MTN Group Expansion Strategy - Essay Example

?Introduction “The way South Africans communicate changed significantly in 1994” (Oxford Business Group, 2008 p115). This is attributed to the country's Apartheid system which kept the Black majority of the nation under strictly restricted conditions was abolished. This led to a situation where equal rights were guaranteed to members of the wider society and all peoples had access to all resources. At that time, Telkom, the national fixed line company in South Africa held a monopoly over telecommunication systems and 11% of households had fixed lines (Oxford Business Group, 2008). In 1994, the government authority granted a license to Vodacom and Mobile Telecommunication Network (MTN) to operate mobile phone networks in South Africa (Oxford Business Group, 2008). The MTN Group had the vision “to be the leading provider of telecommunications in emerging markets” (Erasmus and Shenk, 2008 p61). This has been the watchword of MTN and the group is now operational in 21 countries in Africa and the Middle East (Banhegyi, 2007). In all these countries, MTN has access to over 488 million people and has over 28 million subscribers (Banhegyi, 2007). It is now listed on the Johannesburg Stock Exchange. In Africa, MTN has operations in Botswana, Cameroon, Cote D'Ivoire, Nigeria, Congo, Rwanda, Swaziland, Uganda and Zambia amongst other nations. MTN Group has its headquarters in South Africa where it all started. This paper examines the strategy that was used by MTN Group to expand to different parts of the African and Middle Eastern markets. It will examine the strategies from the context of dominant theories and ideas relating to international business. The second part of the research will examine the strategies for further expansion of MTN into other markets around the world. MTN Group Expansion Strategy In order to examine the expansion of MTN to different countries around the world, important elements and aspects of International Business will be examined. This include: Entry Mode Entry Timing Firm Size Institutional Matters Entry Mode Entry mode describes the methods and systems used by a business to expand into a foreign country (Andexer, 2008). It describes the various approaches that a business uses to create a presence in a foreign land. Popular methods include franchising, licensing and joint ventures (Ireland et al, 2011). According to Singh (2008), MTN expanded to other countries through a mixture of Greenfield Investments and Mergers/Acquisition. A Greenfield Investment is the “establishment of completely new operations in a foreign land” (Paul, 2009 p357). In some countries, MTN created new telecommunication companies that were meant to provide services. This was particularly popular in smaller and war thorne African countries that had limited infrastructure. This involved investing and creating new infrastructure from the scratch. Through this, MTN exported their resources to these new venues. They applied principles from South Africa and learnt about the local environments. Through this, they built brands and new systems in the foreign nations that they operated within. In other countries, MTN expanded through mergers and acquisitions. Mergers and acquisitions involve forming strong partnerships or acquiring other businesses in order to being operations in a new country (Johnson and Turner, 2009: MacDonald et al, 2011). MTN Group purchased other companies like Areeba and Spacefon technologies in several parts of the continent (Bridge, 2009). These two companies were sprawling brands in the Middle East and Sub-Saharan Africa (Pan, 2011). MTN just purchased these companies and took over their assets and began to operate in their capacity as an independent company in these foreign countries (Venter et al, 2009). Through this mixture of mergers and acquisitions and greenfield investments, MTN was able to set up different operations around the world. The shareholders of the South African company expanded their scope of control and took over these foreign and new markets. The mergers were mainly in the area of marketing and other strategic partnerships in the local contexts that they operated within. The acquisition enabled MTN to begin earning right away. Through this, they increased return on investment because they avoided the unnecessary lock up of capital through greenfield investments. Rather, they got profits from existing infrastructure and systems. Also, they built on the goodwill and other assets that had been consolidated by the business entities they purchased. This allowed MTN to get a much more convenient system of growing and expanding into Africa and other related lands. Entry Timing Entry timing implies the influence of structures and responsiveness to market conditions and systems that are relevant to the expansion (Raghunathan et al, 2011). This include the different things that changes in a given economy and how the firm moved in a way and manner that made it benefit from these changes. Entry timing has to do with customer loyalty, rural-urban dynamics and position of competitors at the time a given firm expands to a foreign market (Rugman, 2011). In the case of MTN, Singh observes the positions of most of these variables at the time that MTN was making the expansion into these foreign markets. First of all, at the time of expansion to other countries, most customers in Africa and the Middle East did not have much connection to any mobile telecommunication brand. They were open to new brands and new conditions that could come their way. Other countries had small and sprouting networks on the continent. MTN therefore acted to take control of the loyalty needs and expectations of customers. This led to the creation of a strong brand that was popular around the continent. Secondly, MTN built customer loyalty by focusing on social programmes. This is due to the fact that MTN realized that many parts of Africa needed social support. Some people needed basic amenities. And due to this, MTN sought to identify with the African people by spending heavily on social and philanthropic ventures. This enabled customers to build loyalty and desire to support the firm by becoming subscribers. Africa is the continent with the highest levels of rural dwellers. In most countries, existing telecommunication companies were concentrating on the urban elite. However, MTN focused on getting people in rural areas to sign up to their network (Singh, 2008). This allowed them to increase their market share in a very short time. Most of MTN's competitors were focusing on increasing their profits. MTN on the other hand tried to improve technology. They therefore invested significantly in technology and provided better services to customers in the new nations