A Case Study Of Uninor

A Case Study Of UninorAs the centre of economic activity shifts towards east, Multinational corporations argon increasingly adopting the inorganic travel guidebook to p bentth in these groceryplaces. Mergers accomplishments, Joint ventures and strategic alliances are becoming the vehicle for establishing presence in markets like India, China and South Africa.Fascinating as they whitethorn seem, Mergers Acquisitions and Joint Ventures welcome also been the most complex transactions involving financial, business and cultural issues. Through this project, we intend to bring in the motives which drive such transactions. Also, we intend to understand the parameters which are crucial to make any JV work. We clear chosen to study the fiercely combative Indian Telecom market for our study as it has seen numerous International players debut the lucrative market through with(predicate) Joint Ventures.Our troupe for the study is Uninor, which is also one of the speedy growing n ew-fashioned entrants in the domain. What makes the case of Uninor more(prenominal) interesting is the unique combination of Indias second largest real estate gild, Unitech Ltd and Norway- modestd Telenor, the 6th largest roving communications group in the world. The top focal point is drawn from Telenors global telecommunication specialists as well as Indians who have topical anesthetic expertise in sticking telecom run in India. In this context, the cultural dimension to decision making in Uninor assumes enormous importance.Through the course of this study, we shall first calculate at mergers and acquisitions as a means to hit the roof for companies. The key drivers, the specific motives as well as the examples related to situations which may mandate an MA transaction instead of growing organically. In the next section, we shall look at the Indian telecom diligence and its future probable for growth, major trends and the g all overnment regulations which have defined t he indus take heed and catalyzed Joint Ventures among contrary and Indian firms.Then, we shall draw over to the analysis of India match to Porters Diamond model and the cultural synchrony between India and Norway according to Hofstedes cultural dimensions. These analyses shall enable us to evaluate the paradigms of this Joint Venture.Subsequently, we shall gain apart key components of Uninors Strategy in India and also its performance in the past year. We shall also look at its future growth strategy and the hurdles to achieving its targets. We shall finish our study by looking at the transformative effect of strategic alliances and the Uninor case in India.IntroductionThe phrase mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and solicitude dealing with the buying, selling and combining of different companies that fuel aid, finance, or help a growing political party in a given industry grow rapidly without having to create an early(a) business entity. An acquisition is also known as a takeover or buyout, in which one company buys the separate (target company). When two companies come together and form a new company altogether, it is known as merger. On the contrary, an acquisition so-and-so be friendly or hostile depending on the size of the players involved.Acquisition usually refers to the takeover of a smaller firm by a larger firm. However, one rout out ascertain sometimes an acquisition of a larger company by a smaller one. This phenomenon is known as a reverse takeover. The acquisition process is very(prenominal)(prenominal) complex with many dimensions influencing its outcome.There are many reasons why a company seeks acquisition. One is that some vital resource may be otherwise difficult to obtain for the firm, peculiarly if the resource is necessary to adapt and function successfully within the local environment. The fol kickoffing(a) list, not an exhaustive one, gives some motives for company seeking International expansion.Geographic and Industrial DiversificationAccelerating GrowthIndustry ConsolidationUtilization of Lower Raw Material and Labor pricesleverage Intangible AssetsMinimizing Tax LiabilitiesAvoiding Entry BarriersFluctuating Exchange RatesFollowing CustomersFor instance, an existing company may have personnel that the investor cannot easily hire at a good price on its own. By buying an existing company, the buyer gets not only labor and prudence but also the organizational structure of the target company.In addition, a company can also net income the good will and brand identification the local company has which is essential for marketing mass consumer products, especially in a new market. One can also find financial considerations in few cases. For example, if a company depends substantially on local financing rather than on the transfer of capital may find it easier to gain access to local capital through an acquisition. Local suppliers find it rela tively easy and are more comfortable interacting with an already existing company