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International business assignment 7
- 2. Presentation Overview • BoP opportunities differ from other new market entry • Sudan – Demographics • Cultural differences • Nokia and Obopay • Modes of entry • Safaricom and M-pesa • Internal control design • Critical Factors • Recommendations
- 3. Base of Pyramid Opportunities • Low income • High population • Must meet a need • Increase Standard of living • Provide access to markets • Provide business opportunities
- 4. Sudan Demographics • Population of 32.4 million • 70% are Sudanese Arab • Official Languages are Arabic and English • Primarily Muslim religion with a small Christian Population • 61% literacy rate • Federal Republic with a mixed legal system (Islamic and English common law) • 18.7% unemployment (2010)
- 5. Nokia and Obopay • Largest manufacturer of cell phones – 1.2 million per day • $70 million Investment in Obopay • 1.3 billion active Nokia phones • No production facility in Africa • Is not an MNO
- 7. Potential Entry Modes • Joint Venture • Foreign Direct Investment – Greenfield – Acquisition • Export Services – Sub-Contract Sales Force
- 8. Safaricom • Over 17 million current subscribers • M-Pesa or mobile money transfer service • All models of cellular phones are available
- 9. Global Organizational Design Options • Global Product • Global Area • Global Functional • Global Customer • Global Matrix Best Fit • Mixed including both of the following – Area – Customer
- 10. Subsidiary Structure • Agent Networks – Use of sub-agent network of airtime resellers where needed – Ability to offer service quality • Decentralize authority to react to market conditions • Customizable plan for region, not per customer • Financial reporting kept to US standards
- 11. East African Cultural Considerations • Hofstede’s Classifications – High Power distance – Collectivist – Feminine – Low Uncertainty Avoidance – Short Term Oriented • Hall’s Cultural Parameters – Low Context
- 12. Arab Cultural Classifications • Hofstede’s Classifications – Higher Power distance – Lower in Collectivism, more individualistic – Feminine – Higher Uncertainty Avoidance – Time Orientation not measured • Hall’s Cultural Parameters – Higher Context
- 13. Examples from other Countries Mexico Bangladesh • Fee avoidance behaviors • Cell phones evolved into common among primary educational consumers platform • Government restrictions • Cell phones provided limited the ability to opportunities for new charge for roaming business ventures • IFT transactions preferred
- 14. Critical Factors • Strategic partner identified • Cultural regions segmented • Target Market strategies developed – Business/Corporate – Individual Consumer • Perceived service quality and employee training plan established
- 15. Recommendations • Enter the market through a joint venture with an established provider • Modify pricing and offerings to fit local needs • Aim advertising at enhancing quality of life • Use social media for promotion • Form strategic alliances with educational institutions • Fit products (phones models/service plans) to actual consumer needs • Design a complete employee training manual • Find local champions
- 16. First Steps • Review Ghana experience for learning opportunities • Begin partnership negotiations • Conduct cultural mapping and market segmentation • Determine if multiple brands are needed – Business/corporate accounts – Individual consumers/subcultures • Design advertising campaigns • Identify Influencers among target markets • Obtain key accounts • Full services launch
- 18. References Agyapong, G. Q. (2011). The effect of service quality on customer satisfaction in the utility industry -- A case of Vodafone (Ghana). International Journal Of Business & Management, 6(5), 203-210. doi:10.5539/ijbm.v6n5p203 Griffin, R. W., & Pustay, M. W. (2010). International Business. 6th Ed. Upper Saddle River, NJ: Prentice Hall. Hall, E.T. (1976). Beyond Culture. Garden City, NY. Anchor Press. Hofstede, G. & Hofstede, G. J. (2005). Cultures and Organizations: Software of the Mind. McGraw Hill. Merritt, C. (2011). Mobile money transfer services: The next phase in the evolution of person-to-person payments. Journal of Payments Strategy & Systems, 5(2), 143-160. Prahalad, C. K.(n.d.). The last market. Retrieved June 20, 2012, from: http://www.youtube.com/watch?v=ew2zQnUh_uw Stacey, O. (2011). Network sharing business models and the structuring issues and choices facing operators. Journal of Telecommunications Management, 3(4), 306-312. Talbot, D. (2009, April). Nokia bets on mobile payment. Technology Review. MIT. Retrieved from: http://www.technologyreview.com/communications/22379/?nlid=1917&a=f The World Fact Book (n.d.). Retrieved September 15, 2012 from https://www.cia.gov/library/publications/the-world- factbook/geos/su.html
Editor's Notes
- As Multinational Corporations (MNCs) investigate opportunities many are choosing to enter Base of Pyramid countries. How is it that millions of people, living on $1 or less per day are able not only to afford but also desire mobile technology? It is about the enhancement to quality of life and business opportunity (Prahalad & Prahalad, 2005)Sudan presents some interesting challenges for companies wishing to enter. The following presentation will review the demographics and cultural aspects as well as review the competitive environment for telecommunications. Business structure, entry mode and subsidiary management options are outlined. The final sections will offer other country examples, recommendations and suggested first steps.