they entered. This caused more and more people to sign up to their service ahead of their competitors. Another positive attribute is that MTN, on entry into any country did not remain idle. Rather, they focused on analysis and critiqued data and information at a very regular basis. This allowed MTN to examine new things that were emerging and make changes to benefit fully from all opportunities and reduce threats. Singh goes on to identify that MTN invested seriously in visionary leadership. They appointed only the best and most experienced and qualified candidates for positions. The result was that the leaders became a strong asset to the MTN and helped it to navigate local markets with ease. Firm Size Firm size involves the quantitative and qualitative systems that defines a firm operating in a foreign setting (Etemed, 2004). This include the relevant situations and conditions that define a given firm and helps to determine its success or otherwise in a different environment. Dana identifies that the kind of partnership that a firm operates defines the kind of results that it would get in its international expansion effort (2004). In the case of MTN, it built a partnership with Standard Bank and Ericsson which allowed it to get a lot of goodwill around the continent and beyond. Basically, MTN relied on South Africa and its national dominance of the continent and the sub-region. South Africa is the richest and most developed country in Africa. Due to this, the structures and systems from South Africa were generally replicated. Standard Bank is a South African bank that has continental coverage. Thus, MTN used Standard Bank as a financial intermediary which supported it in expanding to different parts of Africa and the world. MTN also used its partnership with Ericsson to promote important technological and infrastructural changes that affected MTN in a positive manner all over the region. MTN also invested heavily in the 2010 Soccer/Football World Cup which involved a $65 million sponsorship package (Bridge, 2009). This investment allowed MTN to get a global exposure which acted as springboard for further expansions and growth of their brand to existing countries and also sets the tone for expansion to different other countries around the world. Aside the global sponsorship package, MTN continued to sponsor different activities and events both on the local and continental scale. This helped MTN to become a household brand in most nations and also encouraged MTN to become more productive and more recognised around the countries that they operated within. MTN relied on shareholders from South Africa (Singh, 2008). The normal South African shareholder base was expanded when it was listed on the Johannesburg Stock Exchange and more Black shareholders were encouraged to invest in MTN. This was successful and it enabled MTN to build a stronger capital base and also get the opportunity to fund important expansion drives around the world. MTN built a culture of trust, vision and competition in the countries they operated in. They got important partnerships and proper arrangements which allowed them to become more loved and cherished in the local environment. This was expanded as the firm also expanded in the local settings they operated in. In all the countries, MTN maintained an independent and self-sufficient staff base. The technological units recruited and selected independent thinkers and people with strong and deep competencies. This allowed MTN to build strong core competencies and abilities. MTN also conducted studies that allowed it to become more competent in activities and affairs. This allowed proper decision making in the most unfamiliar terrains and territories around the world. Institutional Matters This aspect of international business expansion relates to the factors and situations that exist in the home country (Dunning, 2011). The main elements are the Political, Financial and Economic matters that the host country has (Grosse, 2005). These factors make it imperative for a multinational company to make adjustments in order to survive in the foreign market (Ruel, 2012). The decision to expand and how to expand was based on the openness of the countries that MTN operated in. In nations where there was a high degree of openness and assurance that the economy would remain stable, MTN concentrated on greenfield investments. There was an assurance that the investments would yield results in the longer term. And since this was assured by historical trends, MTN was not afraid to invest heavily from the onset and build from the scratch. On the other hand, MTN had to use acquisitions in unstable and closed nations since there was the need to expand rapidly and also make profits as early as possible. Country risk is the main issue that kept most global telecommunication giants from entering the African and Middle Eastern markets. However, MTN used the links between the leaders of the African National Congress and other African countries. [The African National Congress is the main political party that represented the interests of Black South Africans and was banned by the Apartheid government in the 1950s but operated de facto governments in other African nations like Tanzania, Angola and Mozambique]. MTN also aligned with other businesses and strengthened its link with other companies and entities around the continent. This allowed MTN to get a stronger penetration grounding. Also, the ability to conduct research and do independent analysis and verification enabled MTN to move above country risks. In terms of economic risks and other finance related risks, MTN used various risk management plans and techniques that prevented it from losing out in foreign nations (Singh, 2008). In terms of currency risks, MTN was very successful in hedging the foreign currency risk that was a problem in most African countries. The hedging and forward contracts enabled MTN to maintain a stable earning stream. Also, the South African chambers of commerce and diplomatic systems was always there to support MTN in its expansion drives. The concerted effort in diplomacy and other multilateral agreements allowed MTN to get the best of results from their transactions and linkages with foreign governments and in foreign contexts. Section 2 Recommendations for Further Expansions of MTN With all the successes attained by MTN, it still seem to have the appetite for further expansion and this can help MTN to increase the interests that shareholders earn and improve their services and offerings to the public. Segmentation & Decentralization The African expansion drive has so far proven to be very helpful and appropriate for the MTN Group. However, the centralization of authority with the South African headquarters is