rather than a international enterprise.In few cases, companies find acquisitions as a means to reduce costs and risks compared to setting up a fully owned subsidiary. A company may be able to buy facilities, particularly those which are performing poor for less than the cost of new construction. This saves a lot of money to the company. If an investor has a fear that a market does not justify added capacity, the risk of depressed prices and lower unit sales per producer occurs if it adds one more producer to the market is avoided by acquisition.A company may choose to build ifNo desired company is available for acquisitionAcquisition will lead to carry over problemsAcquisition is harder to financeStrategic AlliancesAlliances can be described ground on their objectives and where they fit in a firms rank chain. In terms of objectives, one can assume that scale alliances aim at providing efficiency thr ough risk pooling i.e. pooling of similar assets so that individual partners can carry out business activities in which they already have good amaze. On the other hand, link alliances make use of complementary resources to expand into new business areas. Each organization entering into a cross-border alliance has its own objectives for operating internationally. gain ground some alliances take place between partner entities functioning on a different take aim of value chain, known as vertical alliance, and sometimes on the same level of value chain known as plain alliance.On a broader scale, the objectives for cross-border mergers can be divided into the following three categories which were refined earlier.Sales expansion imaging acquisitionRisk minimizationThe following section describes in detail the influence of each of these objectives on the decision of a merger.General MotivesTo Spread and reduce costsTo manufacture or sell in foreign countries, any company must incur ce rtain fixed costs. If the volume of business is small, it is cheaper for the company to outsource the work to a specialist rather than deal it internally. The outsourcing agent can spread the costs to more than one company and thus reap the benefits of economies of scale. If the business increases, then the company can rethink its devise of outsourcing and produce everything internally. The company handling the take or sales can lower its average costs by covering its fixed costs more fully. On the other hand, the outsourcing company does not have to incur the fixed costs that otherwise be charged to a small amount of production volume thus overburdening the customers in turn.To Specialize in CompetenciesEach company has a unique combination of competencies. It is better for a company to concentrate on those activities that best fits its competencies and improve its performance and leaving out the other activities in which the core competency of the firm does not lie. This concen tration can be horizontal as well as vertical.To Avoid or Counter CompetitionIt is not common to notice few markets that are not large complete to hold many competitors. ITC, for example, find this phenomenon and pre-empted the competition to emerge as a big player in the Indian industry. Any potential threat should be nipped in the bud itself. Sometimes companies also combine resources to fight a market leader and share the profits jointly. For example, Coca-Cola and Danones joint effort to challenge PepsiCo and nuzzle can be viewed as one such strategic move.To secure Vertical and Horizontal LinksIt is clear that at that place are numerous potential cost savings and supply assurances in case of a vertical integration. However, sometimes companies lack the competency or the resources necessary to manage the complete value and supply chain. In these instances it is common to notice a merger. For example, LUKOIL has abundant oil reserves but as it lacked final distribution skills , in addition to making acquisitions abroad, it also made ar regularizements in countries that ensure a good market for its petroleum.Horizontal links provide finished products and components. For such kind of finished products, economies of kitchen range can be achieved in distribution by having a full line of products to sell thus increasing the sales per fixed cost of a visit to potential customer.To Gain KnowledgeIn the present agonistic world innovating new ideas to develop products and deliver them is necessary to gain an edge over the rival. Many companies go for a merger to learn about a partners technology, operating methods so their own competencies will broaden and deepen, making them more competitive in the future. We can consider the example of Chinese government that allows foreign companies to tap the Chinese market in exchange for their transfer of technology.Specific MotivesTo gain Location-specific AssetsThe following factors create barriers for companies that wa nt to operate abroad.CulturalPoliticalCompetitiveEconomic differencesGoing for a merger or an acquisition equips