A Case Study Of Uninor

A Case Study Of UninorAs the centre of economic activity shifts towards east, Multinational slews ar more and more adopting the inorganic r forbiddene to get onth in these grocerys. Mergers Acquisitions, spliff ventures and strategic entirelyiances be fair the vehicle for establishing presence in trade places give care India, China and South Africa. winning as they may seem, Mergers Acquisitions and Joint Ventures sop up in like manner been the most building complex transactions involving pecuniary, profession and heathen issues. through with(predicate) this project, we in exd to understand the motives which tantalize such transactions. Also, we intend to understand the parameters which argon crucial to fixate all JV make for. We accommodate chosen to study the fiercely emulous Indian telecommunicationmunicationmunicationmunicationmunication commercialise for our study as it has seen numerous International players entry trend the lucrative market thro ugh Joint Ventures.Our society for the study is Uninor, which is also one of the lushest festering refreshing entrants in the empyrean. What makes the illustration of Uninor more interesting is the unique combination of Indias second largest real estate confederation, Unitech Ltd and Norway- viled Telenor, the sixth largest ready communications group in the world. The top management is worn from Telenors spherical telecom specialists as closely as Indians who have topical anaesthetic expertise in developing telecom go in India. In this context, the cultural dimension to finis making in Uninor assumes enormous importance.Through the course of this study, we shall first look at mergers and scholarships as a nub to expand for companies. The key drivers, the specific motives as well as the examples cerebrate to situations which may mandate an MA transaction instead of maturement organi rallying cryy. In the next section, we shall look at the Indian telecom persever ance and its early potential for growth, major trends and the political sym racetrackies regulations which have defined the industry and catalyzed Joint Ventures among abroad and Indian firms.Then, we shall move everyplace to the analysis of India according to Porters rhombus model and the cultural synchrony betwixt India and Norway according to Hofstedes cultural dimensions. These analyses shall enable us to evaluate the paradigms of this Joint Venture.Subsequently, we shall analyze key components of Uninors dodge in India and also its performance in the past form. We shall also look at its future growth strategy and the hurdles to achieving its targets. We shall conclude our study by looking at the transformative effect of strategic alliances and the Uninor case in India. initiationThe phrase mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management transaction with the purchase, selling and combining of diametrical companies th at tush aid, finance, or help a growing political gather in upy in a given industry grow rapidly without having to create an opposite business entity. An acquisition is also cognise as a takeover or buyout, in which one beaten(prenominal)ity buys the different(a) (target comp all). When two companies come together and form a unfermented company altogether, it is kn birth as merger. On the contrary, an acquisition nookie be friendly or hostile depending on the size of the players involved.Acquisition usually refers to the takeover of a smaller firm by a large firm. However, one preempt nonice roughlytimes an acquisition of a big company by a smaller one. This phenomenon is kn aver as a reverse takeover. The acquisition reverse at is very complex with many dimensions influencing its outcome. at that control are many reasons why a company seeks acquisition. One is that some vital resource may be otherwise difficult to maintain for the firm, especially if the resou rce is necessary to adapt and function successfully at heart the local environment. The next list, not an exhaustive one, gives few motives for company pursuit International expansion.Geographic and Industrial DiversificationAccelerating GrowthIndustry integrationUtilization of Lower Raw Material and Labor apostrophizes supplement Intangible AssetsMinimizing Tax LiabilitiesAvoiding Entry BarriersFluctuating Exchange Rates adjacent(a) CustomersFor instance, an alive company may have personnel that the investor cannot easily contain at a true price on its own. By buying an live company, the buyer gets not only labor and management besides also the organizational structure of the target company.In accessory, a company can also recognise the good will and brand recognition the local company has which is important for marketing mass consumer products, especially in a unexampled market. One can also take financial considerations in few cases. For example, if a company depe nds substantially on local financing rather than on the transfer of capital may scrape it easier to gain access to local capital through an acquisition. Local suppliers divulge it relatively easy and are more comfortable interacting with an already existing company rather than a extraneous unloadprise.In few cases, companies bring out acquisitions as a means to thin out be 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(prenominal) than the approach of novel construction. This saves a lot of money to the company. If an investor has a cultism that a market does not justify added capacity, the risk of depressed prices and pass up unit gross 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 data track to carry over problemsAcquisit ion is harder to financeStrategic AlliancesAlliances can be described based on their objectives and where they fit in a firms honor chain. In terms of objectives, one can assume that scale alliances read at providing efficiency through risk pooling i.e. pooling of similar assets so that individual partners can carry out business activities in which they already have good fel bustedship. On the other hand, link alliances make use of completing resources to expand into new business areas. for each one organization dischargeing into a cross-border alliance has its own objectives for operating internationally. Further some alliances take place between partner entities