proving to be quite problematic. This is due to the fact that it is difficult to control activities in as many as 21 countries from a single hub. It is therefore important for MTN to liberalize and reduce its scope in order to grant some autonomy and power to make decisions on the ground. In doing this, MTN will have to zone its international branches and prepare for further expansion. Some of the international branches have proximity and other advantages which can be utilized for further expansions and control. The various countries must be mandated to initiate expansion drives to nearby countries. The main reason for this is that most African nations that MTN covers have boundaries that were formulated in colonial times. Due to this, there is a lot of cultural cooperation that goes on between countries. Thus for example, Nigeria's MTN can easily expand to Niger and begin to produce the service. Cote D'Ivoire MTN can easily expand to Guinea, Burkina Faso, Mali and Liberia. This therefore means that MTN should upgrade some branches to nodal branches and begin investing and empowering these branches to expand into other nations and territories. If four major zones are examined, they can be prepared for a future expansion trend. This will lead to the preparation and establishment of infrastructural base that can aid further expansion in the next five years or so. When this phase of expansion is complete, new nodal branches could be identified and then empowered to become launchpads for further expansion drives. Through this, the various local branches can build their own independent capacity and growth to preserve it. Diversification MTN can also consider other lines of business that they can invest in on the African continent. Africa has a lot of potentials in tourism whilst the Middle East has a lot of potential in business travel and other activities. If MTN is able to build unique competencies in other areas and fields, they are likely to safeguard their affairs and invest in matters and situations that are very productive. For instance, MTN can consider going into mining in parts of Africa where there are huge deposits. They can diversify into the petrochemical industry in the Middle East. This will help them to balance their risks and include different income generation ventures that might ensure that their risks are hedged and more possibilities exit for a more meaningful and prosperous operation in Africa. Another area of opportunity in Africa is in the area of real estate. MTN can go into real estate and build various properties that they can rent out for an extra income. MTN can use this to boost their financial position and also balance their risks so that they do not waste the excess resources they get. Partnerships for Global Coverage With a plan to expand further into Africa, they can get a high degree of survivability. Also, with diversification, they can make a lot of money and secure their future. When these two are attained, MTN can consider a strategy for the growth into other foreign markets around the world. The global expansion strategy must be done through partnerships and joint ventures. This is attributable to the fact that most foreign markets around the world are choked. There are many major competitors and this will always lead to challenges and difficulties in expansion. Thus, the best strategy would be to look out for opportunities and purchase other joint ventures and other partner firms around the world. The most efficient way of doing this is to look for opportunities in economies where things are relatively cheap. Thus, to expand to a place like the European Union, MTN can consider purchasing a telecom company or partner firm in a place like Spain or Greece where the economic conditions are not so ideal at the moment. Through this outlet, MTN can get the chance to enter the market and then expand further to other parts of Europe or any other unfamiliar territory where this model can be replicated. MTN can also find other business ventures in parts of the world outside its current scope of operations that might not require the level of investments that is required of the telecommunications industry. These investments can be examined and re-examined closely to support the global expansion of the scope of MTN. Innovation and Technology One apparent element of the telecommunications industry is the fact that research and development are crucial elements of the sector. This is connected the fact that telecommunication systems easily become extinct. In this sense, MTN can acquire competitive advantage by investing heavily into research and development. Through this arrangement, the group can get a strong and centralized innovation unit that can become an strong too for international expansion. Through this, there could be new products that can be linked to research which would lead to the creation of modern and up-to-date products for MTN. With a strong investment into research and development, MTN is likely to have the capability to become a market leader. This will allow MTN to expand and meet its competitive advantage needs. On the individual level, MTN can come up with an emergent strategy that can enable local requirements and expectations to be transposed to the central research unit for further changes to be made as and when necessary. Conclusions The expansion of MTN from South Africa to parts of Africa and the Middle East can be credited to a blend of mergers and acquisitions as well as some greenfield investments. MTN succeeded in its expansion through the attainment of customer loyalty, social programmes, targeting rural clients, improving technological infrastructure and proactive monitoring and improvement of their systems. The expansion of MTN was based on the reliance on South African institutions like the Johannesburg Stock Exchange to raise capital and Standard Bank to carry out relevant transactions. MTN used various diplomatic tools of its government and other finance risk management tools like hedging to prevent risks and adversities in their expansion. In order to expand further, MTN can consider empowering some African brands with autonomy and decentralization so that they can grow and cover other nearby nations. MTN can also diversify and find other niches to operate within. They can also partner with other entities around the world for global coverage and invest in research and development References Andexer, T. (2008) Analysis and Evaluation of Market Entry Models into the Asia Pacific Region Berlin: GRIN Verlag. Banhegyi, S. (2007) Fresh Perspectives: Management Johannesburg: Pearson SA Bridge, S. (2009) Trailblazers: South Africa's Champions of Change. Cape Town: Juta Publishing. Dana, L. 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