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Kaseem Damilare Ayanlola Bachelor thesis Fall 2009

Department of Economics Author:

Bachelor thesis Kaseem Damilare Ayanlola

Supervisor:

Roger Bandick

Topic:

Mobile telecommunication in Africa-

An investment opportunity for Telenor

Aarhus, Denmark

2009

Abstract

1


Mobile telecommunication in most developed countries has reached a saturated stage which

makes it highly competitive for the big companies in the industry. Many of these big

companies are now looking forward to the developing nations where the industry is still at its

growing stage.

Africa as a continent is one of those places where mobile telecommunication is still at its

growing stage. There are growing opportunities in the industry which can be evidence in the

amount of FDI of some international companies into the continent.

This thesis is aimed to evaluate the mobile telecommunication in Africa as an investment

opportunity for Telenor, the Norwegian telecommunication giant which has grown beyond

the Scandinavian border to Eastern Europe and to some part of Asia in recent years. This part

of the world (Africa) was chosen because there has been no telecommunication company in

Scandinavia that has been in Africa despite the growing opportunities.

Telenor group strategy is by 2011 to be one of the fastest growing mobile operators in the

world, with a strong broadband position in all markets, successfully developing new services

and adopting new and responsible business models. The company business strategy is to

explore new markets and technologies to make long-term investments. This could be

achieved if the company tries to expand it base to Africa. To achieve this aim, Nigeria was

chosen to be the target market due to its enormous opportunities. Also the country is the

regional leader and the front runner in issues concerning Africa and the rest of the world and

also tagged the most populous black nation in the world.

In investigating the opportunities for Telenor in this market, external as well as internal

analysis will be made. Since this market is completely new to the company, the market entry

mode will also be analyzed to see the cost/benefit for the company and a way forward.

Table of Contents

1. INTRODUCTION..........................................................................................................................5

2


2. DELIMITATIONS..........................................................................................................................6

3. THE HISTORY OF TELENOR..........................................................................................................73.1 In the past................................................................................................................................73.2 The Present..............................................................................................................................8

4. BUSINESS ENVIRONMENT IN NIGERIA.........................................................................................94.1 PEST( The country)...................................................................................................................94.1.1 Political factor.....................................................................................................................94.1.2 Economic factors.................................................................................................................124.1.3 Social/Cultural factors.........................................................................................................164.1.4 Technological factor............................................................................................................194.2 Porters five forces (The market).............................................................................................214.2.1: Threat of new entrants......................................................................................................214.2.2: Threat of intense Industry competitors..............................................................................224.2.3: Threat of substitutes..........................................................................................................224.2.4: Bargaining power of suppliers...........................................................................................224.2.5: Bargaining power of buyers...............................................................................................22

5. EXPLORING NEW MARKET........................................................................................................235.1 The competitive advantage of Telenor...................................................................................255.1.1: Factor Endowments...........................................................................................................265.1.2: Demand condition..............................................................................................................265.1.3: Related and supporting industries.....................................................................................265.1.4: Firm strategy, structure and rivalry...................................................................................275.1.5: Government.......................................................................................................................275.2 Can Telenor utilize their strength in Nigeria?.........................................................................275.2.1: Opportunities.....................................................................................................................275.2.2: Threats...............................................................................................................................28

6: INTERNAL ANALYSIS.................................................................................................................296.1: Resource-based view of Sustainable Competitive Advantage...............................................296.1.1 Prior or acquired resources.................................................................................................296.1.2 Innovative capability...........................................................................................................306.1.3 Being truly competitive:......................................................................................................326.1.4 Substitutability....................................................................................................................326.1.5 Appropriability....................................................................................................................336.1.6 Durability............................................................................................................................336.1.7 Imitability............................................................................................................................33

7. MARKET ENTRY STRATEGY........................................................................................................337.1 Exporting................................................................................................................................347.2 Contractual entry mode.........................................................................................................347.2.1 Licensing.............................................................................................................................347.2.2 Franchising..........................................................................................................................357.3 Investment entry modes........................................................................................................357.3.1 Joint ventures......................................................................................................................367.3.2 Wholly-owned susidiaries...................................................................................................36

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8. DETERMINANTS OF CHOICE OF ENTRY MODE...........................................................................378.1 External factors......................................................................................................................378.2 Internal factors......................................................................................................................37

9. CONCLUSION AND RECOMMENDATION....................................................................................38

BIBLIOGRAPHY.............................................................................................................................40

LIST OF ABBREVIATIONS IN USE....................................................................................................42

1. Introduction

4


There have been changes in the business and marketing activities around the world. This

could be evidence in changing technology, globalisation, deregulation in market places and

heightened competition for capital and resources (kotler and Keller, 2006, p. 12). There is

need for global companies to look beyond their borders in conducting business to achieve

much needed expansion and return on the investor’s capital. In regards to this, companies

should seek for more opportunities in current and emerging market while trying to minimise

cost.

In his 2005 annual report speech the President/CEO of Telenor, Jon Fredrik Baksaas, made it

clear the company mission and vision for the coming years. One of such is to build a unique

group of companies in mature and emerging markets with more than 100 million customers.

He expressed further the significance of mobile communication as a key driver to economic

growth especially in the financially constrained societies which can also contribute to

bridging cultural gaps.

This paper will give a thorough investigation of Nigeria’s telecom market in order to find out

the profitability of the market for an international company seeking a possible expansion in

an unknown business territory. The report will also expose the opportunities and the threats if

any, in this new market for Telenor based on the company’s past and current strengths. More

so, the outcome from the report should be conclusive enough to determine if the company’s

current strategy could work in the new market and to determine a suitable entry strategy.

For this reason, there are some basic issues that need consideration especially if the new

market is beyond the sphere of current operation. These basic issues will be addressed in

question forms like:

1. What are the political situations of the new market?

2. Is the economic situation favourable for business?

3. What social/cultural issues need to be considered in this market?

4. What is the level of technology in the host country?

5. How can the company’s current position affect the new market?

6. And lastly, in which way can the company do business in this new market?

All the above mentioned issues will be main discussion points in this report and effort will be

made to give a comprehensive report and to make clear what might be ambiguous for the

company decision maker.

5


The choice of market is based on investment opportunities and the size of the market. In

2007, the population of Africa stood at 965 million and Nigeria at 148 million ( UN, 2008)

which makes the country 15.4 percent of African population. The choice of the company is

based on the company’s international experience. TDC and TeliaSonera were considered but

as for TDC, the company has limited international experience with operation in four

countries. TeliaSonera is currently operating in 20 countries through WOFI and joint venture.

Telenor is currently operating in 13 countries and could expand to Africa which has not been

explored by other Nordic telecom companies to gain more market share.

Business environmental analysis will incorporate political, economical, social and cultural as

well as technological (PEST) factors in this target market. Following this will be the chosen

market competitive attractiveness and long-run profitability and with this Porter five forces

will be used for the analysis. This will be followed by the competitiveness of international

mobile telecommunication industry and with this Porter’s diamond theory will be used in

assessing the industry. More so, internal analysis will assess what the company is better at

doing to affect their position in the chosen market. The seven elements resource-based view

of competitive advantage will be used to analyse the company’s sustainability in the chosen

market. Lastly, the choice of entry mode will be discussed. This section can considered the

engine that runs any organisation due to the significant impact it has on a company. Different

market entry mode will be considered before the right entry mode will be chosen for Telenor

Conclusively, after the thorough investigation of Nigeria telecommunication market and the

company capabilities, one can conclude that it will be a good idea for Telenor to expand their

business to Nigeria as both the country and the industry has a lot of potential to offer. Joint

venture is recommended as initial investment entry mode and after the company has gained a

certain foothold, wholly owned investment should follow.

2. Delimitations The information that will be used in the external analysis will be from 1999-2008 due to the

economic turnaround that happened during this period in the chosen market. Also most of the

information about the company background, facts and figures will only be obtained from the

company website as no effort is made to contact the company for this project. Due to the

company product varieties, only mobile phone and broadband will be discussed in this

project.

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3. The history of Telenor

3.1 In the past Telenor has a long history which goes back to 1855. The company started as Norwegian

Telegraph Administration and the first telegraph line was opened between Christiana and the

city of Drammen.1867 saw the connection between Norway and Denmark and two years later

the telegraph cable connection extended to Great Britain.

