Airtel: The Zain Pain

Published by MBA Skool Team, Published on July 12, 2011

Going global is the buzzword at India Inc. Every other day we hear Indian companies going abroad trying to get a foothold in that Market through acquisition. The story stops there and the media hardly focuses on what happens after that. People like to listen to the good news but are rarely interested in knowing the results. They get back at them when the company is doing badly and do a threadbare analysis and realise that acquisition is not always that great.

Zain Logo

Let us consider the example of Airtel which has entered the African Market through the acquisition of Zain. It was announced with great fanfare after its two previous failures with MTN. Now with the profits of the company dragging down people have started questioning the acquisition. The most important part of any acquisition is the integration with the parent company. The Indian companies may not have adequate experience with M&A but they need to learn the tricks of the trade quickly to survive.

Africa for Airtel has not been that great till now. True it gave them access to a Market which is on the cusp of booming. So in that sense it made a great buy but the debt that it took on it's books with the slowing Indian Market has made it a more difficult integration. So let's try to analyse the reasons why Airtel is finding it difficult in Africa

1. Complex Geography: Zain is present in 16 countries in Africa. So this means they have to deal with different regulators, different regulations, and language and culture barrier. This could be a nightmare as country could be a separate company in itself. So implementing a centralised approach similar to the one back in India is a major headache.

2. Under Developed Ecosystem: When Airtel started in India it was not success from day one. They had to develop the ecosystem around it and that took a long time the benefits of which they are enjoying now. Similar is the case with Africa as vendor support is almost nil and they are developing it now. In the short term they would have problems but could improve in long term.

3. People: Good workforce is the key for the success of any organisation. The local population is the key but that is found wanting in Africa. They could outsource the workforce from India but it would costly and would ultimately defeat the purpose of globalisation. But over dependence on overseas personnel would shoot up costs and would be a drag on balance sheet.

4. Infrastructure: The infrastructure in Africa is much worser than even India. Roads and ports are not well developed. Further there are restrictions and curbs on importing goods in many countries. And dealing with 16 countries to overcome this issue could be a nightmare even for the best of the minds.

5. Protected Economies: Unlike in India, the local governments interfere even in the operations of companies. When the company dropped call rates the government intervened at the behest of the competitors. So like in India gaining marketshare by dropping rates is not feasible.

6. Work Culture: the workforce has a relatively laid-back attitude when it comes to work. The Indian culture of deadline-driven approach can't be implemented so the initial assessment of applying a direct replica of India approach is not working.

Inspite of all this the  company has done the right thing in going global as relying only on India would be a great risk as the Market is sure to stagnate at certain point. They need to turn around the African operations and till then Africa would remain a focus for Airtel. This acquisition has to succeed for Airtel as the future for mobile Market are the developing economies and Africa has just begun its baby footsteps in that direction and Airtel has the first mover advantage.

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