the company to grapple these differences and thus providing profitability. For example, Walmart first tried to enter Japanese market but withdrew its operations only to return with a Japanese partner, Seiyu, which is more familiar with local tastes and rules for opening new stores.To Overcome Governmental ConstraintsFew nations require compulsory presence of a domestic player as a partner in the operations of a foreign company while few dont. In this case a merger is more favorable. The legal factors which constraint may beDirect prohibitions against certain operating firmsIndirect prohibitions (regulations affecting profitability)Mergers and Acquisitions that take place across countries allow for greater spreading of assets among the partner nations.To Diversify Geographicallyoperations in many countries (diversification geographically) can smoothen the companys sales and earnings as the business cycles occur at different times within different countries. though this might not be the unfeigned reason for diversification this does play a minor role in decision making. Mainly, if a product conditions favor a diversification rather than a concentration strategy, due to product life cycle etc, then there exists a strong reason for establishing foreign presence by collaborative arrangements, mergers. The higher the risk managers perceive in a foreign market, the greater their desire to form collaborative arrangements in that market.Problems with Mergers and other alliancesHaving discussed in detail the reasons why a company goes for a cross-border merger, it also makes sense to highlight the difficulties that arise while collaborating with another company.Each of the preceding(prenominal) factors is very important while considering a decision to acquire or merge with another company. The stake involved, the management attention, cultural differences , contribution to the merger etc play a key role in its success.Telecom industry in IndiaIntroductionTelecommunications industry is one of the fastest growing industries in India and also one of the fastest growing telecom markets in the world. Telecom Industry is evaluated with the following parametersNumber of subscribers accord to the Telecom Regulatory Authority of India (TRAI), the number of telephone subscriber base in the country diged 653.92 million as on May 31, 2010Growth rate An increase of 2.49 per cent from 638.05 million in April 2010.Teledensity (Telephones per 100 people) Overall teledensity in India has reached 55.38Some major investmentsThe attractiveness of the telecom market has resulted in high investments from across the world which was the reason for entry of numerous foreign players and introduction of new gos. Recent bidding for 3G network spectrum allocation was one of the most followed biddings due to the high stakes involved for some of the best player s in telecom industry.According to the Department of Industrial Policy and Promotion (DIPP), the telecommunications orbit which includes radio paging, mobile services and prefatorial telephone services attracted foreign direct investment (FDI) outlay US$ 2,554 million during 2009-10. The cumulative flow of FDI in the sector during April 2000 and March 2010 is US$ 8,930.61 million.The Merger and Acquisition deals in telecom industry were worth US$ 22.73 billion during April-June 2010, which represented 67.19 per cent of the total valuation of the deals across all the sectors during the period analyzed.Some of the recent Mergers and Acquisitions include trustfulness Communication Ltd that merged GTL substructure Ltd, its telecom tower business, for US$ 11 billionOther major MA deals included acquiring of Kuwait-based Zain telecoms African business for US$ 10.7 billion by BhartiAirtelAcquisition of Infotel broadband for US$ 1032.26 million by Reliance IndustriesNorway-based telecom operator Telenor has bought a further 7 per cent in Unitech Wireless for a little over US$ 431.3 million. Telenor now has 67.25 per cent hold of the companyNew trends- The Gamechangers3G servicesPublic sector companies namely BSNL and MTNL have already launched their 3G services across India in all 22 circles. The other companies (All of them were private entities) took part in a 3G sell process that was held to give 3G licenses in all the 22 circles. The bidding started after numerous political interventions stopped it for almost 2 years. The process started with a lot of media attention mainly due to the delay in the process and the amount of investments that were pass judgment, especially for all India license.The process was completed using an e-bidding process that was held simultaneously with broadband wireless auctions for a period of 34 days. The auction prices went beyond expectations.A pan-India bid for third generation spectrum stood at US$ 3.6 billion. However no oper ator could bid and obtain the pan India license. The Anil Ambani-led Reliance Communication bagged the highest number of 13 circles at a cost