Bharti Airtel: The Cross-Border Acquisition

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Bharti Airtel: The Cross-Border Acquisition

The greatest cross-border acquisition in the developing world occurred in Bharti Airtel. It was in June 2010 when Bharti Airtel, the largest mobile communications provider in India, spent $10.7 billion on the African assets of Bahrain-based Zain Telecom (Palepu & Bijlani, 2012). Bharti senior management aimed to provide the same increased, low-cost communications paradigm they had developed for the Indian people to the African continent. However, once they began to merge the organizations, Bhartis executives discovered several unexpected difficulties, including cultural differences between their Indian and African staff members and stiff competition (Palepu & Bijlani, 2012). They also realized a monopolistic distribution system, worse infrastructure than they had anticipated with higher costs, a companion natural environment, and a business that stopped responding to tariff reductions.

Early in 2012, after one year and six months, the company had established a positive brand image throughout the continent and had acclimated to its new environment. It had contracted its telecommunications, information technology, and client service functions to India. Market share and profit margins are two crucial corporate measures showing improvement. But the company executives eventually faced challenges in Africa that drew them back economically.

Another significant issue for Bharti Airtel was the need to make the massive expenditures in IT infrastructure required to support its rapid membership expansion. The investments, which are capital expenditures, are often balanced by the prospective program income they permit. However, in addition to the normal risks involved with a huge fixed investment, Bharti Airtel also faced a financial risk from the ongoing decline in Indias average revenue per user (ARPU) for mobile telecom products. It was the result of policy rate changes that made it at just under $8 per month one of the least ARPUs within that region (Palepu & Bijlani, 2012). Bharti Airtel realized that while investing in its growth prospects was unquestionably important, factors unique to the Indian market greatly increased the likelihood of attracting capital expenditure.

Reference

Palepu, K., & Bijlani, T. (2012). Bharti Airtel in Africa. Harvard Business Review.

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