International Business

Case Analysis – Bharathi Airtel in Africa

Group – 7
Section - A

Submitted to:
DR. R SUGANT

Submitted by:

18016 - LEON VARGHESE

18033 - ANJALI RAJIV MENON
18039 - HARSHITA J
18050 - YASHANK UTHAPPA K R
18061 - SKANDA NARASIMHA M A

TABLE OF CONTENTS
Sl No. Contents Page Numbers

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 2-4
1) Map Bharti Airtel’s Indian activities
onto Porter’s value chain

5-6
2) Explain how Airtel India configured
the value chain.

3) Did Airtel’s strategy of similar 7-9

configuration of value chain in Africa
succeed? Justify your answer

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Q1 - Map Bharti Airtel’s Indian activities onto Porter’s value chain.
Ans.

• The Value chain concept was introduced by Michael Porter in his influential 1985
book named “Competitive Advantage”. A value chain is a set of activities that an
organization carries out to create value for its customers. Porter divides the activities
of the firm into two categories: Primary activities and Support activities.
• Primary activities are necessary elements for producing the products and offering
services.
• Support activities assist businesses to become successful in the marketplace.
Mapping Bharti Airtel’s Indian activities onto Porter’s value chain:

PRIMARY ACTIVITIES
1. Inbound Logistics
 The Government of India and Bharati Airtel had good relationship.
 Bharti had acquired mobile licenses for 15 out of India’s 23 circles
 Trained people to ensure smooth transit of goods.
2. Operations
 Airtel was a pan-India operator with running operations in all circles by 2004
 The company acquired 246 million subscribers in South Asia and Africa and was
producing 2.8 billion minutes a day.
 Building and maintenance of Bharti’s telecom network was outsourced to Nokia and
Ericsson.
 Bharti gave its IT operations, including supplying, installing and managing all the
companies hardware and software to IBM.

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  They also had a joint venture with competitors like Vodafone and Idea Cellular, in
order to reduce duplication and other costs.
3. Outbound logistics
 Bharti had efficient transportation and trained personnel.
 They created a two-layer distribution model in urban area in which a network of
small family run enterprises, serviced retailers directly.
 A three-layer model of super distributers in rural areas.
 The distribution network of spanned across 2.5 million retailers and distributers in
south Asia and Africa

4. Marketing and Sales

 Main focus was on pre-paid customers
 Airtel sim cards and recharge coupons were marketed through post offices in
South India in a tie up with department of posts.
 Matchbox strategy: making airtel recharge cards available wherever match
boxed could be found through a partnership with state owned Indian oil.
 They provided promotional materials, collected payments and resolved
complaints.
 Bharti marketed its services in India’s remote villages.
 Company offered farmers airtel connections along with voice updated about
crop diseases, market prices etc. through a tie up with IFFC (Indian Farmers
Fertilisers Corporation)
 Provided incentives to farmers for purchasing mobile phones
 Free airtel sim cards to SKS microfinance members

5. Services
 Information provided through catalogues and displays.
 Company trained its rural distributers and retailers to teach rural customers
because many were first time mobile users and was not aware as to how to
operate the mobile handsets.

SUPPORTING ACTIVITIES
1. Human Resources
 Bharti airtel believed that efficient human resource is vital in achieving the
company mission.
 Airtel encouraged teamwork. They made employees to put forth and develop
ideas for greater efficiency and productivity.
 Focus on the development of our human resources by ensuring that regular
specialised training is provided for success through quality human resource.
 Company trained its rural distributers and retailers to teach rural customers,
many of whom were first time mobile users, how to operate mobile handsets.

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2. Infrastructure
 CRM tools, MIS, ERP, networking equipment, telecom equipment for coverage and
signal strength.