In 1870 the telegraphic connection reaches the far north of Norway thereby ensuring a

nationwide coverage. Seven years after in 1877 there was a public display of the first Bell

telephone in Norway. With this new development, telephone cables were connected across

the country and in 1881 the Norwegian government passes the Monopolies Act, which gives

the state exclusive rights to convey messages by means of telegraph lines and similar

installations.

The beginning of the 20th century saw the automatic telephone exchange and the connection

between Norway and the United States. In 1946, telex was introduced to the people and

between this period and 1970 the number of subscriber increased from 55 to 3531. The first

telephone satellite by Norway from the United States was received in 1965 which gave way

for more connectivity in the telecommunication industry and it is at this period that the direct

distance dialling was enabled in Norway.

The 70s and 80s could be viewed as the turning point in modern telephoning. The Norwegian

Telegraph Administration changed its name to Norwegian Telecommunication (Televerket)

with total employment of 17250 staff. There is also unique cooperation between Nordic

countries to create a common standard which results in Nordic Mobile Telephony. This

period also see improvement in the network coverage in Norway with 50 percent of the

country covered and partnerships set up to establish international standards for the

telenetwork mobile networks. The 1980s saw a period of cooperation with international

partners in creating technical solutions such as satellite services, the NMT 450 (Nordic

Mobile Telephony) and GSM (Global System for Mobile communications) mobile systems.

In the late 80s and the 90s, the market for telecommunications terminals was opened up to

competition and the Norwegian Telecom develops international business in accordance with

customer needs and this has been one of the company’s strategies till date. Mobile phone was

introduced and there was a huge increase in its usage.1995 through 1999 had significant

7


impact in the company in many ways. International expansion became a proclaimed strategy

and the company brought its business into international market but these activities had started

long before the mid 90s. The company changed its name to Telenor, the company linked its

infrastructure to the internet and sms from mobile to mobile was enabled.

It was also this year that the company invested in joint ventures in Ireland, Austria, Russia,

Lithuania, Hungary, Bangladesh and Montenegro and a licence to develop GSM networks in

Montenegro and Bangladesh was awarded. The company together with partners was awarded

licences to develop the mobile network in both Greece and Austria. Entered a consortium to

build mobile networks in Ukraine and Germany and mobile networks was opened in Ireland

Figure 1: Telenor company logos and names

Source: Telenor.com

3.2 The PresentFrom 2000 till date the company has engaged in horizontal integration through merger and

acquisition and also wholly owned foreign investment with the aim to increase the market

share and to reduce the company cost of operating in foreign countries. There has been so

much expansion through merger and acquisition from the company in many parts of the

world and these are not limited to mobile phone but also to other parts of the company’s core

activities. From 100 percent acquisition of Sonofon Denmark in 2003, acquisition of both

broadband suppliers Cybercity in Denmark and Bredbandsbolaget in Sweden to acquisition

of Vodafone Group in Sweden and launching of Telenor in Pakistan in 2006.

At the moment, Telenor has its presence in all the Scandinavian countries, Hungary, Serbia,

Ukraine, Montenegro and Russia in Eastern Europe, Thailand, Pakistan, Bangladesh,

Malaysia and India in Asia. The company is dynamic and flexible in its business approach

and always trying to explore new markets and new technologies to make long term

8


investments. At the end of the second quarter of 2009 the mobile subscriber had reached

168million (see figure 8 below).

4. Business environment in Nigeria

The strategic thinking of an organisation starts when considering going abroad from the

external business environment analysis. These are factors which the company cannot affect in

any way but has to adapt to in the host country and they determine also the mode of entry for

a company and how the company should or will operate. For this, PEST analysis will be

made to describe the external business environment in the chosen market. In section 4.2,

Porter five forces will be used to analysis the market competitive environment.

4.1 PEST( The country)

4.1.1 Political factor The administration of the country is divided into three tiers, which is the federal government,

the states governors and local government chairman. There are 36 states and the federal

capital, Abuja, and 774 local government areas in the country. The legal system is based on

English common law, Islamic law in 12 states and traditional law. The legislative branch

consists of National assembly and House of Representatives (CIA fact book, 2009). Nigeria

has been under one military rule to another since independence which has ruined the

economy of the country due to corruption and embezzlement of public funds by those

military leaders without any check and balances. After the death of the last tyrant (Sanni

Abacha) in 1998, this paves ways for a democratic election which may be regarded as a new

beginning for the country (OECD report, 2001).

After over 15 years of military rule, Olusegun Obasanjo was elected as the president in 1999.

After his inauguration, he implemented series of reform which include improved

macroeconomic management, financial sector reform, privatisation and deregulation,

institutional reforms, and improvement of the infrastructure of the country (OECD report,

2004/2005; J.Harnischfeger, 2008).

The reform in the financial sector consolidated the banking system by stipulating a minimum

paid-up capital of $188 million. This resulted in mergers and acquisition of number of banks

from 89 in 2004 to 25 at the end of 2005. The aim of the government was due to the role the

banking sector plays in financial economic development of the country. The privatisation and

9


deregulation also saw an improvement with this new democracy and 45 public enterprises

have been privatised among which is the communication sector which improved access to

telecommunications services in the country. Downstream petroleum was also deregulated and

this was accompanied by reduction in government subsidies on petroleum products (OECD

report, 2004/2005).

Infrastructure is another reform in which the Obasanjo administration tried to bring back into

normalcy. Transport infrastructure services are inadequate and in deplorable condition in all

the sub-sectors which requires urgent rehabilitation. The Bureau of Public Enterprise (BPE)

was formed to address the transport sector reform. BPE reform agenda was centred on setting

up legal and regulatory framework for participation of private sectors in the transport sector.

To achieve this, National Transport Commission was formed in collaboration with the

Federal Ministry of Transport (OECD report, 2004/2005).

Nigeria is a member of different international organisations. Regional organisations like the

African Union (AU) and Economic Community of West African States (ECOWAS). The

country also is part of international trade, peace and health organisations to mention but few,

which give the country an international recognition (CIA fact book, 2009).

In an effort by the government to create an effective private driven economy, there have been

some incentives by the government to attract FDI which will promote innovation and

competition, employment generation, improve the country’s export profile, increased

domestic capital and transfer of technology. Some of these incentives cover all sectors while

target specific sectors (Baah & Jauch, 2009). The lists of incentives which are from the

Nigeria Investment Promotion Council are listed below:

Companies income tax: - The Companies Income Tax Act amended and potential and

existing investors and entrepreneurs pay 30 percent except for petroleum

Pioneer Status: - This is a tax holiday granted to qualified industries. Also a seven years tax

holiday to industries located in economically disadvantaged local government area of the

country. The list of pioneer product includes installation of scientific instruments and

communication equipment, information and communication technology. ( More on the list

could be seen at NIPC.gov.ng)

Tax relief for research and development: - Up to 120 percent of expenses on R&D are tax

deductable if carried out in Nigeria. R&D on local raw materials carries 140 percent of the

10


expenses deductable. Long-term research will be considered as capital expenditure and will

be written off against profit.

Capital allowance: - 75 percent of assessable profits for manufacturing companies and 66

percent for others

In-Plant training: - 2 percent tax concession is granted for 5 years to industries that have

established in-plant training facilities.

Investment in infrastructure: - This incentive granted to industries that provide facilities

that ordinarily should have been provided by the government. 20 percent of the cost of

providing theses infrastructure is tax deductable.

Telecommunications: - Government provides non-fiscal incentives to private investors.

Taxes and duties do not exceed those charged on essential electrical goods

There are some political and economic challenges faced by the Nigerian government among

which are Niger Delta, corruption and religious crisis. Foreign oil firms are the target of the

militant group in Niger Delta and in some cases foreign employees are taking hostage.

Movement for the Emancipation of Niger Delta (MEND) has been responsible for most of the

violence in the region which include vessel attack and hostage taken. This development has

led to the formation of Ministry of Niger Delta by the government to see to the issues

concerning the region and to end violence (OECD report, 2007)

Corruption is another challenge which the government is doing so much to combat. The past

and the present government put enormous effort in combating corruption in the country.

Through the work of Independence Corruption Practices Commission (1CPC) and Economic

and Financial Crime Commission (EFCC), the fight against corruption has progressed in the

country for some years now (OECD report, 2004/2005). Governors are not given immunity

again and those who are found to be corrupt are arrested and brought to justice. Other past

and present senior officials that looted while in office were also arrested and brought to

justice1. By 2008 Nigeria was ranked 121out of 181 by Transparency International in its

Corruption Perception Index.

