International Strategic Management - Case Study Example

International Strategic Management Introduction Strategic management refers to a process of evaluating and controlling the business of the company and the environment in which it operates with a view of making it competitive and successful (Lamb, 1984, ix). The company must set goals and plans to counter all existing competitors and revise these plans regularly so as not to be outpaced or become irrelevant in the face of changing circumstances (Lamb, 1984, ix). However, the actions of the company must remain within the realms of the expectations of management, the market, the context of operations and the various stakeholders of the firm (Lamb, 1984, 2). This paper is written to analyze the strategic management at Bharti Airtel India international company. Airtel as it is popularly known is the leading mobile phone network company in India with 31.18% of the market share consisting of 481 million mobile connections and the fifth largest in the world (COAI, 2010). The company has extensive market shares in Asia and Africa and is strategically expanding to other parts of the world. This paper delves into the strategy that has led the company to experience success in a highly competitive environment while also taking a peek at some of the strategic gaffes that have cost it over the past few years (COAI, 2010). Company Background Incorporated on July 7, 1995 as a limited company to provide services in the telecommunications sector, Bharti Airtel has grown rapidly into one of the largest telecommunications companies in the world. After launching its first cellular services in Pradesh in 1996, the company managed to sell shares to some international companies in subsequent years. These included STET International Netherlands 20% in 1996 and British Telecom 21% in 1997 (moneycontrol.com, 2010). From then on the company kept acquiring shares in other pre-existing telecom companies thus expanding its own interests within India. This venture soon went internation with the acquisition of share in Telecom Italia in the year 2000 among others (moneycontrol.com, 2010) However, the single most significant expansion move by the company was the acquisition of the Kuwaiti owned company Zain which had expansive interests in the African cellular telephony. The acquisition took place on the 8th of June 2010 at the cost of $10.7 billion which gave the firm ownership of cellular networks in 15 African countries including some of the continent’s largest economies like Ghana, Nigeria and Kenya among others. Bharti Airtel is structured in to four strategic business units: Mobile, Telemedia, Enterprise and Digital TV. The mobile segment is the largest with networks in 18 countries including India and across Africa. The telemedia segment mainly specializes in broadband internet services, IPTV and fixed line telephony, but is still limited to within India itself (Airtel.in, 2010). The Digital TV segment specializes in direct to home television services also within India. The enterprise segment is responsible for providing telkom solution to corporate customers as well as national and international long distance communication services including offshore and ship connections and airlines communication services (Airtel.in, 2010). Strategic Approaches 1. Expansion The most outstanding strategy of Bharti Airtel since it’s inception has been to target the mass market. Airtel thrives on numbers; large numbers of subscribers who pay minimal amounts in terms of tariffs to ensure that the overall profit margins are achieved. This is especially true in the case of where the company opted to reduce its call rates to $ 0.02 per minute in its Indian market and in the neighboring countries of Bangladesh and Sri Lanka (Airtel.in, 2010). This move was made possible by persuading their partners Sony Erickson to accept payment per minute, instead of upfront, for the installation of telecom equipment. When this was accepted, it was easy to implement the low tariff status. This low tariff model has since become the hallmark of Indian telephony with Airtel’s competitors such as BPL, Tata, MTNL, BSL, Essar and Reliance (Airtel.in, 2010). The company also experienced a spectacular drop in profit levels of 27% down to $ 374.3 million in the July-September quarter of 2010. This followed its acquisition of the interests of Zain in 15 African countries. Among the first moves of Airtel was to reduce call rates from an average $ 0.8 to $ 0.4 per minute, a whooping 100% drop that caught other major players in the continent completely of guard (Airtel.in, 2010). Despite this drop in profit margins, the company experienced a revenue growth of 47% to $3.4 billion including $ 876.7 million from its first quarter operations in Africa. The management of the company is very optimistic that there will be an upturn in profits soon which will surpass any profit levels ever imagined in the company before. In fact, they are so confident that there are already plans to take over the interests of South African telecom giant MTN in 21 countries in Africa (Airtel.in, 2010). For Bharti the rule the most important rule seems to be that size does matter. What they believe is the larger the size, the higher the profit. They do not hesitate to expand even when other companies would prefer to take caution especially after taking a profit dip. It is this very confidence that has seen the exponential growth of a company that only came into existence 15 years ago (Airtel.in, 2010). The figure below shows a summary of Bharti Airtel performance between 2008 and 2007. It summarizes the growth of the company in terms of