- Bottom of Pyramid (BoP) opportunities take special considerations. Firms investing in BoP opportunities must be very cost focused and use resources efficiently (Prahalad & Prahalad, 2005)Griffin and Pustay (2010, p84) defined culture as the collection of values, beliefs, behaviors, customs, and attitudes that distinguish one society from another, and further noted the importance to international business in determining how buying decisions are made a products adapted.
- Mobile phones have reduced transportation costs and time to market for many rural Africans. A short phone call can now eliminate a trip to town to check on shipments. Also families tend to share phones to reduce the cost per family. Cell phones have grown well beyond the status symbol to a means of promoting economic development.Mobile technology is a means of connecting people that might not otherwise have the option for years. Cellular technology is far outpacing traditional land line infrastructure development. Electricity has not even reached many of the areas that can now benefit from mobile communications. Most towers are run by diesel generators.
- Chea (2011) reported that Sub-Saharan African countries have established better macroeconomic stability through controlled inflation rates and consistent growth in GDP. Rate of FDI by countries increased more than 100% in 2006 with the primary focus on extraction of natural resources (Chea, 2011). What this means for telecommunications is that there has been a large influx of people and industry that will all need to communicate with each other as well as their home countries. Sudan has recently experienced the split of Southern Sudan as well as the loss of all of the oil resources. This split will have a major impact on GDP growth as well as GDP per capita.
- Talbot (2009) stated that Nokia is investing $70 illion dollars into Obopay, a mobile payment gateway. Nokia’s investment in a payment shows the commitment to establishing a greater global presence of Obopay. New phones will likey come pre-loaded with applications to easily establish an Obopay account. Obopay requires the user have a bank account to either send or receive payments.Mobile Network Operators control billing and customer contact.
- A void in the current market of a comprehensive provider exists. It is possible for performance to exceed competition as well. The opportunity will differ in focus from traditional developed country markets in that the most common plans will be pre-paid due to a lack of credit history.About the Market:The pink shading on the map of Sudan is the current coverage by Mobitel. The map was made available on www.gsmgroup.net and listed only Mobitel as providing cell coverage in Sudan. There are likely coverage areas along borders where larger cities exist in both Egypt and Saudi Arabia. There are five major mobile phone networks in South Sudan. None is dominant, and most people have several phones or sim cards. Each network has different coverage when outside Juba. There is no interconnectivity between some networks and thus a call from one to another network often has to be made as an expensive international call.However, the use of satellite phone services of Thuraya is far more extensive. It has a wider reach within the South due to satellite technology and is handy in many areas where there is no telecommunication set up. A Fragmented market does not need additional providers that do not offer comparability with existing services.
- A joint venture thus creating a new company that would function in Sudan is desirable. In technology industries often utilizing other options do not allow for a fast enough entry and capitalization on current market conditions and trends (Griffin & Pustay, 2010). Foreign Direct Investment (FDI) takes more time in site selection and build out to be effective for this project. Acquisition of an existing firm within Sudan allows for quick entry but in a growing industry does not allow for additional capacity (Griffin & Pustay, 2010) which will be needed in the mobile communications industry.Exporting of services is not at option since the requirements to provide services and reach customers out weigh any profits that would be realized in such a tightly cost focused market.
- The mobile network organizations establish customer relationships including billing which permit exposure of both hardware and ancillary services (Merritt, 2011).M-pesa allows for money to be stored on the cell phone account and transferred to other users. The payment model of Safaricoms M-pesa will allow for quick conversion of customers to buyers or sellers since there will be no requirement to open a bank account. The Obopay system will require users to open an account before transactions can be processed. Much of the population lives in rural areas that would take time and effort to do this. M-pesa could become the order winner for much of the population.Nokia phones have proven to be durable and popular in other BoP studies. Safaricom is not limited to specific phone manufactuers or models.