Religious crisis is of great challenge for the government. With the introduction of Sharia law

in 12 states of the country, there has been a continuous unrest with loss of lives and property.

The Muslim extremists in the north who are being influenced by politicians fight non-Muslim

mostly from the southern part of the country which has been ongoing for some years now

1 More on the list of current prosecution could be found on http://efccnigeria.org

11


(J.Harnischfeger, 2008). The lastest of which occurred September this year in Maiduguri

involves a religious sect known as Boko Haram (Western education is sacrilege) who wants

the abolition of western influences in their society (AP, September 2009). This led to loss of

lives of both civilians and some security men but in the end the government was able to

control the situation and the leader arrested and prosecuted.

4.1.2 Economic factors Oil rich Nigeria is the second largest oil producer in Africa following Angola, but the country

has been crippled by political instability, inadequate infrastructure, corruption and poor

macroeconomic management. For almost 10 years now after the transfer of democracy back

to the people, there has been a series of economic reform to change the country into a market

oriented economy as proposed by IMF (CIA fact book, 2009).

There has been considerable growth in the country’s GDP (see figure 2 below) over the years

which could be attributed to the increase in global oil prices and also the reliance of the

economy on oil which is accounted for 95 percent of foreign exchange earnings and 80

percent of budgetary revenues (CIA fact book, 2009).

Figure 2: Real GDP growth

20002001

20022003

20042005

2006(est)

2007(est)

2008(est)

02468

1012

Source: CIA, World Bank, AEO

Non oil sector like telecommunication, manufacturing, commerce and agriculture

performance has been very encouraging with growth of 8.6 percent in 2005, 9.4 percent in

2006 and 9.8 percent in 2007. Agriculture grew by 7.7 percent making it 39.4 percent of the

GDP increased to 42 percent in 2008 (OECD report, 2008;WorldBank, 2009). Manufacturing

in 2007 grew by 9.9 percent though it constitutes only about 4 percent of the GDP (OECD

report, 2008). This lower increase in manufacturing sector could be attributed to poor

infrastructural facilities like electricity which has forced some industries to either close down

12


their operation or move their operations to another stable country like Ghana and those who

remain to operate are doing so at a below capacity.

The Nigeria Communication Commission was established in 1992 and was mandated to

promote an environment that will facilitate the participation of private sector to increase and

expand the existing telecommunication sector. This had not been successful until 1999, when

the past president (Obasanjo administration) issued a new policy framework and set some

target which includes increase in telecom growth rate by 13.5 percent minimum annually,

ensuring that telephones are within 5km of walking distance throughout the country

(Sheriffdeen A, et al, 2007).

Telecommunication in Nigeria received a boost in 2001 with the deregulation of the sector

which allows for private GSM service providers to come into the country to support the

existing national operator NITEL. Two private companies MTN of South Africa and

ECONET of Zimbabwe were licensed by NCC to operate GSM in addition to NITEL the

country owned telecom company. These two companies alone increased the mobile telephone

line from 300,000 in 2001 to 1,660,000 in 2002. In 2003 another private provider,

GLOBACOM , entered the market with its mobile service Glo-mobile (OECD report,

2003/2004)

Table 1: Growth in the telecommunication sector of Nigeria

2000 2001 2002 2003 2004 2005 2006 2007 20082009(June)

Pop in

Million 120 120 120 120 120 130 140 140 150 151

Fixed line

553,37

4

600,32

1 702,000 888,534 1,027,519 1,223,258 1,673,161 1,579,664 1,307,625 1,435,279

13


Mobile(GSM

) 35,000

266,46

1

1,569,05

0

3,149,47

2 9,174,209

18,295,89

6

32,184,86

1

40,011,29

6

56,935,98

5 59,194,972

Total

588,37

4

866,78

2

2,271,05

0

4,038,00

6

10,201,72

8

19,519,15

4

33,858,02

2

41,590,96

0

58,243,61

0 60,630,251

Source: Adapted from Nigeria Communication Commission

The growth in both fixed and GSM mobile line could be attributed to more licenses given to

private providers as seen in Table 1 above. There has been other licenses given to private

provider since 2003 and the share of the market of each of these providers as can be seen

figure 3 below, shows that there is room for many players in the telecom sector of the

economy.

Figure 3: Market share of mobile operators

Source: Nigerian Communication Commission

Total investment in terms of FDI in Nigeria has shown some improvement since the return to

democracy. As can be seen in Fig 4 below, there has been an upward trend in the FDI inflow.

In early 2000 shortly after the return to democracy there has been a slow pace of FDI in the

country but with more incentives by the government, FDI inflow increased from $22,477

billion in 1999 to $62,791 billion in 2007 (UNCTAD, 2008). This has a projection of 12.2

percent and 7.2 percent growth in 2008 and 2009 respectively (OECD report, 2008).

Figure 4: FDI inflow from 1999-2007

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1999 2000 2001 2002 2003 2004 2005 2006 20070

10000

20000

30000

40000

50000

60000

70000FD

I in

mill

ioin

(US$

)

Source: UNCTAD statistics

The currency fluctuation in the country is another thing one need to look at (see table 2

below). Following the WorldBank directives, the government of Nigeria devalued its

currency in 2008 which brought a lot of criticism in the country.

Table 2: Nigerian currency rate per US dollar

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008

End of

period

109.6 113 126.4 136.5 132.4 129 129 126.8 126.3

Avg

period

101.8 111.2 120.6 129.2 132.9 131.3 131.3 123.2 125

Source: Adapted from UNCTAD, World Investment Directory; Central Bank of Nigeria, Exchange rate

The devaluation will consequently increase the prices of goods and services and thereby

causing cost-push inflation in the country. The adverse effects of devaluation on the local

firms will be severe in two ways. It will increase the debts of local firms to their foreign

suppliers or creditors which in the long run will wipe out the company profit and in some

extreme cases forces the company to close down. Secondly, local firms will require high

working capital to maintain their normal scale of business (ThisDay, newspaper, Jan 2009).

According to the ILO report 2008, economic active population was put at 50,130 million

which is one third of the country’s population (Table 3). The rate of economic active

population has been 31 percent in the year 2000, 34 percent in 2004 and 32 percent in 2007

which show a consistency of around one third of the country’s population over the years.

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Table 3: Economic active population in thousands

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008

Men(15-

65)

2477

5

2546

6

2604

1

2653

0

2708

7

2780

7

28451 2903

6

2965

9

Women(15

-65)

1281

5

1316

5

1364

6

1422

7

1476

0

1516

5

15661 1626

2

1687

0

Total 3759

0

3863

1

3968

7

4075

7

4184

7

4297

2

44112 4529

8

5013

0

Source: Adapted from International Labour Organisation (Laboursta)

The labour force by occupation was 70 percent agriculture, 10 percent for industry and 20

percent for services according to CIA report 1999 estimate. The country unemployment rate

was 4.9 percent in 2007 which put the country in number 60 according to CIA report on

world unemployment index. This low rate of unemployment shows how hard working the

people are in the country despite poor economic and structural issues the country is facing.

The inflation rate in consumer prices was estimated to be 5.5 percent and 11.6 percent in

2007 and 2008 respectively. This big change could be connected to the sudden rise in global

food prices and impact of the global financial crisis (WorldBank country report, 2009)

4.1.3 Social/Cultural factorsEducation:

With the introduction of Universal basic education (UBE) in 1999, this was aimed to provide

free education to all pupils both in primary and junior secondary school, the government has

increased its spending towards this and a considerable achievement has been made. The gross

primary school enrolment has increased from 98 percent in year 2000 to 120 percent in 2005

while the secondary school enrolment increase also by 2 percent point at this period (OECD

report, 2008).

The percentage of adult illiteracy aged 15 and above is 29 percent while the literacy rate of

the same age gap is 71 percent of the population according to according to the Human

Development Index of 2006 (UNDP, 2008). Combined primary, secondary and tertiary gross

enrolment ratio is 52.5 percent (2006). The education system consists of six years of primary

16


school, three years of junior secondary school, three years of senior secondary school, and

four years of university education leading to a bachelor’s degree (UNESCO, 2008).