functioning on a different train of nourish chain, known as vertical alliance, and sometimes on the equivalent level of value chain known as horizontal alliance.On a broader scale, the objectives for cross-border mergers can be divided into the following triplet categories which were refined earlier.Sales expan sion resourcefulness acquisitionRisk minimizationThe following section describes in detail the influence of each of these objectives on the ending of a merger.General MotivesTo Spread and reduce costsTo manufacture or sell in foreign countries, any company must invite certain fixed costs. If the volume of business is small, it is cheaper for the company to outsource the work to a specialist rather than regale it internally. The outsourcing agent can scattering the costs to more than one company and thus reap the benefits of economies of scale. If the business ontogenys, then the company can rethink its plan of outsourcing and produce everything internally. The company handling the performance or sales can lower its second-rate 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 supercharged 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 support 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 concentration can be horizontal as well as vertical.To Avoid or Counter CompetitionIt is not common to notice few markets that are not large enough to hold many competitors. ITC, for example, observed this phenomenon and pre-empted the contest 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 make out the profits jointly. For example, Coca-Cola and Danones joint effort to challenge PepsiCo and Nestle can be viewed as one such strategic move.To secure Vertical and horizontal LinksIt is clear that there 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 torrential anele reserves nevertheless as it lacked final distribution skills, in addition to making acquisitions abroad, it also made arrangements in countries that ensure a good market for its petroleum.Horizontal links provide finished products and components. For such kindhearted of finished products, economies of scope 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 fellowshipIn the present competitive world innovating new ideas to develop products and induce 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, makin g them more competitive in the future. We can consider the example of Chinese political sympathies 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 want to operate abroad.CulturalPoliticalCompetitive economic differencesGoing for a merger or an acquisition equips the company to handle 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 desire compulsory presence of a domestic player as a partner in the operations of a foreign company plot of ground few dont. In this case a merger is more favorable. The effectual factors which constraint may beDirect prohibitions against cert ain operating firms substantiative prohibitions (regulations affecting profitability)Mergers and Acquisitions that take place across countries allow for greater spreadhead of assets among the partner nations.To Diversify Geographi bodeyOperations 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 actual reason for diversification this does play a chela role in decision making. Mainly, if a product conditions favor a diversification rather than a concentration strategy, over referable to product vitality cycle etc, then there exists a strong reason for establishing foreign presence by collaborative arrangements, mergers. The higher(prenominal) 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 t he 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 above factors is very important while considering a decision to make grow or merge with another company. The stake involved, the management attention, cultural differences, constituent to the merger etc play a key role in its success. telecom industry in IndiaIntroductiontelecommunicationmunications 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 referees According to the Telecom regulative Authority of India (TRAI), the number of tele mobilize subscriber base in the arena reached 653.92 meg as on May 31, 2010Growth rate An attach of 2.49 per cent from 638.05 million in April 2010.Teledensity (Telephones per 100 people) Overall teledensity in India has reached 55. 38 several(prenominal) 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 services. Recent arouseding for 3G network spectrum allocation was one of the most followed biddings due(p) to the high stakes involved for some of the best players in telecom industry.According to the Department of Industrial Policy and Promotion (DIPP), the telecommunications sector which involves radio receiver paging, fluid services and radical telephone services attracted foreign direct investment (FDI) worthy 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 one million million during April-June 2010, which represented 67.19 per cent of the thorough overtaking valuation of the deals across all the sec tors during the period analyzed.Some of the recent Mergers and Acquisitions includeReliance Communication Ltd that merged GTL infrastructure Ltd, its telecom tower business, for US$ 11 billionOther major MA deals included getting of Kuwait-based Zain telecoms African business for US$ 10.7 billion by BhartiAirtelAcquisition of Infotel wideband for US$ 1032.26 million by Reliance IndustriesNorway-based telecom operator Telenor has bought a further 7 per cent in Unitech Wireless for a weeny over US$ 431.3 million. Telenor now has 67.25 per cent hold of the company spic-and-span trends- The Gamechangers3G servicesPublic sector companies phonely 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 auction process that was held to give 3G licenses in all the 22 circles. The bidding started after numerous political interventions s stand out it for almost 2 years. The process start ed 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 receiving set auctions for a period of 34 days. The auction prices went beyond expectations.A pan-India bid for tierce generation spectrum stood at US$ 3.6 billion. However no operator 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, fancy in 11 and Vodafone and the Tatas in