharti was quite good. For Zain it was
a very fantastic deal and the best they were getting. Zain made $10.7billion
from this deal.
As per our understanding a strategic alliance would not be possible because
there were not many complementary things between the two companies
which could be leveraged with the alliance. In fact, after the takeover Bharti
changed the way the operations used to work at Zain to the outsourcing
model. An Alliance would have been possible if the companies could leverage
from each others strengths but in this case the strengths were not
complementary to the extent that the alliance could have been successful.
Q4) What are the key risks and challenges that Bharti Airtel faces in Africa?
There were several risk and challenges that Bharti Airtel faces in Africa. The
same are mentioned below:
Business strategy: Airtel wanted to replicate its high volume low cost telecom
model in Africa as it had previously done in India. The fact that African
demographics replicated India in many ways gave way to believe its
possibility.