Language:

There are more than 250 languages in Nigeria but 3 main languages are consider the majority

which are Yoruba, Igbo and Hausa and are spoken in the southern, eastern and northern part

of Nigeria respectively (CIA report, 2009). Even though most ethnic groups prefer to

communicate in their own languages, English, being the official language, is widely used for

education, business transaction, and media and for official purposes. The official language of

Nigeria, English, was chosen to facilitate the cultural and linguistic unity of the country. The

choice of English as the official language was partially related to the fact that a part of the

Nigerian population spoke English as a result of British colonization that ended in 1960

(UNESCO, 2008)

Religion

There are three main kind of religion in Nigeria. Muslims constitutes about 50 percent,

Christianity 40 percent and Indigenous beliefs 10 percent (CIA fact book, 2009). The

Northern part of the country is Muslim dominated with 12 states practising Sharia law while

about 85 percent of the Eastern part is dominated by Christians and for the Western part, it is

a mix of both dominant religions (J.Harnischfeger, 2008).

Demography

According to the July 2009 estimate by the CIA the population of the country stood at

149,230,000million people which put Nigeria as the largest populated black nation in the

world. The country is divided into 36 states and the Federal Capital Territory. These states

are further divided into 774 Local Government Areas (CIA fact book, 2009). The ethnic

grouping as shown in Figure 5 below represents the majority and there are still 12 percent of

the minority population that are not covered in the table.

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Figure 5: Major Ethnic tribes as percentage of the population

29%

21%

18%

10%

4%4%3%

Population distribution

Hausa/FulaniYorubaIboIjawKanuriIbibioTiv

Source: CIA country report (Ethnic groups of Nigeria)

Business culture

Privatisation remains critical to the government’s reform agenda. The National Economic

Empowerment Development Strategy (NEEDS) programme launched by the government

aims at improving the business environment, strengthening the financial sector, promoting

private investment, and creating jobs. Recent developments in these areas include

accelerating the privatisation process, reforming the tax system, liberalising trade, improving

infrastructure, and fighting corruption which has been a major constraint for FDI (OECD

report, 2003/2004)

Nigeria is ranked 94th out of 134 countries in the World Economic Forum on global

competitiveness (Ease of doing business) for 2008/2009.

Cultural issue

According to Hofstede dimension on culture, he indentifies five major issues concerning

culture. In his analysis about Nigeria, he ranked Nigeria, Ghana and Sierra-Leone together

due to the similarities in these three countries. Comparisons will be made with the Asian

countries average as the company is already operating in five Asian countries.

Power distance: This is the extent to which the less powerful members of organizations and

institutions (like the family) accept and expect that power is distributed unequally. This

represents inequality (more versus less), but defined from below, not from above. In his

analyses he gave Nigeria 74 compare to the Asian average of 69.

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Masculine/Feminine: This refers to the distribution of roles between the genders which is

another fundamental issue for any society to which a range of solutions are found. He ranked

Nigeria 42 and the Asian average 49.

Individualism: This could be otherwise called collectivism, which is the degree to which

individuals are integrated into groups. On the individualist side we find societies in which the

ties between individuals are loose: everyone is expected to look after him/herself and his/her

immediate family. On the collectivist side, we find societies in which people from birth

onwards are integrated into strong, cohesive in-groups, often extended families (with uncles,

aunts and grandparents) which continue protecting them in exchange for unquestioning

loyalty. Nigeria was ranked 15 and the Asian average is 20

Uncertainty avoidance: This deals with a society's tolerance for uncertainty and ambiguity. It

indicates to what extent a culture programs its members to feel either uncomfortable or

comfortable in unstructured situations. Nigeria ranked 50 and the Asian average is 54.

Long vs. Short term orientation: Nigeria was ranked 11 and the figure for the Asian average

is 80.

Table 4: Summary of Hofstede cultural dimension

Country PDI IDV MAS UAI LTO

Nigeria 74 15 42 50 11

Asia average 69 20 49 54 80

These cultural dimensions should be considered by any company trying to enter a new

geographical foreign market especially Telenor which is a western company.

4.1.4 Technological factorBefore the return to democracy in 1999, the nation’s infrastructure has been in a collapse

state. Poor and inadequate road network, telecommunication was considered for the super

rich, inadequate water supply and insufficient electricity supply. After the return to

democracy, the Obasanjo administration tried to revive the nation’s infrastructure and bring

in new much needed technology for development.

An example of recent government development in the transport sector is rehabilitation of

Nigeria rail systems. Railway sector is owned, managed and operated by the Federal

government. Most of the rail systems are those put in place during the colonial period and

needs rehabilitation and restructuring. China has signed an agreement with the Nigerian

19


government on the modernisation of Nigeria’s one track rail to standard gauge rail from

Lagos to Kano via Abuja which has to be constructed in 5 segments over a period of 5 years

and the project worth $8.3 billion (Baah & Jauch, 2009).

Electricity generation in Nigeria is very poor and inadequate and has for many years fell

below the minimum government target of 6000MW/H (megawatts per hour). The current rate

of supply is 3850MW/H which is one third of what a population of 150million people needs.

Many production companies/factories have moved out of the country or closed down. Those

that are still in the country uses generating plant for production which are very expensive and

also make them produce below capacity due to the cost associated with using generating

plants. This has led the government to intensify its effort in rehabilitating the electricity

sector of the country. According to the Minister of Power, Dr. Lanre Babalola in an interview

with ThisDay newspaper March 2009, he said a total of $5.3 billion has been approved by

National Economic Commission for some of the project to tackle electricity problem in

Nigeria in which he is optimistic that by the end of 2009, the government would be able to

achieve its target of 6000MW/H.

The telecommunication sector since its privatisation and liberalisation in 2001 has received a

series of developments. In September 2003, Nigeria launched its first satellite (NigeriaSAT-

1) into space via Russia which cost $13million and the satellite was to monitor the country’s

water resources, soil erosion, deforestation, natural or man-made disasters and also to study

military facilities and the country’s crude oil pipelines and infrastructure (RedOrbit, 2003).

According to a BBC report, in May 2007, Nigeria launched its communication satellite

NIGCOMSAT-1, which is expected to offer broadcasting, phone and broadband internet

services for Nigeria and Africa. The contract for the launch was worth $311 million and was

won by China.

The government has issued some strategies regarding technology innovation and

development in the country. This includes tax relief of up to 120 percent that will be given to

any organisation that maintain locally based research. Also long-term research will be

considered as capital expenditure and will be written off against profit. Also important

national development will not be based on unproven foreign technologies (NIPC, 2009)

20


4.2 Porters five forces (The market)According to Michael Porter, he identified five forces that determine the long-run

attractiveness of a market. These five competitive forces are industry competitors, potential

entrants, threat of substitutes, bargaining power of suppliers, bargaining power of buyers

(Kotler and Keller, 2006). These forces should be considered as external factors into which

the company operates.

Figure 6: Porter five forces

Source: Marketing Managemment,KotlerKeller, 2009

4.2.1: Threat of new entrantsThe entry and exit barrier in an industry will determine the attractiveness of the market. A

market in which the entry barriers are high and exit barriers are low is considered to be

attractive. In this situation, only a few companies will enter the industry and the poor

performing ones already in the market could be bought out by the successful ones or could

exit the market. In the case of when both entry and exit barriers are high, the profit potential

will be high but this could pose more threats to all the companies in that industry as poor-

performing companies stay in and fight it out (Kotler and Keller, 2006).

In the case of a telecommunication industry, the threat of new entrant largely depends on the

entry barrier. Government policies and capital or investment requirements for the startup

make the threat really low which gives the market to few companies that can meet these

requirements. Although Nigerian governments policies towards FDI is investment friendly

(see PEST above), entry to the industry is still a problem due to the capital and infrastructural

requirements.

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4.2.2: Threat of intense Industry competitors The telecommunication situation in Nigeria since its privatisation in 2001 is that it still has

only five mobile phone operators (See Fig 3 above). The fixed costs are high and exit barrier

high which makes the competitors stay in the market and thus makes the segment

unattractive. Rivalry is considered to be less since the industry has a clear market leader

(MTN, see Fig 3 above) but most of the players are pursuing aggressive marketing strategy to

have more market share.

Each of the players in mobile telecommunication in Nigeria has a market share but some with

less than a million users (EMTS and M-TEL) still remain in the market to grab the most they

can milk. This could be due to the high cost of exiting the market. With more and more

intense competition it is just a matter of time before the industry giants acquire the weaker

rivals.

