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Analysis of the Internationalisation of the MTN Group

Dries Oelofse

Subject: Business Environment

Number of pages: 12

Due date: 17/10/2011

Group: MBA Modular Group 2010 E1

Lecturer: Dr Karsten Wellner

Office use only: Date received:

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Table of contents

Table of contents i

List of Tables ii

1. INTRODUCTION 1

1.1 GENERAL OVERVIEW 1

1.2 FINANCIAL OVERVIEW 1

2. MTN INTERNATIONALISATION PROCESS 1

2.1 HISTORY 1

2.2 STRATEGIES PLANNED AND FOLLOWED 2

2.2.1 Timing and Tactics 2

2.2.2 “The One that got away” 3

2.2.3 Future Strategies 3

3. ANALYSIS OF THE INTERNATIONALISATION OF MTN 4

3.1 TIMING 4

3.2 DIVERSIFYING RISK 4

3.3 EXTENT OF INTERNATIONALISATION 4

3.3.1 Quantitative Measures 4

3.3.2 Qualitative Measures 5

3.3.3 Conclusion 6

4. ALTERNATIVE STRATEGIES 6

4.1 CONSOLIDATION OF THE INDUSTRY UNDERWAY 6

4.2 TAKING ADVANTAGE OF GLOBALISATION WITH A LONG-TERM VIEW 7

5. REFERENCES 9

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List of Tables

Table 1: MTN Group history in International business arena (MTN Group, 2011) 2

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1. INTRODUCTION

1.1 GENERAL OVERVIEW

MTN is one of the largest telecommunication companies in the developing world. It has a head

office based in Johannesburg, South Africa but has almost 35 000 employees in 21 countries in

Africa, Asia and the Middle East. MTN provides cellular phone and data services to a combined

488 million potential subscribers and has a market penetration of approximately 29% (MTN

Group, 2011).

1.2 FINANCIAL OVERVIEW

MTN has a market cap of more than R250 billion and had a revenue of R114 billion for the year

ending December, 2010. In the 21 countries MTN are active they have the majority of market

share in 15 of those countries (Nhleko, 2011). Traditionally MTN is a cell phone company but

data costs from subscriptions are contributing an ever-larger portion of the company’s earnings.

The company also invested heavily into new undersea internet cables to support this very

important aspect of the telecommunications sector.

MTN is a well-managed company and in an environment where there were not many

opportunities for growth, MTN managed a better operating margin of 44%, up from 41% thus

controlling their costs much better. MTN as a brand is also very valuable and is the only brand

listed on the BrandFinance Global 500 index at number 199 with a value of almost $5 billion

(Nhleko, 2011).

MTN is a transnational company with a large footprint in emerging markets and a grand vision of

being the telecommunications leader in developing economies. The process of being active in

21 countries and having 68% of its total revenue contributed from outside its home market of

South Africa started soon after MTN started its operations.

2. MTN INTERNATIONALISATION PROCESS

2.1 HISTORY

In Table 1 there is a summary of the international expansion of the MTN group. From starting as

a South African company it not only managed to secure a substantial local market share but

also a significant presence 21 developing economies.

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Table 1: MTN Group history in International business arena (MTN Group, 2011)

Time period Activities

1994 M-Tell acquires South African Operations

1997 – 1999 Licenses for Swaziland, Uganda and Rwanda with operations starting soon after

2000 License for Cameroon

2001 License for Nigeria

2005 Stakes in companies in Côte d'Ivoire, Zambia, Botswana, Congo and IranCell

2006 Investcom LLC acquired for R33,5 Billion providing a footprint in 8 additional countries as well as new licences for Guinea and Afghanistan

2009 Bharti Airtel deal to create third largest telecommunications company in the world fails

Still active in 21 countries Data Cable investments and significant CAPEX Recently less CAPEX

2.2 STRATEGIES PLANNED AND FOLLOWED

MTN has a vision to be the leader in telecommunications in developing markets. The company

has three main strategic pillars:

participating in the consolidation of the emerging markets’ telecoms sector and reducing

the concentration of MTN’s earnings;

leveraging MTN’s existing footprint and intellectual capacity; and

pursuing convergence and operational excellence.

The strategic pillars would have encompassed several strategic objectives and while those are

not readily available, the tactics used and the timing with which they were executed can be

easily analysed.

2.2.1 Timing and Tactics

MTN started operations in the early 1990’s when GSM technology was really coming to the fore

and the possibilities of cell phone companies became evident. At this time MTN management

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had to move quickly to take advantage of the relatively unregulated African market at that stage,

which they did and various operating licenses early until 2001. MTN set up subsidiary

companies in these new markets and to this day maintain a strong market share

This pioneer/first mover advantage gave MTN a solid base from which to pursue its future

growth strategy that quickly became that of a follower strategy once the markets were relatively

saturated and no more new licenses were available from regulators. MTN then turned to an

opportunistic Merger and Acquisition phase and from 2005, this was the main method of growth

from then 2001 to 2006. MTN used its intellectual capacity (expertise and experience) to acquire

substantial stakes in many developing economy companies and by doing so increased their

footprint and potential subscriber base.

