Will Bharti Airtel’s Business Model Translate to Sub-Saharan Africa?

Thursday, 10 June 2010

Andrea Bohnstedt speaks to telecoms and strategy advisor Jamie Anderson, Professor of Strategic Management at TiasNimbas Business School the Netherlands, and Associate Partner, Globalpraxis Group. It is good news for manufacturers of wall paint, t-shirts and baseball caps, but Zain subscribers in Nigeria and Kenya will probably have groaned at the news that India’s Bharti Airtel finalised the acquisition of Zain’s Africa operations: Yet another rebranding. More important than the paint jobs and new stocks of brand merchandise is whether the Indian operator will be able to transfer its business model to the continent where they have to deal with 15 different markets. Indian Outsourcing Bharti’s model needs to be understood in the context of rapid technology and outsourcing growth in India since the early 2000s, Anderson argues: Businesses could not scale up and expand fast enough on their own, and so companies began to look for partnerships and outsourcing relationships. This is integral to how Bharti Airtel manage their operations and became successful – by, in fact, keeping them at arm’s length: In their home market, Bharti Airtel have outsourced most functions, from network infrastructure to call centres and customer care, back office support and distribution What is the company really good at? Not necessarily the minutiae of telecoms operations – Bharti’s core competence is, above all, their ability to manage a network of partners. As a result, the challenge will be to determine if and how this value chain model can be transferred to the different African markets. There will not be a ‘one size fits all’ solution, anticipates Anderson: The outsourcing model needs scale, which Bharti find in markets like Nigeria, Kenya and DRC. For the other markets, this would only make sense on a regional basis. And it depends on the overall business environment, the available suppliers in each market and whether the market big enough to be appealing for the company’s current outsource vendors. This is, then, not a Bharti decision alone: They will have to discuss with their vendors if they want to follow them. In Nigeria and Kenya, Anderson expects that Bharti will talk to the existing vendors from their Indian home market. Vendors Tagging Along? Nigeria and Kenya are key countries in the Zain Africa/Bharti operations, and were attractive enough for Bharti network partners in India, Nokia Siemens Networks, to take the plunge. This helps to replicate the network, even if it may take some time for them to get up to speed.   In Tanzania and DR Congo, Anderson expects that Bharti may only want to take along their network vendors, but e.g. run their own call centres in a hybrid model: In Sri Lanka, Bharti tried to work with local call centres, but then decided to set up their own call centres to ensure quality. Kenya has an emerging call-centre industry where Telkom Orange has outsourced call-centre work, and Bharti have announced that they will locate their Africa headquarters in Nairobi. But whether the Kenyan industry meets Bharti’s standards, and whether they find similar partners in the other new additions to their portfolio is not yet clear. And in some smaller or less competitive markets as Zambia, they may just leave things as they are for now. Building distribution will require creativity: Bharti’s distribution network rode on the back of India’s rapidly developing fast-moving consumer goods (FMCG) sector, Anderson cautions, far ahead of sub-Saharan Africa in its sophistication and reach to rural customers. In Kenya, for example, this will be a headache: Safaricom have locked up distribution, and Zain have been unable to restructure this. And then the network effect – that everyone’s contacts are on the same network, and therefore there is little incentive to move on to a different operator – kicks in. This is tough to fight for a late entrant, warns Andersen, and they need to investigate alternatives. Perspectives Moving into 15 new markets on a different continent will by no means be a walk in the park. Bharti will have to consider conditions in each market carefully and then adjust their model. But Anderson is confident that the company is aware of these challenges and has both the willingness and ability to do this: First of all, he points out, India may be one country, but is by no means a homogenous landscape. Bharti make a sizeable part of their revenues in Bihar, a state that grapples with a Maoist insurgency, militias and crime: not a carbon copy of the Niger Delta, but nonetheless an environment with serious security challenges. Moving into Sri Lanka required adaptation, and Andersen emphasizes that that the company is good at developing local management teams, crucial to understanding the new markets. Where is the space for a late entrant? “Nigeria is an incredible opportunity”, Anderson argues: “MTN and Glo have focused on urban areas, network quality is still poor and tariffs are high. Penetration remains below 40%. If Bharti focus on driving up penetration in rural areas - where nobody has bothered to compete yet -, then they could dominate the rural market in three to four years with their operator model in place.” This approach could also offer a promising strategy in Kenya where all new entrants have fought to attack the number one in the market and exhausted themselves in the process rather than tried to move beyond the highly competitive urban markets. Like Nigeria, Kenya has sufficient population density outside the capital. It could also be good news for suppliers to the telecoms industry: Even if Bharti do not find the same business environment ready to respond to outsourcing needs, they might choose to build these capacities in co-operation with their future suppliers over time. Precedents for this exist e.g. in how Toyota trained US supplier when they moved to the US. For Kenya’s nascent call-centre industry, this is an opportunity, and Ghana and Uganda have similar call-centre aspirations. Share this article with others: Comments (0) Subscribe to this comment's feed Write comment Show/Hide comment form Name Email Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Add Comment