4.2.3: Threat of substitutes

As of the time of this report, there is not a direct substitute to the mobile telephone. With the

introduction of internet telephone like Skype, this poses no threat to mobile telephone as it

requires a computer, mobile broadband and a headset.

4.2.4: Bargaining power of suppliers

In the telecommunication industry, the suppliers mainly consist of mobile phone makers and

supported industries for technologies. There are numerous suppliers of these supported

technologies which make the bargaining power to be very low. Also there are quite a large

number of mobile phone makers with reputable names and good quality which makes it easy

for mobile telecommunication companies to have a good bargaining power. Most of these

mobile phone makers are in alliance with mobile operators for the marketing and sales of

their product. This also makes the suppliers bargaining power to be weak/low.

4.2.5: Bargaining power of buyers

The bargaining power of buyers in the mobile telecommunication is very high because of the

low switching cost to different providers of the same service. Also some of the products like

the mobile phone are undifferentiated from all the market players and thus make it easy for

the buyers/customers to switch. The only factor in such a situation is the services provided

22


and the network coverage of some of these providers as is the case in many developing

countries where there are few providers with full network coverage.

The following (table 5 below) is the summary of the Porter five forces where the threats will

be assessed from very low (1), low (2), moderate(3), high (4) and very high (5). The marks

given are intended to see the competitiveness of the market.

Table 5: Summary of Porter five forces

The five forces Strength

New entrants Low(2)

Intense competitors High(4)

Substitutes Very low(1)

Power of suppliers Moderate(3)

Power of buyers High(4)

Average total 14/5=2.8

With a total average of 2.8, it shows that the threats that could affect performance in the

market is very low and the market potentials is worth engaging into.

5. Exploring new market

There has been an improvement in telecommunication service around the world, which can

be evident from the increase in world telephone user rate; West Africa is not an exemption

(Table 6 below). This increase comes not only in the traditional fixed line but also in mobile

phone line, thanks to GSM mobile lines which are not only becoming cheaper everyday but

are also accessible in remote parts of the world.

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Table 6: Telephone subscribers of selected African countries in thousand

Fixed lines Mobile lines2002 2003 2007 2008 2002 2003 2007 2008

Ghana 275 291 376 144 387 796 7,604 11,570Nigeria 702 889 1,580 1,308 1,569 3,149 40,396 56,935Senegal 225 229 269 238 553 782 3,631 5,389Ivory Coast 325 238 271 357 1,027 1,281 7,468 10,449World 1,084,021 1,136,465 1,272,049 1,271,190 1,158,544 1,417,811 3,351,874 4,081,979Source: Adapted from International Telecommunication Union statistics

The ITU in its World Telecom summit 2009 has predicted that mobile subscriptions are

expected to reach 4.6 billion at the end of 2009 which will be up by 15 percent as compared

to 2008. They argued that despite the global financial crises that hindered consumer demand,

growth comes from the demand in broadband services which could be link to the

infrastructure stimulus packages around the world (Wall Street Journal, October 2009).

Table 7: Telephone subscribers of selected Asian countries in thousand

Fixed lines Mobile lines

2002 2003 2007 2008 2002 2003 2007 2008

Bangladesh 606 742 1,187 1,345 1,075 1,365 34,370 44,640

Malaysia 4,670 4,752 4,350 4,292 9,053 11,124 23,347 27,743

Pakistan 3,656 4,047 4,806 4,416 1,699 2,404 62,961 88,020

Thailand 6,557 6,632 7,024 7,024 10,172 21,828 53,000 62,000

World 1,084,021 1,136,465 1,272,049 1,271,190 1,158,544 1,417,811 3,351,874 4,081,979Source: Adapted from International Telecommunication Union statistics

Telenor has shown a remarkable international presence by going outside the national border

to participate in the international telecommunication market. Currently operating through

merger and acquisitions and wholly owned foreign investment in 13 countries, five of which

are in Asia2 (Table 7 above). With mobile subscriptions of 164 million in 2008 (Fig 8 below),

Telenor has captured 4.02 percent of the world mobile customers which put the company as a

front runner in the telecommunication market.

2 India subscription figure is not available as at the time of this report

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Figure 7: Telenor mobile subscription growth

Source: Telenor.com

5.1 The competitive advantage of TelenorThe decision of any organisation to go abroad is influenced by the macro-economic and

external environment. In his book ´ The Competitive Advantage of Nation´ Michael Porter

explained why a nation/industry succeeds and others fail in international competition. He

proposes four attributes which he called the `diamond´ that promote or impede competitive

advantage. He argues that a firm is more likely to succeed in industries where the diamond is

most favourable (J.Gionea, 2005, p. 62).

Figure 8: Determinants of competitive advantage (Diamond theory)

Source: International Trade and Investment (John Gionea, 2005)

25

Firm StrategyStructure, andRivalry

Related and Supporting Industries

Demand Conditions

Factor Endowments


5.1.1: Factor EndowmentsThe factor endowment comes in two forms according to Porter. This could be basic like

natural resources, climate and location or advanced like skilled labour, infrastructure, and

technological know-how. These two forms are important depending on the industry we are

looking at but the advance factors are more likely to lead to competitive advantage (J.Gionea,

2005, p. 63). Telenor could utilise the company long history in the telecommunication

industry and its technological know-how to gain competitive advantage in any market it

chose to operate. The company also has a long history of positive financial balance which

could be used for expansion and for technological improvement.

5.1.2: Demand conditionFrom the inception, the demand for telecommunication services in Norway has been high

which has led the company to constantly connect the various cities and town. This high

demand for the service has brought the interconnection that occurred during the early days of

telecommunication between cities in Europe.

Globally, the mobile subscription rate has reached 4 billion in 2008 (see Table 6&7 above).

The mobile penetration rate has reached 97 percent in the developed world, 45 percent in

developing countries and the world penetration rate stood at 50 percent in 2007. By 2008 the

world penetration rate has increased to 59.4 percent. Africa has shown a progressive growth

in its mobile user rate of more than 50 percent per year (ITU data, 2009). Nigeria is the

continent and the world’s largest subscription growth rate which has propelled from 1.56

million mobile users in 2002 to 60 million subscribers in the second quarter of 2009 (Table 1

above). This high demand has led to more telecommunication firms since deregulation in

2001 operating in the country.

This high demand has led many companies in the telecommunication industry to invest

heavily in research and infrastructural development to meet current demand. Telenor Group

in 2008 spent NOK 1.1 billion (approx. $190 million) on research, development and

innovation to secure the Group competitive strength in present and future markets (Telenor

Annual report 2008).

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5.1.3: Related and supporting industriesMobile communication has affected many people and firms in many ways. Many of the small

scale businesses who cannot afford fixed telephone are now using mobile phone for their

business which in no doubt will increase sales. Telenor from the beginning was not only

interested in the telephone alone but also in radio and television broadcasting. The Norwegian

government tries to strengthened the productivity in the telecommunication industry by taken

over of privately owned telephone company in 1974.

Telenor Company in close collaboration with Norwegian industry developed a satellite

service which are utilized by offshore oil industry, shipping industry and in the polar region.

Also the satellite connections provide services for those in the country’s mainland to the oil

installation in the North Sea.

5.1.4: Firm strategy, structure and rivalryThe strategy and structure of the firm affects the competitiveness of the firm. In the

telecommunication industry which has reached its maturity stage in the developed countries,

a firm should design its chosen strategy to attract rival customers through numerous offers

and aggressive campaign. The subscription rate is at a growing stage in the developing

countries and firms should use the first mover advantage to capture the market of some of

these countries.

5.1.5: GovernmentGovernment intervention plays a bigger role in the competitive business environment and can

contribute to changes in the quantity and quality of those factors mention above. In many

Africa countries, Nigeria in particular, the government has implemented series of reform

which are geared towards foreign investment and has in the years yielded a positive result.

The FDI inflow (see Fig 4 above) has increased from $22.5 billion in 1999 to over $62.8

billion in 2007 and the average projection for 2008/2009 is 9.2 percent.

5.2 Can Telenor utilize their strength in Nigeria?After analysing the external business environment, one needs to explore the opportunities and

threats in which the company faces in the new market. This will be done by using some of the

guidelines provided by Richard Lynch in his book on corporate strategy (page 465, 2003

edition)

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5.2.1: OpportunitiesTelenor strategy is growth and expansion through merger, acquisition and wholly owned

foreign investment (WOFI). The company has grown and expanded to some Asia countries

and still keeping an eye on expanding to new markets. The expansion has given the company

an international growth which could be seen in the mobile subscription rate (see Fig 8 above)

and has placed the company in a worldwide recognition with a 4.02 percent of the world

mobile subscription in 2008.