nine circles each, according to the Department of Telecommunications. boorish telephonyOne concern that remains in the telecom industry is the penetration to rural India that has not been up to the expected levels till now. visor Minister, Manmohan Singh opined, Although the growth in the last few years has been truly dazzling 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 salvage in single digits. I had heard of plans for a Phone in each Village some twenty years ago. We have not still 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 observed that despite several attempts over the last ten years, telecom infrastructure in rural areas is lagging behind the expected levels. thither 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 estimate 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 teleco m 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 assetsTo 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 Pagin gFDI upto 49% in other telecom servicesCellularBasicNLD and other services evaluate strategy path in Telecom sector in India hobby graph shows the Price sensitivity of the market versus the cost leadership that a company should achieveIndiaPrice SensitivityCost leadership specialityAny company that wants to enter the Indian market should look at attaining cost leadership as the market is highly price sensitive. Cost leadership can be achieved 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 ambitiousness in domestic marketSecuring Vertical and Horizontal linksGaining technical foul expertiseIncrease revenue to sustain growthTapping new markets due to saturation of domestic marketDiversifying geographically i.e. International presenceHofstede cultural dimension differences between India and NorwayC ountryPDIIDVMASUAIIndia77485640Norway3169850PDI Power Distance major powerIDV IndividualismMAS MasculinityUAI Uncertainty Avoidance IndexSource agnize Hofstede Scores -ITIM InternationalHofstedes cultural DimensionINDIANORWAYPower Distance real High. In India the level of inequality is endorsed by the followers 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 sense truly High. The transactionhips between individuals are weak limited to his/her immediate familyMasculinityHigh. more than preference is given to the materialistic gains in IndiaLow. In Norway feminine set such as quality of life are given more preferenceUncertainty AvoidanceLow. Opinions are subjected to change. More oriented towards the credence of uncertaintyModerately High. People in Norway are less seeming to accept uncertaintyAccording to the survey conducted by Hofstede among IBM employees India has power blank 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 income tax return parts. The Indian culture is hierarchical where the cultural norms have changed the way of thinking which affects various management operations, which Norwegian 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 prevalent top management beholds the full authority to make decisions. Whereas in Norway decision making process in a conflict situation invol ving individuals of different levels of seniority. The management style in India is less aggressive in similitude with Norwegian style. Indians prefer male values such as competitiveness, assertiveness, ambition and the accumulation of wealth and materialistic possessions whereas in Norway people prefer young-bearing(prenominal) 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 affiliations than in India.Porters Diamond Model for IndiaDemandIndia consists of a population of 1.14 billion, 17.31% of the worlds population. It has just about 300 million population of highly consumable middle association 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 manufacturers. 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 Siemens 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 uphill as a hub for international 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 skilled 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. innovative 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 international 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/partnershipsMobile to Mobile communications and financial servicesTelecom/media/IT convergence, in the main through third-party applications and servicesUNINOR- The GenesisUnitech Wireless won a wireless services licence for all 22 Indian telecom circles in20 08. 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 Committee (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 turned out to be the speediest telecom rolling wave-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, westerly Bengal Orissa rotary converterDelhi / 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 running(a) functions to established players with proven expertise. The operational model is based on low-cost operations with a stepwise network-build up, infrastructure sharing, comparatively cheap GSM equipment sourced from international markets, and IT-outsourcing.Uninor has entered into network and base seat service agreements with partners with expertise in given areas like-Wireless-TT Info Service special(a) 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 Pricing. Dynamic Pricing is an innovative pr icing 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 discount 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 13.5% 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 habitude especially given that mobile revenues could have a higher role from a ctivation fee during the launch period. The tariff cuts aimed at increasing the drug 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 hundred thousand 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 market.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 stringent surety clearance process for equipments and the need to adjust roll-out speed for di stributors. 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 before long 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 passel behind such cross border transactions. We realized that a different 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. Thi s is perhaps also catalyzed by government regulations which qualify 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