Partnership Strategies in the Telecom Industry A case of success

Transcription

1 Partnership Strategies in the Telecom Industry A case of success + Sonia Dahab Universidade Nova de Lisboa José Nazário Universidade Nova de Lisboa

2 Agenda Objective of the study Analysis Model The Partnership Measuring the success of the Partnership Determinants of success Conclusions

3 Objectives What factors influence the success of a Partnership? How to identify a successful Partnership? Present the importance of Partnerships for the internationalisation strategy of two Telecom companies: Portugal Telecom (PT) Telefónica Spain (TEF) Identify the degree of success of the 50/50 Partnership made by these companies to enter in Brazil and what were the determining factors of its success

4 Agenda Objective of the study Analysis Model The Partnership Measuring the success of the Partnership Determinants of success Conclusions

5 Industry Analysis Model to manage relationship Ability Financial Strategic Structure Organizational?Global Regulatory Operational Level of Fit

6 Internal Factors Past Experiences Specific Competencies Dedicated functions Ability to manage relationship Number of past Partnerships (small or large) To create, disseminate, develop and apply the knowledge acquired in past Partnerships Communication Trust Empowerment Negotiation skills Win-Win situations Cultural sensitivity. Selection of partners Planning the Partnership Negotiating, managing and ending the Partnership

7 Internal Factors Strategic Level of Fit Importance of the Partnership => Free-Riding Different competitive positioning => Paternal Posture Personal Agenda PARTNER 2 PARTNER 1 Venturing Extractive Sharing Option Venturing Long Term Fit Problematic Fit Problematic Fit Possible Fit Extractive Problematic Fit Short Term Fit Sharing Source: Lasserre (2003) Problematic Fit Possible Short Term Fit Option Possible Fit Problematic Fit Defensive Agenda => Shor term fit Common Strategic Vision Possible Short Term Fit Fit Possible Short Term Fit Problematic Fit Possible Short Term Fit Short Term Fit

8 Internal Factors Level of Fit Level of Fit National Industrial Corporate Decision making process Reporting Incentives to employees Complementation of resources and knowledge Willingness to invest Capabilities (Skills) Organizational Cultural

9 Internal Factors Organization of the partnership Transfer pricing agreement Sharing of profits Partnership Structure Type of structure (equity non equity) Governance Control mechanisms Exit mechanisms

10 Measures of success Financial Performance Operational Performance Organizational Performance Strategic Performance Abnormal Stock market returns EVA (Economic Value Added) Increase profitability and growth Duration Stability of the structure (CEO s, ownership, ) Objective completion Quality of the interaction among partners Appropriation of new capabilities Impact on competition Impact on the Competitive Advantage of the partners

11 Agenda Objective of the study Analysis Model The Partnership Measuring the success of the Partnership Determinants of success Conclusions

12 The Partners (50%) (50%) Portuguese Telecom incumbent present in the mobile, fixed and internet makets Main International presence is in the Brazilian mobile market representing ¼ of the total revenues of the company (90% of the international revenues) 6 billion in revenues (2005) Spanish Telecom incumbent present in the mobile, fixed and internet makets Main International presence is in Latin America in the Fixed and mobile market > 35 billion in revenues (2005)

13 The Partnership in Brazil (Vivo) In Brazil Vivo 5 years is is market the the largest Partnership leader mobile with 36% has market covered in share Latin more and America than 1,5 90% billion in of Ebitda the territory Leilão Telebrás (1998) 23% 11% VIVO VIVO Quota Market (1Q de 2001) Mercado Share (2005) (Set 05) (4Q 2003) 8% 22% 36% Vivo TIM Telecom Americas Oi Outros

14 Evolution of the partnership Global Alliances Agreements of strategic alignment Concert Alliance Telebrás Auction Cross ownership in entry JV s Regulatory constrains Change of partner PT s Mobile Telef. Companies TEF s Mobile Telef. Companies Deal Breach TEF s Fixed Telef. Companies CRT Celular Rio Grande do Sul TeleLeste Bahía e Sergipe TeleSudeste Rio J. e E.Santo Telesp Celular Sao Paulo TEF s Fixed Telef. Companies

15 Agenda Objective of the study Analysis Model The Partnership Measuring the success of the Partnership Determinants of success Conclusions

16 Measuring the Success of the Partnership Financial Performance Abnormal stock market return (15 days accumulated) ROIC - WACC Revenue growth of current operations -0,1% 13,2% -1,9% 2,1% 8,8% 0,6% Brasil 1997 Non Announcement Brasil of strategic alignment agreements ( CAGR) 2,2% 19,3% 1,9% 1,8% 2,0% 9,6% Brasil 1998 Non Telebrás auction Brasil 4,9% 0,7% 2,7% PT TEF 3,7% 2001 Announcement of JV Vivo Abnormal Contribution Stock million Market to growth EVAReturns PT TEF 1,6%

17 Measuring the Success of the Partnership Measuring the Success of the Partnership Longevity Média = 5,5 anos Operational Performance Automóvel Eq. Telecom Serv. Telecom PT/TEF Computadores Comp. Electrónicos Motores Eq. Agrícolas Serv. Financeiros Eq. Pesados Eq. Leves Prod. Médicos Fab. de Metal Proc. de Metal Minas Eq. Escritório Petroquímica Farmacêutico Eq. de precisão Software Aço Anos Above average longevity

18 Measuring the Success of the Partnership Organizational Performance VIVO achieved its main objective of market leadership: Market leadership in Brazil Biggest mobile operator in the South Hemisphere 6th largest mobile company in the World. PT and TEF become companies of international recognition: PT is in 415 th place in the FT500 ranking TEF is in 58 th place in the FT500 ranking Good relationship among partners: Increase of cross equity participation; Cordial relationship in the JV; New partnerships: Morocco and R&D.