of US$ 1.9 billion, followed by BhartiAirtel in 12, Idea in 11 and Vodafone and the Tatas in nine circles each, according to the Department of Telecommunications.Rural telephonyOne concern that remains in the telecom industry is the penetration to coarse India that has not been up to the expected levels bank now. Prime Minister, Manmohan Singh opined, Although the growth in the last few years has been truly impressive and our tariffs are among the lowest in the world, vast stretches of our rural population have little or no telecom penetration. Rural tele-density is still in single digits. I had heard of plans for a Phone in Every closure some twenty years ago. We have not yet reached that goal. This is why we have emphasized telecom connectivity in our Bharat Nirman programme.TRAI suggested the following in 2008-09 reportIt has been observ ed that despite several attempts over the last ten years, telecom infrastructure in rural areas is lagging behind the expected levels. There has been a phenomenal spurt in the growth of tele-density in the country with the evolution of new wireless technologies, but the gap between the urban and rural teledensity has been increasing.As can be seen in the figure the growth of telecom in rural India has been lagging and hence the government and TRAI are giving stricter guidelines to telecom companies about the rural penetration. Hence telecom penetration would play a vital role in telecom operators strategy for the coming years.Mergers and Acquisitions in Telecom in IndiaAs already discussed there are many reasons for a company to pursue the path of Mergers and Acquisitions. In telecom industry in India some of the reasons why companies take up M A areGeneral motivesTo spread and reduce costsTo specialize in competenciesTo gain knowledgeSpecific motivesTo gain location-specific asset sTo overcome governmental constraintsTo diversify geographicallyOne reason that stands out the most in these set of factors is the governmental constraints. The governmental constraints in telecom industry are laid out through Department of Telecom and they are monitored by Telecom Regulatory Authority of India. The constraints on foreign investment in India are as followsFDI upto 100% inTelecom manufacturingISPs without gatewaysInfrastructure provider (IP) ICall CentresIT enabled servicesFDI upto 74% inISPs with gatewaysIP IIRadio page numberFDI upto 49% in other telecom servicesCellularBasicNLD and other servicesExpected strategy path in Telecom sector in IndiaFollowing graph shows the Price sensitivity of the market versus the cost lead that a company should achieveIndiaPrice SensitivityCost leadership DifferentiationAny company that wants to enter the Indian market should look at attaining cost leadership as the market is passing price sensitive. Cost leadership can be ach ieved through economies of scale if the partnering firm is an existing telecom player with established network resources.Motives for going Global for any companyUninors motives for going GlobalSpreading costsAchieving specializationAvoiding competition in domestic marketSecuring Vertical and Horizontal linksGaining technical expertise emergence revenue to sustain growthTapping new markets due to saturation of domestic marketDiversifying geographically i.e. International presenceHofstede cultural dimension differences between India and Norway areaPDIIDVMASUAIIndia77485640Norway3169850PDI Power Distance IndexIDV IndividualismMAS MasculinityUAI Uncertainty dodge IndexSource Greet Hofstede Scores -ITIM InternationalHofstedes cultural DimensionINDIANORWAYPower DistanceVery High. In India the level of inequality is endorsed by the chase as well as the leadersLow. The inequality in power distribution in Norway is very lessIndividualismModerately high. Collectivism is expected to the levels of family ties to a very large extent and has no political senseVery High. The relationships between individuals are weak limited to his/her immediate familyMasculinityHigh. more than penchant is given to the materialistic gains in IndiaLow. In Norway feminine values such as quality of life are given more preferenceUncertainty AvoidanceLow. Opinions are subjected to change. More oriented towards the acceptance of suspenseModerately High. People in Norway are less likely to accept uncertaintyAccording to the survey conducted by Hofstede among IBM employees India has power distance index as the where as in Norway Individualism is ranked higher than the other cultural dimensions. From the above figure it is clearly evident that there are significant cultural differences between India and Norway. The western management theories and practices that are successful in Norway may not work well in India. Indians hold different cultural core values than their western counter parts. T he Indian culture is hierarchical where the cultural norms have changed the way of thinking which affects various management operations, which Norse firms may find it difficult to