- The global design must consider integration of; area knowledge, product knowledge, and functional knowledge (Griffin & Pustay, 2010). It is through this design that the firm will allocate resources, assign tasks to employees, communicate rules, procedures, and employee expectations (Griffin & Pustay, 2010).Using an area design will allow the firm to design activities around specific regions of the world. When entering a BoP opportunity it is important that traditional strategies are not forced into a non-traditional market. Within this area design having a global customer design and thus creating a mixed design will allow for divisional focus on business/corporate customers vs. individuals.
- Fully leveraging relationships with local managers as well as recognizing the importance is key to success in BoP countries (Berger et al, 2011). Berger et al (2011) reported that often the level of influence of the local manager and his/her connection to existing industry is overlooked and too much emphasis is place on relocating an expatriate manager to the new area. Especially within the fast paced technology industry, it is critical that local or at minimum regional decision making ability be granted in order to react to market conditions. Customer perceived value is greater than actual service quality and should address five dimensions of service quality; reliability, responsiveness, tangibility, empathy, and assurance (Agyapong, 2011). Service plans should be kept consistent to deliver on these dimensions and customer service responsiveness increased.
- Some cultural considerations for marketing strategy designs look at the cultural classifications and parameters. High power distance societies typically are categorized by obedient children, inequality of workers and managers and these inequalities are expected and desired within the culture. East Africa falls more toward the collectivist end of the continuum. Social networks are the primary resource for gathering information rather than the media which is primary used by individualistic societies (Hofstede & Hofstede, 2005).Eastern Africa is a feminine society where more importance is placed on working conditions and time off, decisions are made by men and women equally and advertising, especially when masculine value based, is not popular (Foscht et al, 2008). Highly collectivist cultures can impact consumer behavior and in turn brand management, due to a higher pressure to conform (Foscht et al, 2008). Societies that are on the low end of uncertainty avoidance tend to be happier, they are more accepting of new products, more risk averse, and they enjoy humor in advertising (Hofstede & Hofstede, 2005). Although countries can differ greatly from dimension to dimension across borders, the two African countries measured, Zimbabwe and Nigeria, scored very low in long term orientation (Hofstede & Hofstede, 2005). Short-term oriented societies seek affection from boyfriends as opposed to husbands, believe it is acceptable for young children to be cared for by others, and attribute much success and failure to luck (Hofstede & Hofstede, 2005).
- Hofstede and Hofstede (2005) grouped the Arab countries together for ranking. Since 70% of Sudan are classified as Sudanese-Arab this may be the larger subgroup for targeting consideration. Low-context cultures use clearer communication modes (all communication is based the words used), whereby high-context cultures rely heavily on non-verbal and other relational variables including the time and location of the conversation (Kotabe & Helsen, 2011). HC cultures use more gestures in their communication and disagreements on topics are acceptable unlike LC cultures where people cannot separate the issue from the person (Trevan et al, 2008).
- The Mexican telecommunications companies faced lower than expected earnings due to individuals working around paid services. The caller ID allows customers to see who is calling which can serve as notification without answering the call and using minutes.Bangladesh is one of the poorest countries in the world. The majority of their population is rural and the literacy rate is among the lowest in the world. Surprisingly there is a rapidly growing market for mobile phones which are used not only to communicate with family but primarily as a means of earning an income, getting an education, and receiving information.
- Safaricom is established in the East African and Arab regions and has not only a large customer base but great infrastructure in which to glean from a partnership. The majority of consumers in BoP countries do not have a bank account. Person to person payment system transfer funds from one bank account to another and therefore the need for bank accounts will increase as IFT services become available. However with the M-pesa system offered by Safaricom no bank account is needed. The Safaricom website distinguishes a business and personal level of service that would be consistent with the proposed mixed design for the new joint venture company.Assurance of the service quality considerations as well as adequate employee training must be emphasized when establishing the joint venture agreement to assure initial satisfied customers. The technology market moves too quickly and the association of a payment system with the service provider may cause a stickiness if customers are lost to competitors.
- InAgyapong’s (2011) study of Vodafone Ghana’s customer satisfaction rankings there was reported need to increase the tangibility of service as well as better train representatives. Be thorough in outlining the terms of the joint venture to include employee training and human resource management best practices.Compile competitor practices for branding of products for business versus personal services. Do current industry practices share brands or have brands exclusive of the customer type.Who are the leaders in adopting services that will influence other major account conversion? Begin with focus on business/corporate sector during establishment of retail outlets.