revenue, countries of operation, customer numbers and profit levels. BHARTI AIRTEL – PERFORMANCE AT A GLANCE Full Year Ended Quarter Ended Particulars UNITS USGAAP IFRS IFRS IFRS IFRS IFRS IFRS 2008 2009 2010 Sep 2009 Dec 2009 Mar 2010 Jun 2010 Sep 2010 Operating Highlights Total Customer Base 000’s 64,268 97,594 137,013 115,837 125,263 137,013 183,372 194,823 Total Minutes on Network Mn Min 314,504 506,070 643,109 151,745 160,964 182,001 206,213 216,373 Network Sites Nos 69,141 93,368 107,443 100,320 103,050 107,443 118,963 123,869 Total Employees2 Nos 25,677 24,839 18,791 18,994 18,619 18,791 25,304 24,766 No. of countries of operation Nos 1 2 3 2 2 3 18 19 Population Covered bn 1.14 1.18 1.36 1.18 1.18 1.36 1.82 1.82 Consolidated Financials Total Revenue Rs mn 270,250 369,615 418,472 103,785 103,053 107,491 122,308 152,150 Profit / (Loss) before Tax Rs mn 76,537 93,073 105,091 25,860 25,336 24,411 20,719 22,267 Net income Rs mn 67,008 84,699 89,768 22,630 21,949 20,443 16,816 16,612 Figure courtesy of Airtel.in, 2010. 2. Customer Focus The one thing that Bharti Airtel shares with the successful companies of Japan in the 1970s and 80s is customer focus. Customer focus refers to the act of getting close to one’s customer so as to know him well (Peters, & Waterman, 1982, 6). Bharti values the customer from the lowest cadres of society. They understand well that this kind of customer forms the majority of the target market and tends to buy small but regularly. This particular experience was carried by the company from India into the nascent African market and it works. The price cut they introduced have already had the effect of pushing their competitors to the wall and is radically changing policy on pricing (Airtel.in, 2010). Though in the short term the company has faced a dip in profit as seen from their quarterly returns, their revenue and customer base keeps increasing and so it is only a matter of time before they start recording super profits (Airtel.in, 2010). Understanding the customer is quite important in running any business successfully. To be fair every company worth its salt always tries to endear itself to the customer one way or the other. All sorts of promotions are employed everyday to help attract the customer. However, modern customers happen to be very pragmatic and a long term strategy with actual value for money works better than short term excitement of winning prizes and so on (Tichy, 1983, 14). Bharti Airtel is well aware of this and that is why marginal profits seems to the best way forward for them. When such marginal profits come from a wide customer base, the end result is the same: huge profit margins (Airtel.in, 2010). This method is by no means perfect. The cost of micro managing when there are plenty of customers is relatively higher than when one has fewer customers who pay more per transaction. For one, attending to more customers calls for a larger workforce which is costly to maintain. Secondly, the cost of supplying all of them with the required services is higher (Blaxill & Eckardt, 2009). However, the issue of economies of scale does come into play in favor the company. Once enough customers are registered then the cost of serving them becomes lower per unit customer thus making the profit margin larger (Schumacher, 2000, 12). It is obviously not the method for the impatient or feint hearted considering the period of marginal profits and even loss making. But in the long run it does work out and this is what Bharti capitalizes on (Schumacher, 2000, 26). 3. Global focus An obvious major strength of Bharti Airtel is its firm focus on the global market. Global focus is what makes a difference between a small ordinary family business and an international multibillion dollar conglomerate. There is difference between going global physically and thinking globally. Today’s world is often defined as a global village. The advent of mega corporate is mainly due to this global approach to business (Hamel, & Prahalad, 1994, 48). Dealing internationally has been made especially easy with modern communication technology including teleconferencing facilities and the internet. Bharti is by its very nature a communication technology firm and so running an international conglomerate comes as second nature (Hamel, & Prahalad, 1994, 48). The company is firmly focused on the global marketplace. This has its advantages and disadvantages. The main advantage is the expanded reach of the company with a wider market. This enables them to operate at an advantage compared to their competitors in India. Consequently, they now have leverage over the competitors in the price war at home while still ensuring they bring in a profit (Hamel, & Prahalad, 1994, 48). They are actually not the only Indian company using this approach since others like Essar are also at it. However, the companies with this global outlook are all doing better than those that concentrate only on the domestic market (Airtel.in, 2010). 