 They decided to outsource some of Bharti’s key activities and based their decision
of whether to retain an activity in-house or to outsource it, on three key factors.
 First, who had better domain knowledge;
 second, who enjoyed better economies of scale;
 And finally, who could attract better human resources. For instance, managing a
telecom network required deploying thousands of engineers to multiple sites,
ensuring that equipment was functioning, and spare parts were available. Nokia
and Ericsson, having served hundreds of customers across the world, enjoyed far
superior domain knowledge than Bharti; economies of scale that Bharti could
never match, and were able to attract better telecommunications engineers than
Bharti ever would.

 As a result, they decided to outsource the building and maintenance of Bharti’s

telecom networks to Nokia and Ericsson.

 Mittal and his team contracted customer service to business process outsourcing
firms IBM Daksh, Mphasis and others.3 Finally, they spun off passive
infrastructure, which involved building and managing the company’s telecom
towers, into a separate company, Indus Towers, in a joint venture with competitors
Vodafone and Idea Cellular, in order to reduce duplication and other costs.

3. Technology
 Bharti gave its IT operations, including supplying, installing and managing all the
company’s hardware and software, to IBM.
 Through they they were able to cut cost.

4. Procurement
 The company maintained long strategic relation with its suppliers.

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Question 2- Explain how Airtel India configured value chain.
Value is the measure of firm’s ability to sell what it makes for more than the cost incurred to
make it. The design and managing of this by a company detriment its competitiveness. Firms
create value either through
* Low-cost leadership strategy or * Differentiation strategy

Core competency Airtel identified its primary and secondary activities and build their
business on these findings
For airtel customer relationship and brand building as its primary activity. The secondary
activities were Network management, IT management and customer service and they
outsourced this.
Their decision to retain an activity in-house or to outsource is based on three factors:
 Domain knowledge
 Economies of scale
 Better human resource

Airtel out sourced building and maintenance of Bharti’s telecom networks to Nokia and
Ericsson and gave its IT operations including supply, installing and managing of company’s
hardware and software to IBM.Customer service an d business process were outsourced to
IBM Daksh, Maphasis etc. The building of company’s telecom towers was given to Indus
towers in joint venture with competitors Vodafone and Idea cellular.
Customer needs
Focused on marketing and customer acquisition and improved the quality of service it
offered from network availability to customer care.Airtel initiated “match box strategy” for
the availability of the product. They focused on prepaid customers. Relied on network of
mom-and-pop shops including grocery stores, mobile handset and repair shops, phone booths
and other small outlets to offer Airtel SIM cards across the country. Also it had a tie up with
department of post in south India.
Cluster effect
Created two-layer distribution model and in rural area where population is spread out they
used three-layer distribution system. Airtel concentrated on rural customers in which many of
them were first time users. Farmers where offered with voice updates about crop diseases,
market prices and other information. Showed how mobile phones could change people’s lives
by offering them connections.

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Cost factor
Mass voloume and low cost was Airtel’s main strategy.By the economies of scake they
enjoyed by outsoursing theire activities airtel was able to provide services in low
cost.Reduced the minimum cost of recharge for prepaid cards from $6.7 to $1.1. and allowed
customers to top up their cards with any value suiting their budget. Introduced lifetime
prepaid card. Began selling talk time in dominations of 66 cents, 44 cents and 22 cents to get
users in poorest states.

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 3. Did Airtel’s strategy of similar configuration of value chain in Africa
succeed? Justify your answer.

Value Chain of Bharti Airtel in Africa

Primary Activities
Inbound Logistics Operations Outbound Marketing and Service
Logistics Sales
In many African 120 mangers in New products Low mobile Innovation for
countries logistics the continent, 80 with benefits for tariffs. benefit for the
is a nightmare. expats from India, each customer customer.
45 from Zain’s segment. Easy mobile
No proper roads. headquarter. number Locally relevant
12.6 cents per portability. brand experience.
Materials Operating in 16 minute in Nigeria.
delivered via port African countries. Products for all Strong
take 15 -20 days. 1.2 cents per three screens. partnerships for
Outsourced the minute in Kenya. generating
In case of rainy company’s Airtel Money in superior value.
season it takes two network, IT and Sold services such ten African
months. customer service as recharge or top- markets.
Operations. ups through
Increased costs retailers.
and time.