19 Measuring the Success of the Partnership Strategic Performance Appropriation of new capabilities in terms of international management Reduction of competition Home markets Brazil Increase competitive advantage of partners Increase positioning when compared with competition Reduction of cost per user (CCPU) in 25% Better image and increase quality of services rendered Euros CCPU (PT) CCPU (TEF)

20 Measuring the Success of the Partnership Financial Performance Operational Performance Risky country and Exchange rate Competitive pressure to drop prices and loss of market share Regulatory pressure Lack of operational fluidity as some structures and systems were not yet totally integrated Weak Points Different rhythms of making decisions Competitive advantages are able to be copied Organizational Performance Strategic Performance

21 Agenda Objective of the study Analysis Model The Partnership Measuring the success of the Partnership Determinants of success Conclusions

22 Determinants of Success L - Low M Medium H - High M Ability to to manage the relationship Past Experience (Medium) African, Asian, South American and US companies Lack of systematization and dissemination of past knowledge Dedicated alliance functions (Low) No permanent functions of partnership monitoring

23 Ability to to manage the relationship (cont.) Determinants of Success M H Skills L - Low M Medium H - High PT has a more decentralized decision making process the than Managers level TEFof trust with among high leadership both parties skills was and high experience and transpired Transparency and isemption Good to communication all the people involved in the negotiations.

24 Determinants of Success L - Low M Medium H - High M => H Strategic Fit Fit Shared Strategic Vision (High) Brazilian is an important region for international development Importance of the alliance (Medium) More to PT (20% of revenues) than TEF (5% of revenues) Relative competitive positioning (High) TEF is bigger but it never engaged in a paternal posture PT always matched TEF in resources and knowledge Mutual Dependency (Medium => High) None at the beginning: PT and TEF could have chosen other partner After entering in Brazil the complementarity of footprints was important Market acceptance (High) Leadership position in the market Market analysts saw this partnership as the right choice

25 Determinants of Success L - Low M Medium H - High Strategic Fit Fit (cont.) Compatibility of personal agendas (Low => High) TEF But it was not always like that Venturing PT Venturing Extractive Sharing Option Long-Term Fit Problematic Fit Problematic Fit Possible Fit Extractive Problematic Fit Short-Term Fit Sharing Problematic Fit 2005 Possible Short- Term Fit Option Possible Fit Problematic Fit Possible Short- Term Fit Fit Possible Short- Term Fit Problematic Fit Possible Short- Term Fit Short-Term Fit 1997

26 Determinants of Success L - Low M Medium H - High H Cultural Fit Fit Both companies share the same values Corporate Culture (High) Both companies have engaged in cultural changes changing from Bureaucratic to Achievement (Customer Oriented) culture Similar cultural dimensions Industry Culture (High) Same industry in Europe National Culture (High) Portugal and Spain rank exactly the same in the Hofstead scale

27 Determinants of Success L - Low M Medium H - High H => M Capabilities (Skills) Fit Fit union of assets and complementary competencies Complementing in some cases: language skills and cultural resembles with Brazil in the case of PT and higher international experience in the case of TEF Redundant in some cases: both have excellent knowledge and contacts in the market, good facilities and assets, prestige and excellent operational and management skills Fit decreased over time due to: PT s increasing international experience; TEF s increasing integration in the Brazilian culture

28 Determinants of Success L - Low M Medium H - High M Organizational Fit Fit TEF has a more centralized decision making process, leading to less empowerment of expatriate managers in Brazil Slowing of decision making process Internal rules, processes and reporting are the same among both partners

29 Determinants of Success L - Low M Medium H - High L => H Structure Feeble structure at the beginning (Concert and Stratigic Alignement Agreements) Today it has a strong structure formalized in a JV Good balance of risk, power and return Ex: 50/50 ownership and representation on Board of Directors Agreement and balanced transfer prices High commitment in launching phase Ex: High number of expatriates at the beginning Clear definition of partner roles Ex: Independent 3rd party of Wise persons to resolve dead-locks Exit mechanisms Ex: In case of dissolution the assets will be returned

30 Determinants of Success L - Low M Medium H - High External Factors L Global M Regulatory L Competitive + High GDP growth (11% CAGR) - Brazilian currency depreciation - Social and political instability of Brazil - Regulator only allowed effective concentration of operations in Regulation trend towards favouring fixed operators (Vivo is only mobile) + Vivo has the highest operational margin - Higher competition - Price decreases leading to less margin and market share

31 Agenda Objective of the study Analysis Model The Partnership Measuring the success of the Partnership Determinants of success Conclusions

32 Conclusion PT and TEF Strategic Alliance in Brazil is a proven success due to a good balance between the several determinants of success Success Factors of the Partnership ( ) Structure of Partnership Capacity Fit Organizational Fit Dedicated Alliance Functions Cultural Fit Past Experience Specific Competencies Strategic Fit

33 Conclusion But some risks still exist Competitive pressure and Brazilian economic performance PT or TEF could change their personal agendas for the JV, jeopardizing the Strategic Fit TEF could leverage on its biggest relative dimension, when comparing with PT, starting to have a paternal posture that could kill the good relationship among partners Differences among empowerment of international managers, may be a problem in the future if both partners do not converge at this level Lack of dedicated partnership functions could lead to repetition of mistakes

34 Questions?