International growth:- Nigeria could be seen as a growth opportunities for Telenor

because of the market potential. The country has over 67 million mobile subscribers

in the second quarter of 2009 and mobile phone user is expected to grow 8 percent

yearly. Also the internet user is growing.

Demographic and social change:- As could be seen in the Hofstede cultural

dimension analysed in part 2 of this report, the decision to go to Nigeria an entirely

different part of the world could be seen as a new social and demographic change for

the company because of the cultural and perception differences.

New markets and segment:- As it is for Telenor when entering the Asian market,

Nigeria is also a new market with different strategic challenges that the company will

face. The market is different from the Scandinavian one experience by the company

and thus the entry mode, market penetration and positioning strategy should be those

that will give the company a desired result.

Change in political/economic environment:- In the past many of the western

companies considered Nigeria not safe for business but thanks to the return of

democracy it has seen an upward trend in FDI in the country. Though the last election

in 2007 was considered not fair and free, there has been a continuation in the previous

government policies( e.g. NEEDS) which will see not only growth in the country but

also keep the country on right part to development.

5.2.2: Threats Low market growth:- As a new entrant in the market, initially there could be a low

growth but with much presence and good service the growth will change. Telenor also

could start with the acquisition of market challengers like M-TEL and EMTS which

has less than 1 percent of the market share.

Change in political/economic environment:- African countries which are known for

military take over and policy change possess a threat to foreign investors. The

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political and economic situation in Nigeria seems stable for the past eight years but

one cannot hundred percent trust the situation for a FDI involving millions of dollars.

Technological threat:- With the current poor state of infrastructure and technology in

Nigeria this could pose a threat to telecommunication companies that needs so much

technology to function effectively.

Increased competition:- As explained in Porter five forces above, competition is a

threat as each player provides an undifferentiated product which could lead to price

war.

6: Internal analysis

The strategic analysis of a company could not be complete without considering the internal

factors affecting the company’s competitiveness. These are resources by which organisation

generates value and also distinguishes one organisation from another. More so, distinguishing

ones organisation through the resources generate advantages and delivers sustainable

competitive advantage over their competitors. For a company to be sustainable, competitive

advantage needs to be more deeply embedded in the organisation’s resources, skills, culture

and investment over time (Richard Lynch, 2003, p. 125). The three resources of the

organisation are human, financial and operation (Richard Lynch, 2003, p. 197).

In this section the seven elements of the resource based view will be used to understand the

resources of Telenor that deliver the sustainable competitive advantage to the company.

Resource-based view is a strategy development which represents a substantial shift in

emphasis towards the individual resources of the organisation and away from market-based.

6.1: Resource-based view of Sustainable Competitive Advantage The resource-based view consists of seven elements which focus on the individual resources

of the organisation rather than the general strategy that are common to all companies in an

industry (Richard Lynch 2003:228). These seven main elements will be discussed in relation

to Telenor.

6.1.1 Prior or acquired resources Creating value is more likely to achieve the desired result if it is built on the strength that is

already available to the organisation rather than starting from something unfamiliar. This

existing strength will promote any real uniqueness that has been built as a result of the

29


organisation history and investment over the years (Richard Lynch 2003:228). The

company’s long history in the telecommunication industry coupled with strong financial and

technological development is of great advantage.

Table 8: Telenor operating profit

Year 2003 2004 2005 2006 2007 2008

Amount in

billion(NOK)

7.56 7.4 11.9 17.6 15 15.2

Source: Adapted from Annual reports of Telenor

The long record of huge financial success (see table 8 above) could play a bigger role in

sustainable competitive advantage over the competitors as this gives the company the chance

to embark on many activities that could improve their market share. Through merger and

acquisition, Telenor has gained worldwide recognition and has expanded its market offering

beyond mobile phone and broadband services and also incorporating new corporate cultures

to suit the new markets. For instance the launch of Grameenphone in 1997, this was the first

Telenor joint venture (62 percent share) in the Asian telecom market and providing mobile

services in Bangladesh. Telenor and its partners have boosted network capacity and extended

coverage to new and often remote areas. Another instance could be seen from DTAC of

Thailand which Telenor has a 65.5 percent stake in and in 2007 DTAC put up close to 1000

new based stations mostly located in the remote areas where network coverage is limited.

Economies of scale could come from the company’s satellite service which has been in place

since 1975 and has been updated to meet the new challenges. Also this could come from

those tested and proven core services which has been in existence in the company and just

been introduce in the new market.

6.1.2 Innovative capability Organisations differs in innovating new things and some are better at doing this than other. If

this done properly it could deliver a competitive advantage that could be difficult for others in

the industry to match certainly for some time at least. With Telenor innovation comes in

different ways and has to do with the market in which it operates. Some examples of recent

innovation from the company will be discussed below:

1. Mobile fun: This comprises of mobile sports, music, TV and communities.

Mobile sports give the customers the chance to watch a live sport matches on their

30


mobile phone. This service is available in Norway, Sweden, Pakistan, Thailand,

Bangladesh and Malaysia.

Mobile music gives the customer the right to download over one million songs to

their mobile phone and this music could be shared by friends and family or

transferred to mobile phone, mp3 player and to the computer. The service is

available in Sweden, Norway, Serbia, Pakistan and Malaysia.

Mobile TV can give you access to live TV channel on the move. With it you can

watch any of your favourite TV shows anytime, anywhere. News, sports,

entertainment and many more could be watched on your mobile. The service is

available in Malaysia, Norway, Sweden and Pakistan.

With mobile communities, you can go online to window live MSN and Facebook

on your mobile and keep close to your friends and families anywhere, anytime.

The service is only available as at the time of this report in Norway and Sweden.

2. Mobile interaction: There are nine product and services under this. Mobile health

line provides 24/7 access to medical assistance for all Grameenphone mobile

phone users in Bangladesh. TeleDoctor is another form of health assistance

launched in Pakistan.

ApnaPco is another product launched in Pakistan in 2007. This is a mobile sharing

service to the people in the remote areas who cannot afford a mobile phone of

their own.

Mobile in flight uses AeroMobile secure mobile communication technology

which gives you access to call anywhere during the flight.

Mobile marketing give customers in Sweden and Norway the access to register

their phone number with any of their favourite shops and services and they will

receive sms on latest events and offers.

Child internet protection is a security shield technology that protects children from

accessing sites that are not suitable for them. Children in Norway and Sweden

have their login with a protected desktop controlled by their parents.

3. Mobile commerce: This comprises of mobile banking, remittance and

CellBazaar. Easypaisa is banking services that allow Pakistanis to pay their bills

and transfer money on their mobile phone without the need to go to the bank.

DiGiREMIT is another similar service in Malaysia where people can transfer

money using their mobile phone.

31


CellBazaar is introduced in Bangladesh and it is used for trading basic goods from

mobile phone and given the opportunities of information exchange and

community networking in remote part of the country

ATM SIM enables customers to conduct money transaction through their mobile

phone. Bank balance, transfers and payments could be made through mobile

phone in Thailand.

6.1.3 Being truly competitive: Market competitiveness could be seen from the growth rate in the market which a company

operate. The company has gained a substantial market share in all the country it operates in

(see Table 8 below).

Table 9: Telenor market share3

Country Share (%)Norway 54Denmark 27Sweden 18Hungary 33.9Serbia 39Montenegro 38.2Ukraine 42.2Russia 25.4Pakistan 20.5Bangladesh 47Thailand 32Malaysia 25.3

Sources: Adapted from the company website (Global presence)

6.1.4 SubstitutabilityAs explained in the company past and current history, Telenor has built its technological

foundation that cannot easily be substituted by rival companies. For instance, the launches of

its communication satellites, Thor 1 in 1992, Thor 2 in 1997, Thor 5 in February 2008 and

Thor 6 in October 2009. This is one kind of resources that cannot be substituted with any

alternative as it gives the company a competitive edge in providing better network coverage.

3 Note: The table above shows Telenor WOFI and joint ventures market rate. Information for Finland and India is not available as at the time of writing this report

32


Also not all the telephone providers could afford to launch communication satellites; many

are in alliance with other telecom companies.