2.2.2 “The One that got away”

In 2009 a very big merger deal worth $23 billion with Bharti Airtel from India fell through (Rediff,

2009). It would have created the world’s third largest telecommunications company if it could be

approved and provided MTN shareholders with tremendous growth opportunities through

access to large Asian markets, especially the Indian market. While the Indian government

supported the deal, the South African government did not and the deal was cancelled.

It was a missed opportunity to be part of a truly global company and one that would certainly

meet all MTN strategic objectives. It was a real shame that the South African government could

not be more flexible and as one of the biggest developing markets in India, the missed

opportunity to have access can be described as “the one that got away”.

2.2.3 Future Strategies

MTN is now in a phase where its implementation of the three strategic pillars mentioned above

is being focussed on consolidation and cost reduction. With new technologies becoming

available, mostly smart-phones the company sees a lot of growth potential within its current

asset base. Its investments in data cables coming into developing economies mean that there is

a lot of potential to now increase shareholder value because of new technology uptake.

The company has dramatically decreased their capital expenditure and is focusing on cost

cutting measures and growth in their subscription base and data usage as main drivers going

forward. Through their internationalisation strategy MTN has managed to create a footprint in 21

countries and is poised for further growth.

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3. ANALYSIS OF THE INTERNATIONALISATION OF MTN

MTN as a company is a true South African success story, and in many things that they did up to

2006 management were aggressive, entrepreneurial and visionary. Both the timing and the

tactics in pursuing their strategy were good and there are several outcomes that can be

discussed further.

3.1 TIMING

With the clear strategic focus on emerging economies, MTN had to consider the country specific

and cross national timing of their entry into the markets. The emerging markets were relatively

underdeveloped which certainly did increase the risk but also presented an opportunity to get

first mover advantage in new markets. MTN decided on a sprinkler-timing strategy to enter

many different markets as soon as possible, which is why they secured licences and set up

subsidiaries as soon as possible.

Once there were no more “unlicensed” markets MTN changed their approach to one of merger

and acquisition to participate in ever more developing markets. Today, timing is less relevant

because of the market maturity and growth lies in identifying other prospects.

3.2 DIVERSIFYING RISK

Developing countries provide quite a high-risk environment in which to do business. MTN

recognises this and mitigates the risk of operating in developing economies by being active in

as many as possible. Through their initial drive to register licenses in as many economies as

possible and through their subsequent merger and acquisitions, they have and will continue to

spread the base of their income over many developing economies.

3.3 EXTENT OF INTERNATIONALISATION

3.3.1 Quantitative Measures

MTN is a truly international organisation, and there are quantitative measures that can be used

to substantiate such a claim. According to the 2010 Annual Report MTN generates 68% of all

revenues outside of South Africa’s borders. MTN Nigeria is also the largest operation in the

group with more than 35 million subscribers. There are 20 subsidiaries that operate

internationally and a further two holding companies (MTN Dubai and MTN Mauritius) that are

not registered inside South Africa.

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3.3.2 Qualitative Measures

The extent of the internationalisation and the success of the approach can be qualitatively

analysed by using two methods. The Perlmutter model (Wellner, 2011) and the Bartlett/Ghosal

model (Wellner 2011).

Perlmutter

MTN can be classified according to the Perlmutter model as a Geo-centric. MTN is a complex

organisation that must fit into the regional requirements and expectations of regulators and

customers. The MTN executive committee is of diverse nationalities and is based throughout

the 21 countries MTN operates in.

The company maintains its branding, which is similar throughout its areas of operation, but does

customise the experience with the particular country in which it operates in mind. Senior Vice

Presidents in the group are based outside of South Africa and as a result will bring a diverse

experience and different perspectives to the group’s operations. MTN does very well to be a

truly international organisation while being locally relevant and making collective experiences

across the whole group part of the knowledge pool through a diverse executive committee and

board.

Bartlett/Ghosal

When focusing more on sectors and industries MTN is a good example of an international

company as well. MTN has invested heavily in infrastructure to support its business and

provides a high quality standardised service across all regions it operates in mainly because of

the standardisation of telecommunications devices and communications methods.

While central decision making related to the expansion of the group is a reality, local operations

and decision making for delivering a service seems to be the norm. The standardised service

that is telecommunications is delivered through a local subsidiary/partner with the customers in

mind. The group growth in subscribers is also driven deliberately by individual countries that aim

to please customers they serve.

MTN’s investment in infrastructure enables it to reduce CAPEX in the short term and with the

ever increasing demand for their products and service growth in their business, especially in the

area of data (as smartphones and tablets go into developing markets) should for the bulk of

their growth in the foreseeable future.