understand. There is a huge difference between Indian and Norwegian work culture.In India a little authority is given to the middle management or lower management in decision making, in commonplace top management beholds the full authority to make decisions. Whereas in Norway decision making process in a conflict situation involving individuals of different levels of seniority. The management style in India is less aggressive in comparison with Norwegian style. Indians prefer male values such as competitiveness, assertiveness, ambition and the accumulation of wealthiness and materialistic possessions whereas in Norway people prefer female values such as relationships and quality of life. In Norway people are more oriented to develop and display their individual personalities and to choose their own affi liations than in India.Porters Diamond Model for IndiaDemandIndia consists of a population of 1.14 billion, 17.31% of the worlds population. It has around 300 million population of highly consumable middle class status. India is ranked second in the world in terms of having the largest telecommunication network, after china with more than 653 million subscribers. The telecom market in India has been growing by 20 to 40 percent every year since past 3 years. And is expected to grow with a CAGR of 11% in the coming next 10 years. The Indian telecom market is estimated to be $8 billion in 2010. 83% of market share comprises of basic service providers and only 17% value added service providers. Emerging technologies like 3G and penetration of internet in telecom sector are going to be growth drivers in the Indian telecom industry because of increase in demand for latest technologies.Supporting IndustriesThe Indian telecom industry has vast range of state of the art telecom equipment man ufacturers. The production of telecom equipment is valued at $12.3billion in 2010. Indian imports of telecom equipment accounted for 21% of US equipment production in 2009. Further Indian mobile companies strengthened their market position by launching various handsets. Indian mobile phone brands consists of 14% markets share. Telecommunication equipment major Nokia entropy is planning source components worth $28.5 billion from India in 2010-11. In 2009 it sourced components worth $20 billion. Indian telecom equipment production is estimated grow at a CAGR of 17.1% to reach $25 billion by 2014. India is fast emerging as a hub for global telecom Manufacturing and the production and exports of telecom equipment in the country have been on a steady rise. Leading global players have made significant investments in setting up manufacturing and RD facilities in India, with many more being planned.Resource EndowmentIndia is a knowledge pool with cheap labor. Indian telecom industry has sk illed labor available at low cost. With abundant skills availability, there are large swathes of lower tier vendors who can still compete on costs.Industry Structure and Firm StrategyIndian telecom industry is the worlds cheapest service provider. Indian telecom market has viewed a tremendous average growth rate of 40% for the last 3 years. It has become very competitive recently with advent of global players after the government made a policy change allowing FDI up to 74% in telecom industry. Major players are rapidly increasing their market share by continuously improving their network coverage, technology, customer relations by offering their services at significantly lower prices. New entrants like Virgin mobile, Aircel etc. are trying to position themselves as low cost value added service providers focusing on emerging technologies.Telenor is the worlds 7th largest telecommunications service provider and it aims to be a leading global mobile operator by leveraging on its inter national experience and technological expertise. It wants to achieve its goal by focusing on three regionsConsolidation of its position in the voice market through global expansions, acquisitions, mergers and JVs/partnerships rambling to Mobile communications and financial servicesTelecom/media/IT convergence, primarily through third-party applications and servicesUNINOR- The GenesisUnitech Wireless won a wireless services demonstrate for all 22 Indian telecom circles in2008. In early 2009, Unitech Group and Telenor agreed on a majority take-over by Telenor of Unitechs wireless business. Telenor acquired a 33%, 49% and 60% stake in the company in March, May and November 2009, respectively. In September, the mobile operation changed its name to Uninor. On October 19 2009, the Cabinet perpetration (CCEA) announced approved Telenors acquisition of up to 74% in Unitech Wireless.UNINOR PresenceUninor launched its service in India in December in 8 telecom circles. It off-key out to be the speediest telecom roll-out in India. Within 5 months, it entered five more circles including the metros of Mumbai and Kolkata.Uninor has its headquarters at Gurgaon and 11 regional headquarters in the