6.1.5 Appropriability In all indications, Telenor uses its resources effectively and wisely. This could be seen from

numerous acquisitions made by the company in all the markets it operates in. The acquisition

of Cybercity in Denmark and that of Vodafone Group in Sweden are examples of how the

company is using its positive operating profit (see Table 8 above) to expand its business

around the world. Introduction of different innovation as explained in 6.1.2 above also has

proven to be appropriate and the company’s increasing subscription rate could be attributed

to this.

6.1.6 DurabilityMany of the resources possessed by Telenor has been acquired through the years. For many

years the company has been able to maintain a positive financial balance which has helped in

international expansion. Also the company has a personal feedback and guidance

performance program called Telenor Development Process (TDP) where each of the

employee’s ambitions and talents could be reviewed and supported by the company. Though

the company has changed name in the past, this does not alter its reputation as a good

telecommunication provider. Its name is recognised worldwide as one of the best in the

industry.

6.1.7 ImitabilityBecause of the huge financial investment involved in the telecommunication industry, the

problem of imitation is minimal on installation and technological level. On the other hand,

the services provided are vulnerable to imitation as they are easy to imitate by rival

companies.

7. Market Entry Strategy

The mode of entry into an international market will depend largely on the amount of control

management desire, the company experience in a market and the potential size of the market.

Entry modes is the institutional arrangement by which a firm gets its products, technologies,

human skills or other resources into a market (J.J Wild et al, 2010, p. 380). There are three

types of entry mode which are Exporting, Contractual entry mode and Investment modes (J.J

Wild et al, 2010, p. 380).

33


7.1 ExportingMost companies export their product when the international market offers opportunities to

increase sales. Exporting permits companies to diversify sales and to gain experience in the

international market because of low cost and low risk involved (J.J Wild et al, 2010). There

are two basic form of exporting and they are direct and indirect exporting.

Direct exporting happens when a company sells its product directly to buyers in a target

market. Selling the product directly to the buyers does not mean the company selling to the

final consumers but sells through sales representatives and distributors in that particular

market. The sales representatives are hired and paid by the company to promote the product.

On the other hand, the distributor takes ownership of the products when it enters the country

and accepts all the risk associated with generating sales. In most cases they do not sell

competing products (J.J Wild et al, 2010 p.382).

Indirect exporting occurs when a company sells its product to intermediaries who then resell

to buyers in a target market. The choice of intermediary in indirect exporting could depend

largely on the company available resources and the rate of growth in the target market. (J.J

Wild et al, 2010 p.382).

The advantage of exporting is that it is less expensive and less risky when compared to other

market entry modes. It gives the company the required knowledge about the consumer’s

requirements and develops a relationship between the distributors and consumers. Starting to

distribute abroad through exporting can also give an international recognition to the particular

product brand (J.Gionea, 2005 p.289).

Some drawbacks of exporting include the high transportation cost which could make it

uneconomical especially for bulky products. The local agent used can have divided loyalties

by carrying several other products which can hinder the future growth of the foreign

product(J.Gionea, 2005 p.290).

7.2 Contractual entry modeSome companies products cannot be traded in an open market because they are intangibles

and as such offers their products through contracts like licensing and franchising.

7.2.1 LicensingLicensing contractual agreement allows a company (the licensor) grants right to intangible

property like manufacturing process, trademark, patent and trade secret to another company(

34


the licensee) for a specified period. Licensor normally receive a royalty from the licensee

which could be based on the percentage of sales revenue (J.Gionea, 2005 p.291; J.J Wild et

al, 2010 p.389

There are some advantages associated with this type of contractual distribution entry. One

advantage is that the risk is low and the investment cost is minimal. Secondly, licensee gain

production expertise for a well known product or brand name (J.Gionea, 2005, p. 292; Kotler

and Keller, 2009, p. 647). Some of the disavantages of licensing is the lack of management

control over the licensee over sales and production. The license issued may be difficult to

renew after expiry (J.Gionea, 2005, p. 292).

7.2.2 FranchisingSimilar to licensing but involved much longer-term commitment than licensing. Also

franching gives a company greater control over the sale of its product in a target market.. The

franchisee normally agrees to strict rules as to how the business is done(J.J Wild et al, 2010,

p.390; J.Gionea, 2005, p.292).

Franchising like licensing has its own advantages and disadvantages. Advantages could be

seen from the publicly accepted business approach and product which could allow for rapid

geographical expansion. Also the franchisor assistance with initial and continuing managerial

training. The franchiser could benefit from the cultural knowledge and know-how of the local

manager to gain a competitive advantage in the new market (J.Gionea, 2005, p.292; J.J Wild

et al, 2010, p.392 ).

The major problem with franchising is quality control due to the large number of franchises

in a variety of national markets. Another problem could be the cost of maintaining and

continuing managerial and training assistance. Both of these major problems could be solved

if well specified in the contract agreement between the franchisor and the franchisee

(J.Gionea, 2005, p.293).

7.3 Investment entry modesDirect investment is a form of entering a new market that involve the direct ownership of

foreign- based assembly or manufacturing facilities. The company can buy part as in joint

ventures or set up a wholly owned company.

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7.3.1 Joint venturesA joint venture is a legal entity jointly owned by two or more legally distinct organisations

which share in the joint venture decision-making activities (J.Gionea, 2005, p. 294). Each

parties in a joint venture may contribute things like marketing expertise, managerial talent,

market access, production technologies, financial capital and R&D knowledge (J.J Wild,

2010 et al, p. 396). Joint venture may be necessary for political and economic reasons.

Political in the sense of government restriction and trade barriers. Economic reasons for a

joint venture could come from the cost involved in greenfield investment and also the market

size.

One of the advantages of joint venture investment mode is that the risks are shared between

the local partner especially if there is a political or social instability in the target market . The

foreign firm could also benefit from the local partner’s knowledge on the competitive

conditions, cultural, political systems and the business systems of the host country (J.Gionea,

2005, p. 295).

The drawback this kind of investment mode has is that joint venture can result in conflict

between partners because none of the partners has a final say on decision making. The firm

investing in a foreign country will risk control over its technology to its partner in the joint

venture. The parties involved in joint venture can reduce the possibilities of conflict and

indecision by one of the parties holding the majority ownership in the venture and thus has

more voting rights over decisions (J.Gionea, 2005, p. 296; J.J Wild et al, 2010, p. 398).

7.3.2 Wholly-owned susidiariesWholly-owned subsidiary is a facilities entirely owned and controlled by a single parent

company. This can be established in two ways. One is the investing firm setting up a

completely new operation in form of a greenfield investment. The other can come in the form

of acquisition of an established company in this new market (J.J Wild et al, 2010, p.395; J.

Gionea, 2005, p.296).

The major advantage of wholly-owned subsidiary is the total management control of the day-

to-day operation and profit in the target market. Also, a known technology could be

transferred to the new market. The main disadvantage of this mode of market entry is the

hugh cost involved and long lead time before the operation could start. The firm could also be

exposed to political and economic risk in the new market.(J.J Wild et al, 2010, p.395; J.

Gionea, 2005, p.296).

36


8. Determinants of choice of entry mode

The different market entry strategies as explained in section seven above need some other

considerations. This section will look at the variables that determine the best choice of entry

for a company and this will be classified into external and internal factors to the firm.

8.1 External factorsFrom the findings in the PEST analysis, it is pretty clear that the government is encouraging

FDI with series of incentives especially in the telecommunication sector. Some of the

incentives are; Good tariff structure, which ensures investors recover their investment over a

reasonable period of time. Import duty on all telecom equipment reduced from 25 percent to

5 percent. Measures on speedy clearance of goods at the ports. Exclusivity period for licenses

for example 5 years for the GSM licenses and 3 years for long distance international gateway

operators (NIPC, 2009).

The size and attractiveness of the market as shown in table 1 above gives a clearer picture of

how the market is growing over the years. The market share as shown in figure 3 above

shows that the competition type is oligopoly as the huge market has been shared by 3

companies.

As could be seen in the rate of FDI inflow in Nigeria(see figure 4 above), it shows that the

condition of the economy is improving. The real GDP has been stable for over 5 years now

with an average of 5.5 percent(see figure 2 above).

Even though Nigeria is considered as high risk market, the government since the return to

democracy has been doing a lot to bring back the good image of the country.

8.2 Internal factors Telenor has a varieties of standard products which has given the company a huge market

share in all its operating areas. Telecommunication is a technology intensive sector and the

company could matches any challenges that may arise in the area of technology.

