Sunday, October 18, 2009

Planning For Global Expansion

Vasu Reddy from Chicago

Three times it happened with the same company, twice by Bharti and once by Reliance Communications. Trying to merge with MTN of South Africa in the last year by the biggest telecom companies in India came up with nothing. It is interesting to note Bharti did this twice, despite their fantastic organizational setup. If we do acknowledge that Reliance failing to close the MTN tie-up has something to do with the big brother syndrome, it is surprising that Bharti will do it twice with the same result.

There could be a slew of reasons for the failure in negotiations, including respective laws, regulations, unions, shareholder issues, accounting, markets, and whatever else imaginable. But trying to do it 3 times in a year is a bit too much. MTN offers a nice relationship to the Indian telecoms with its own emerging markets to add to India’s own aggressive expansion of its mobile markets. But it really is not the only available opportunity.

When the negotiations fail the blame goes to the local laws of the negotiating countries. It is appalling to believe that the management teams ignored these laws when they contemplate the mergers. If they ignored the complexity of laws prior to beginning negotiations, the management teams simply failed to appreciate the real issue of compliance.

India’s own policies have never been too inviting and still have a lot to be desired by the global markets. But, so is every other market. Each country has its own set of complications that come with the inviting nature of the market. Seldom have the international market’s desire to expand and the individual country’s laws matched, rather the business development teams make the path to expansion with understanding, persistence and effort. Simply desiring to patch vast networks without clear guidance from the possibility will be Alexandrian in effort and individual companies may not have the sustainability to successfully expand their networks.

Just focus on emerging markets is not a visionary option. Public companies want to deliver shareholder value, and not just numbers. Western markets and already saturated markets deliver much higher yield then emerging markets. The expansion models to simply focus on emerging markets also comes with complexity of local laws, market inhibitions and currency and other economic conditions that are not commonplace with the western markets. The rules of engagement are published and no hidden agendas crop-up at the last minute to derail the negotiations. When the rest of the global telecoms are participating in India, the Indian telecoms should make attempts at the same. Why not go after stakes in ATT or BT. Is it the difficulty of negotiating with these companies or it is the complexity of upgrading the vision to a global vision from an emerging markets vision?

Standing up to what is right for the shareholders is the fundamental management principle. It is sort of convoluted in Indian companies as Individuals have fairly large stakes to drive the rest of the shareholders to accept their individual philosophies, rather then what is good for the shareholders. It is not to question the leadership qualities and organizational abilities of these individual leaders. The big Indian telecoms are fostered within the Indian regulations and politics, and all of them have been successful within the boundaries of India. For these companies to become global, they must learn the path of their partners who have successfully acquired stakes in Indian Telecom companies, and manage them well. If the Indian Telecoms are to become global, they need to acquire the skills of their partners who successfully operate in India, and start to acquire stakes in their respective markets and manage them with success.

One of the most interesting aspects of the failure to merge MTN with the Indian Telecom companies is that there is no perspective on why it failed. Typically in such a failure even once would have a complete analysis published for the world to learn on what exactly went wrong, and for the next time aspirants to be cognizant of what not to do. When we fail three times, and still don’t have a detailed analysis of what went wrong, this is probably the forbidden zone. The analysts who cover Bharti, Reliance and MTN should publish detailed analysis of why these mergers never materialized. The shareholders and global telecom markets deserve a detailed analysis on these misconstrued mergers.

It will be wonderful to see the Indian telecoms do what ATT, BT, Singapore Telecom, Vodaphone, Verizon and other global players do. Go after all markets that offer shareholder value along with expansion. There is no reason to just focus on emerging markets, rather focus on growth and expansion. One great strength India has its own NRI population, global reliance on its BPO and maintenance services and India’s software and support services. Going after the big fish is as opportunistic as just chasing emerging markets. It will be nice to see the Indians acquire stakes in ATT or BT.

October 18th 2009
Vasu Reddy
Optus Technologies, Inc.

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