following citiesKolkata Kolkata, West Bengal Orissa CircleDelhi / Noida (NCR) Delhi, Western Uttar Pradesh, Uttarakhand Rajasthan CirclePatna Bihar Jharkhand CircleMumbai Mumbai, Maharashtra GujaratLucknowGuwahatiChandigarhIndoreAhmedabadChennai Chennai, Tamil NaduBangalore Karnataka CircleHyderabad Andhra Pradesh CircleKochi- Kerala CircleUninors Strategic AlliancesUninor has outsourced its major operative functions to established players with proven expertise. The operational model is based on low-cost operations with a gradual network-build up, infrastructure sharing, comparatively cheap GSM equipment sourced from international markets, and IT-outsourcing.Uninor has entered into network and base station service agreements with partners with expertise in given areas l ike-Wireless-TT Info Service Limited for Tower sharing agreementsAlcatel-Lucent, Huawei Technologies India, Nokia Siemens Networks and Ericsson Telecommunications for network and radio equipment.Wipro Technologies for integrated IT services.UNINORs Strategy in IndiaUninor based its growth model in the fiercely competitive Indian market by providing value to the customers through a new tariff, called Dynamic set. Dynamic Pricing is an innovative pricing strategy that Uninor has pioneered in which the customer is charged different charges depending on the location and the network to which the call is made. Going by the maximum rebate offered by the company, a one-minute call could cost as low as 24 paise compared to 60 paise charged by other operators.UNINOR- Performance in IndiaIn the month of June, Uninor topped the list of new mobile operators by adding maximum connections to the tune of 1.01 million. The new mobile service providers together accounted for 1.65 million which was 1 3.5% of the total mobile subscriber additions during this period.Source Share Khan Brokerage report on Telecom sector, 16th July 2010Uninor had added just 2.1m active subscribers i.e. just 50% of the reported 4.3m as of Mar-10. The company defines active subscribers as those that used network during last 30 days. Even on active subscribers, ARPU at Rs 86 suggests low usage especially given that mobile revenues could have a higher contribution from activation fee during the launch period. The tariff cuts aimed at increasing the user might be a reason for the low ARPU.The new mobile operators including Etisalat DB, Loop , Uninor, Videocon, and STel added just 1.7 million new users in June 2010. Uninor added 10 lakh subscribers during this period. It is around 15 per cent of 12.29 million new subscriber base added during this duration by the industry.As a result, barring Uninor, none of the other players has managed to get even 1% market share of the 456-million subscriber GSM mobile m arket.According to the TRAI licence conditions, new operators are required to complete roll out in all the circles within three years and that deadline is fast approaching.CAPEX Guidance Lowered by TELENORTelenor cut back its India capex guidance by 25% i.e. Rs5.5bn for FY10. Uninor reasoned this to a combination of lack of spectrum, the fuddled security clearance process for equipments and the need to adjust roll-out speed for distributors. Uninor may find it tough to retain traffic beyond 1-2 quarters given the low level of tariffs already.Uninor has rolled out 18,000 cell sites (which was around 13,300 at end-Dec 2009). Uninor is currently operating in 13 circles with subscriber base of 43 lakhs (which was 1.2 million at December end 2009).ConclusionThrough the course of the study, we assessed the reasons which make MA and other means of inorganic growth, the preferred route to enter a market for international corporations. We tried to list down the motives and the vision behind such cross border transactions. We realized that a diverse range of parameters drive MAs globally. They can range from getting around government regulations to gaining a first mover advantage in a growing market.As more global corporations try to establish their foothold over the emerging markets, we witness interesting new trends. Their entry into emerging markets is increasingly by partnering with the local companies. This is perhaps also catalyzed by government regulations which stipulate maximum FDI limits for multinational corporations from abroad.We also looked at factors which contribute to the decision to enter/not enter a particular market for a corporation including the competitive advantage to the corporation and the cultural synergies between the parent market of the company and the new prospective market.We chose the extremely dynamic telecom sector for our analysis as it has seen numerous international players enter through the JV route. We analysed the dynamics of the telecom sector and the fallout of the recent 3G spectrum allocations on the sector.Uninor is the case we took for analyzing the actual details of an existing JV. We chose Uninor as its unique in the way that unitech wireless had no pri