For many years, the company’s operating profit has been positive(see table 8 above) which is

an advantage to the company to choice an entry mode that its find suitable for different

markets. The choice of company as explained in the introduction was based on the

company’s current operation in some of the countries in Asia. This international experience

37


will reduces the uncertainty of serving a market and the company can commit its resources to

foreign market like Nigeria (S.Hollensen, 2001, p. 237).

9. Conclusion and recommendation

This section will give summary of the report and the conclusion will be drawn based on the

analysis made in the report. Also some recommendation will be stated for the company.

The analysis made from the business environment shows some improving and attractive

conditions in the chosen market. From table 10 below4, the average score for the business

envoronmennt is 3.5 which shows the market attractiveness in terms of external factors which

the company cannot affect in any way but has to adapt to if invested in this market. The

political situation has been stable over the years and the country experienced the transition of

power from one democratically elected president to another in 2007 which show a big

progress.

Table 10: Summary of business environment analysis

Factor Political Economic Social/Cultural Technology Avg. Total

Grade 3 4 4 3 14/4=3.5

The economic condition has a major boost since 2001 and the current president continues

with the same trend as the past adminintration. This continuity has led to the recent

improvement in macro economic apsect of the country. The social cultural apsect also receive

some improvement since the transition to democracy. The introduction of UBE in 1999 and

the rise in school enrolment from 98 percent in 2000 to 120 percent in 2005. The only

stumbling block is the issue of Sharia law in the Northern part of the country and Telenor can

employ the locals to handle the operation in this region while having the headquarter in other

part of the country. The analysis made with Hofstede cultural dimension shows some

similarities between Nigeria and the Asian average which will surely be an advantage for

Telenor in dealing with the cultural diversity in the country.

Technology development in the country has recieve some considerable improvement. For

instance the launching of Nigeria communication satellite in 2007 and also numerous

incentives offered by the government for industry that develop their technology in the 4 The scale is ranked from poor(1),weak(2), attractive(3), very attractive(4) and excellent(5)

38


country. The $5.3 billion electricity project awarded by the government earlier this year will

also contribute to the improvement of the countrys technlogical development. Millions of

dollar contract has been awarded to Chinese contractors for the constrcution and repair of the

country’s rail system.

The market shows high opportunities with the Porter’s five forces having threats average total

of 2.8 which is between low and moderate scale. If one look at each of the five forces of

Porter as explained in relation to Nigeria, one would see that the market is attractive for new

entrance and has a huge business potentials.

From the above discussion, one can see that Nigeria telecom market has a lot of potentials to

offer. The customer demnd for telecom products is very high due to high growth rate of the

market. In Nigeria there is a high number of rural communities which is about 84 percent of

the population (NIPC, 2009). This part of the market is still untapped and a new company

like Telenor could exploit this opportunity as the company did in rural areas of India.

Telenor has gained international experiences in five Asian cuontries which has some cultural

similarities with Nigeria according to the conclusion in the Hofstede cultural analysis. Also

the Asian countries are all developing economy like Nigeria which is an added advantage.

From all the factors analysed above, it has been clear that this new market favours

Investment entry mode and the two types of investment entry mode could be used.

First, Telenor could start in partnership with two of the companies that have the lowest

market share (EMTS- 1.7% and M-Tel-0.44%) and with Telenor long year of experience in

the industry could acquire these two companies. On the other hand, Telenor could also go

into partnership or joint venture with Celtel, the third place competitor in the market, which

has a market share of 24.74 percent. Again with the company experience in this kind of joint

venture, Telenor can gain the majority share of the joint venture and invariably giving the

company a total dominance in management control over decision making process.

Secondly, suggestion will also be made for the company to consider WOFI in the form of

greenfield investment. Telenor has been in operation over 100 years and has gained

international recognition through investing in other countries. Since the market has a lot of

potentials and still at a growing stage, it will be a good idea for Telenor to start its operation

in form of greenfield so as to benefit totally form this new market opportunities and

incentives.

39


The answer to those questions in the introduction has been solved and Telenor management

should start thinking of when to enter this new market.

Bibliography

Published sources

Gionea, J. (2005). International trade and investment. North Ryde: McGraw-Hill Australia Pty.

Harnischfeger, J. (2008). Democratization and Islamic law:The Sharia conflict in Nigeria. Campus Verlag.

Hollensen, S. (2001). Global Marketing: A market-responsive approach. Pearson Education Limited

J.J Wild, K. W. (2010). International Business. New Jersey: Pearson Education.

Kotler, a. K. (2006). Marketing Management. New Jersey: Pearson Hall.

Lynch, R. (2003). Corporate Strategy. London: Pearson Education.

Reports:

OECD. (2003/2004). African Economic Outlook. France: Organisation for Economic Cooperation and Development.

OECD. (2001). African Economic Outlook(Nigeria). France: Organisation for Economic Cooperation and Development.

OECD. (2004/2005). African Economic Outlook(Nigeria). France: Organisation for Economic Cooperation adn Development.

OECD. (2007). African Economic Outlook(Nigeria). Frnce: Organisation for Economic Cooperation and Development.

OECD. (2008). African Economic Outlook(Nigeria). France: Organisation for Economic Cooperation and Development.

Telenor. (2005). Annual report 2005. Oslo, norway: Telenor group.

Telenor. (2007). Annual report. Oslo, Norway: Telenor group.

Telenor. (2008). Annual report. Oslo, Norway: Telenor group.

Tella, S. A., Amaghionyeodiwe, L. A., & Adesoye, B. A. (2007). Telecommunication Infrastructure and Economic Development: Evidence from Nigeria. Sector-led Growth in Africa and implications for Development (pp. 1-23). Dakar, Senegal: UN-IDEP & AFEA.

UNCTAD. (2008). World Investment Report. Geneva: United Nation Conference on Trade and Development.

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Baah, A. Y., & Jauch, H. (2009). Chinese Investment in Africa: A labour perspective. Accra& Windhoek: African Labour Research Network

Website:

UN. (2008). Dept of Economic and Social Affair, Population division. Retrieved November 18, 2009, from United Nation Web site: http://www.un.org/esa/population/unpop.htm

Central Bank. (2006). Central Bank of Nigeria. Retrieved September 18, 2009, from Central Bank of Nigeria website: http://www.cenbank.org/

CIA. (2009, July 2). Central Intelligent Agency. Retrieved September 15, 2009, from CIA.gov: https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html

ITU. (2009, July 30). ITU. Retrieved October 20, 2009, from International Telecommunication Union: http://www.itu.int/ITU-D/ict/publications/world/world.html

NIPC. (2009). Nigerian Investment Promotion Commission. Retrieved October 20, 2009, from NIPC website: http://nipc.gov.ng/index.html

RedOrbit. (2003, May). RedOrbit Incorporation. Retrieved October 13, 2009, from RedOrbit web site:

UNESCO. (2008). UNESCO,International Institute for Educational Planning. Retrieved Novemeber 20, 2009, from UNESCO Website: http://planipolis.iiep.unesco.org/format_liste1_en.php

WorldBank. (2009). The World Bank Group. Retrieved September 25, 2009, from World Bank: http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/NIGERIAEXTN/

List of abbreviations in usePEST- Political, Economic, Social and Technology

GSM- Global System for Mobile communications

41


NMT- Nordic Mobile Telephony

CIA- Central Intelligence Agency

AEO- African Economic Outlook

CEO- Chief Executive Officer

BPE- Bureau of Public Enterprise

FDI- Foreign Direct Investment

ALRN- African Labour Research Network

NIPC- Nigerian Investment Promotion Council

MEND- Movement for the Emancipation of Niger Delta

ICPC- Independence Corruption Practise Commission

EFCC- Economic and Financial Crime Commission

AP- Associate Press

IMF- International Monetary Fund

NITEL- Nigeria Telecommunication

MTN- Mobile Telephone Networks

NCC- Nigerian Communications Commission

WIR- World Investment Report

OECD- Organisation for Economic Cooperation and Development

ITU- International Telecommunication Union

NOK- Norwegian Kroner

WOFI- Wholly Owned Foreign Investment

ILO- International Labour Organisation

UNDP- United Nation Development Programme

42


UBE- Universal Basic Education

NEEDS- National Economic Empowerment Development Strategy

UNCTAD- United Nation Conference on Trade and Development

DTAC- Dental Technologist Association Council

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