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According to the Bartlett/Ghosal model MTN is a transnational company that offers a highly

standardised and high quality product to customers at a local level and with their local needs in

mind.

3.3.3 Conclusion

MTN demonstrates through quantitative and qualitative measures that they are a truly

international organisation that incorporates the best characteristics (according to the models

used) of international organisations. It is a Geo-centric, transnational organisation that

succeeded in establishing the MTN brand as a dominant force in the developing markets’

telecommunications industry.

4. ALTERNATIVE STRATEGIES

The tactics used and the timing of executing them allowed MTN to pursue their strategic

objectives very successfully and establish a truly international footprint in their target markets.

Their initial drive to enter developing markets as pioneers was successful, since the

telecommunication industry is highly regulated and very competitive.

The subsequent actions of growing the geographic footprint in accordance with their strategy

and as a risk mitigation effort, was also reasonably successful. The action that created the most

value for shareholders was that of the acquisition of Investcom LLC that substantially increased

the number of potential subscribers and the footprint of the group. The biggest area of concern

is that of the failure of the merger with Bharti Airtel.

4.1 CONSOLIDATION OF THE INDUSTRY UNDERWAY

The first of the three strategic pillars of the MTN group states that the group wants to participate

in the consolidation of the emerging markets telecommunications industry and reduce the

concentration of its earnings. This means that the MTN Group sees growth for its shareholders

by continuing mergers and acquisitions where possible in as many different developing

economies as possible.

The problem is that the consolidation of the market has been continuing apace with MTN by no

means the only active company in the markets it targets it can almost be said; “all the low

hanging fruit has been picked”. MTN states that it is still interested in looking for opportunistic

mergers and acquisitions but are there still easily targeted opportunities like the opportunities

they took in the late 1990’s and early 2000’s?

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4.2 TAKING ADVANTAGE OF GLOBALISATION WITH A LONG-TERM VIEW

Arguing that so called “mega mergers” is perhaps the next logical step in the consolidation of

the telecommunication industry in developing economies is not a farfetched idea. The proposed

deal between Bharti Airtel and MTN would have created a truly giant company capable of

influencing and perhaps even penetrating any market available (Rediff, 2009). It would have

also provided MTN with access to one of the future economic powerhouses in India and could

have delivered immense shareholder value.

The problem was local regulation that prevented the proposed dual listing of the companies in

South Africa and India. The Indian government reportedly spoke at the highest level to the

South African government in support of the deal and yet the South African government could

not be flexible enough.

Was the South African Government short-sited or indeed wise to not allow this deal? Would

MTN loose its South African identity and would the country loose some tax revenue? Or would

the country gain not only the prestige of the world’s number three telecommunications company

but immense potential future earnings from increased global business in the fastest growing

economies on earth.

MTN should have tried harder to make this deal work or should have had the foresight to

prepare the regulatory environment to accommodate a deal of such magnitude. MTN’s strategy

is ironically South Africa’s with this country part of a group of growing developing economies

and the need to do more business internationally. Furthermore, there is considerable political

representation into the governing political establishment on the board of MTN through their

Chairperson.

MTN should recognise the important role government plays in them following their strategy and

delivering value to their shareholders. They recognise it in each of the 21 countries they operate

but perhaps ironically not in the one in which they can meet their number one strategic

objective. MTN should evaluate the local regulatory environment’s suitability for doing global

business and should form part of an active business lobby to bring necessary changes to

legislation to the attention of government.

Globalisation and international business is always perceived as a threat to local jobs and

producers (Business Day, 2011), but the opportunities to take the advantage is rarely

recognised. By helping to shape the regulatory environment companies like MTN with a

mandate to internationalise their business can bring value not just to their global shareholders

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but to the South African economy as well. It will be in their active pursuit of common ground with

the South African government that the MTN Group can go from a South African success story to

a global success story.

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5. REFERENCES

Business Day, State’s court bid to undo Walmart merger,

http://www.businessday.co.za/articles/Content.aspx?id=148801, 2011

MTN Group, MTN Group Limited, Integrated Business Report for the year ended 31 December

2010, 2011

MTN Nigeria, http://www.mtnonline.com/about-mtn/corporate-information, 2011

Phuthuma Nhleko, Nazir Patel, Cyril Ramaphosa, Sifiso Dabengwa, MTN Group Limited, Final

Audited Results for the year ended 31 December 2010, 2011

Nazir Pattel, Debbi Millar, Review of results and funding outlook for year ended 31 December

2010 Presented May 2011MTN, 2011

Rediff Business, http://business.rediff.com/report/2009/sep/30/tech-bharti-mtn-deal-called-

off.htm, 2009

Karsten Wellner, Business Environment Lecture Notes, 2011

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6. POWERPOINT PRESENTATION

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