4. Benchmarking Benchmarking is the act of searching for best practices such that the firm seeks to out any organization that is excelling in a given area and emulating them (Camp, 1989, 12). Bharti has excelled by carrying out constant research into what makes other firms successful. The firms under constant scrutiny are Japanese, Korean, Chinese and Singaporean organizations that have exhibited high levels of international success (Camp, 1989, 12). The idea of studying these firms best practices is not limited to Bharti only. The relative international success of the Japanese organizations during the lean years for European and American firms in the eighties is what led to the proliferation of many theories on business strategy in the west (Camp, 1989, 12). Bharti has therefore used various other firms’ best practices as benchmarks for its own strategic approaches. Among these strategies include pricing, marketing that is tailored towards the individual customer rather than the market segment and minimization of management red tape (Airtel.in, 2010). , 5. Economies of Scope Economies of scope refers to lowering the average cost of production by diversifying into two or more items (Panzar & Willig, 1977, 481). Bharti has always endeavored to venture into new areas to support its core business. The core business is mobile telephony but areas such as broadband, fixed telephone lines, off-shore communications and submarine cables have proved to be highly enticing as well. These various sectors support each other through revenue raised, expand the revenue base and ensure the survival of the company in case one area of business faces lean times. In this way the company activities always go on despite the fluctuations may occur in one particular sector (Panzar & Willig, 1977, 481). When such multi-sectoral expansion happens, it is important to ensure that all the portfolios are related to as to make it easy to coordinate all of them simultaneously. There is always a danger of straying into far fetched territory that may bring the entire firm coming down in one huge heap (Panzar & Willig, 1977, 481). Bharti has been quite careful about this possibility. They have consistently ventured only into areas that are related to their core business and in which their research shows there are lucrative openings. In this way their heads have remained above the water even when the going gets tough for their competitors. Indications from their reports is that all the portfolios are posting a steady growth and giving constant returns. 6. Genba, Genbutsu, and Genjitsu These three Japanese words translate into actual place, thing and circumstances. They were developed at the Honda Motor Company and defined what has come to be known as hands-on management. What this means is that the management personnel do not just sit in the office but move around the premises, both local and international, to experience for themselves what the working environment in the company is like (Peters & Austin, 1985, 6 ). This makes the management to relate easily to whatever problems or challenges the actual management crew may be facing in the course of their work. It helps in making executive decisions go faster since the actual problem on the ground is recognized and solutions found to redress the situation including prompt allocation of resources (Peters & Austin, 1985, 6 ). This model also avoids wastage since the management is aware of the requirements on the ground hence resources are tailored around immediate needs rather than superfluous ones (Peters & Austin, 1985, 6 ). This approach is used extensively at Bharti where top executives are forever mingling with the lower cadre staff. 7. Ballanced Scorecard This is a strategic performance management tool in the form of a structured report that enables managers to track the carrying out of activities within their jurisdiction. Its main characteristic is the presentation of financial and non-financial measures or targets value within one concise report. Though not a replacement for traditional operational and financial reports, it is great summary with the most relevant information required of it (Maisel, 1992, 47). The way in which it is designed really depends on the immediate requirements of those using it, but in the final analysis it helps the management in the short term monitoring of output (Maisel, 1992, 47). At Bharti, just like in many parts of Asia, Europe and America, this has proved to be an invaluable tool of management the help show management and implementation problems before they crop up. Conclusion Bharti Airtel does have its critics. However, it is a well organized firm with the kind of business strategies that could help it to go places. Apart from the fact that they may not be exactly the out and out innovators, they are obviously very good at what they do. So chances are that they are actually the international communication firm of the future. References Airtel.in, 2010, http://airtel.in/wps/wcm/connect/about+bharti+airtel/Bharti+Airtel/About+Bharti+Airtel/ . Retrieved 2010-08-23. Blaxill, Mark & Eckardt, Ralph, 2009, March, The Invisible Edge: Taking your Strategy to the Next Level Using Intellectual Property .Portfolio Magazine ,p 3. Camp, R., 1989, Benchmarking: The search for industry best practices that lead to superior performance, Milwaukee: Quality Press. Cellular Operators Association of India ( COAI), 2010, http://www.coai.com/statistics.php. Retrieved 2010-11-10. Hamel, G. & Prahalad, C.K., 1994, Competing for the Future, Boston: Harvard Business School Press, p 48. Lamb, Robert, Boyden, 1984, Competitive strategic management, New Jersey: Prentice-Hall, 1984, ix-2. Maisel, L.S., 1992, “Performance measurement: the balanced scorecard approach”, Journal of Cost Management, Vol. 6 No. 2, , p. 47 Panzar, John C. and Willig, Robert D.,1977, "Economies of Scale in Multi-Output Production," Quarterly Journal of Economics, 91(3), p. 481 Peters, T. and Austin, N., 1985, A Passion for Excellence, Random House, New York, p 6. Peters, Tom & Waterman, Robert, 1982, In Search of Excellence, New York: HarperCollins, p 6. Schumacher, E.F, 2000, Small Is Beautiful: Economics As If People Mattered, New York: Hartley & Marks, p 26. Tichy, Noel, 1983, Managing Strategic Change: Technical, political, and cultural dynamics, New York: John Wiley, p 14. Read More