Poor flight
connections.

Basic raw
materials had to
be imported which
lead to higher
costs.

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Administrative, Finance Human Resource Product and Procurement
and Infrastructure Management Technology
Development
Bharathi’s balance Limited pool of skilled Bharti transferred a Lack of strong
sheet is very strong and talent in Africa. little over 5,000 manufacturing industry
take up additional debt. employees from its and basic raw
African who were Networks, materials like steel and
Streamlined and skilled were rare and IT and Call Centre cement had to be
integrated backend expensive. operations to its imported.
functions partners.
like accounting, quality Indian expats were told Encouraging suppliers
assurance on a common to transfer their Bharti had outsourced to set up operations in
platform across Africa. knowledge to the network Africa in order to create
Africans. management to a supply chain
Outsourced company’s Ericsson, Nokia, and ecosystem.
network. Develop local talent Huawei.
and people IT to IBM, Cost of constructing a
development as a and call centres to IBM, tower in Africa is high.
component of Tech Mahindra, and
performance appraisal. Spanco, who set up Access to electricity is
operations in each low and poor
Bharti also country to serve infrastructure in Africa.
implemented buddy customers in local
programs between languages.
India and Africa.
Bharati Airtel focused
Partnership with on understanding
business schools and customers and the
other institutions to market place.
set up academies to
train fresh graduates in High-volume, low-cost
IT and Networks and telecom business
managers. model.

Competitive
compensation and
bonus strategy.

Secondary Activities

Bharti Airtel began to look for new opportunities as growth was reducing in India and finally
decided to venture into Africa. Africa with its vast population of over a billion people with
low per capita incomes. Africa mirrored India’s demographics. Africa’s real mobile
penetration was 30% and growing rapidly and high mobile tariffs in Africa combined with
low monthly minutes of use per customer indicated that there was room to grow the market
not just by increasing mobile penetration but also by intensifying usage.

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After the acquisition of Zain Bharti’s leaders discovered that employee morale at Zain was
low,
work cultures between the two continents differed vastly and market share revenues and
EBITDA were falling every month. Infrastructure was poor, hardware and software
equipment was obsolete, access to equipment supplies was limited, skilled technicians were
in short supply, and the cost of doing business was turning out to be much higher than they
had anticipated.

So, Bharti initiated multiple transformations in Africa, including outsourcing active and
passive managed services (networks) for all of its 16 countries; outsourcing its IT and call
centre support to BPO firms for the first time in Africa; revamping its distribution network;
integrating its brand, and implementing a host of human resource-related initiatives in its new
operations.

It has been over a year and a half since the acquisition, and Bharti is leading in revenue
market share in 9 of 16 countries. Despite the challenges, by early 2012, Airtel Africa was
showing early signs of a turnaround. The cost of operations is still higher Bharati expected,
elasticity of demand could fail to kick in and competition could intensify. But the business
metrics are showing early signs of a turnaround.

Africa is the biggest bet Bharti has taken in its lifetime. They arrived in Africa in June 2010
with the vision to replicate the India model and achieve rapid fire success. However, the
diversity and complexity of 17 African nations is more daunting. There has been good
progress but a significant amount of transformations remains ahead.

We can see from Exhibit 1 that Airtel is the market leader in 5 African countries. From
Exhibit 2 we can see that in 2010 the gross revenue has gone up from capital expenditure as
the company’s costs were staying constant, despite expanding its network and that EBITDA
margins had increased from approximately 19% at the end of 2010, to close to 27% by late
2011.

There are various Socio-economic factors that are similar and the African Business Unit is
growing steadily but certain areas like Inbound Logistics, human resource, procurement
needs to be developed by the governments of Africa and the company might face problems in
the short term but as the African economies are predicted to grow in the long run, so we can
conclude that Airtel’s strategy of similar configuration of value chain in Africa is growing
steadily but it may take some time to succeed.