Out of the East

Asia’s growing influence in Africa is receiving worldwide attention. China’s investment in Africa will top $100 billion dollars this year making it the continent’s biggest trading partner. There are 800 Chinese companies with over 4 million Chinese people living and working there. China’s impact on Africa, as author Richard Dowden observed, is the biggest economic shift of the twenty-first century.

Now, the story of Asia’s push into Africa is being revised to highlight players from India. In June, Bharti Airtel, India’s largest mobile carrier – the 5^th largest telecom in the world – bought Kuwait-based Zain’s operations in 16 African countries for $10.7 billion in cash.

Bharti has been eager to grab a piece of Africa’s growing mobile market for some time. In 2009, it tried to buy MTN, Africa’s largest carrier, but the deal failed due to regulatory roadblocks. Undeterred, Bharti pivoted quickly setting its sights on Zain.  By June, Bharti bagged its African trophy, though some analysts thought it paid too much for Zain’s assets.

The Bharti Recipe

Bharti didn’t waste any time plotting its next moves. By September, the carrier had chosen IBM, a partner since 2004, to run its network and IT for its 2G and 3G services in a 10-year deal worth over $1.7 billion.  IBM will manage the company’s data centers, servers and desktop operations.

This week, Bharti announced its selection of two Indian outsourcing specialists, Tech Mahindra and Spanco, to run its back office and customer care operations in Africa.

With its coalition of outsourcing partners in place, Bharti aims to streamline its sub-Saharan operation and cut costs to service Africa’s low-income markets. The carrier hopes to grow its 36 million subscriber base to over 100 million by 2012.

That’s an ambitious plan considering that Bharti will only control the product development, brand management and marketing portions of its business. Bharti thinks that these are the only functions essential to differentiating its offerings.

Multinational carriers have been relying on “managed services” companies that specialize in providing technology and customer care. Bharti pioneered and refined the managed services strategy in India for nearly a decade. Their model is considered an industry prototype.

The African Factor

Bharti’s gambit in Africa is unique in several critical ways: Africa is Bharti’s first market beyond the Indian sub-continent. The African market is both large and amazingly diverse. The sheer scale and complexity of their African foray is raising a critical question among industry analysts: Can a company, even one as disciplined as Bharti, get its arms around such a diverse amalgam of people, cultures and processes?

Jai Menon, group director of IT at Bharti thinks it can. He told the Economic Times of India: “The system was built in India and did operate in geographies where the diversity is huge — be it culture, language, devices and affordability. It will be the same across Africa. This system will address the entire pyramid, and not just the top or bottom of the pyramid.”

It will be interesting to watch Bharti choreograph its operations while launching its brand across Africa’s disparate social, economic and political cultures.They’ve begun by hiring African personnel from other carriers to assume key roles. Bharti will need to recruit more African talent to build a business culture that can realize the company’s aspirations.

Bharti brings to Africa an uncanny knack for squeezing out costs. India has been a hothouse for cultivating their scalable, ultra low-cost model.  If we’ve learned anything, it’s that Africa will likely present new and unexpected challenges.  In any case, Indian companies, led by Bharti Airtel, are emerging as major players in Africa.

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As always, I’d appreciate your perspective.

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Want more info?

The Economic Times of India’s (Oct 26)  piece : “Bharti splits $500 mn Africa deal among IBM, Tech Mahindra and Spanco”.

Bharti Airtel & IBM described their plan for Africa in joint video press release .

Want more context?

Richard Dowden’s quote in the post’s opening paragraph is from his ’08 book, Africa – Altered States, Ordinary Miracles.  His section (Ch 17) “Asia in Africa – new colonists or old friends?” sketches Asia’s  long  history in Africa. He writes, “India is following China’s path. Though its rise is less dramatic.  In a few years time maybe every reference to China in this chapter would be followed by ‘ and India’.”

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To add some perspective, there is only about one landline per 33 people in Africa and that’s unlikely to change much given the high cost of installing fixed lines in the continent’s vast, remote regions. However, mobile networks are relatively easy to install and maintain.  Thus, mobile phones have become the primary communication channel throughout the sub-Sahara.

The large transnational telecoms, hungry for growth and finding saturation elsewhere, are quickly swooping in to the region hoping to grow their user bases.  Mobile operators are investing millions of dollars in  extending their coverage across the continent.  And as competition grows, they’re pouring millions more in to expand and fortify their networks.

This injection of capital is creating jobs and raising living standards in the region, and this is only the beginning.  It certainly feels like we’re at an inflection point and the socio-economic impact will be enormous.

But the African market poses some vexing challenges to operators. First, they’ll need to help the continent’s large base of very low income consumers to overcome the cost barrier of using mobile services.  Bottom line: these consumers who make under $2 a day need lower cost handsets.

Operators have been working with handset makers to produce units for as little as $15 USD. Refurbished handsets, recycled from other markets, are bringing prices down further.

Low income users are mainly interested in a phone’s basic functions—voice calls and SMS text messages—and little else. For them, battery life – especially in regions with unreliable electricity – is more important than ring tone options.

But, low income users are “leapfrogging” to mobile banking which I’ve mentioned previously.  Mobile phones are now being used in developing cash economies to pay for things or transfer money across distances. The implications of the rise of m-banking and other mobile-based services among low income users is enormous.

Meanwhile, mobile operators must also compete for higher income users. They’re rolling out and bundling higher end products like managed data services, Blackberry, WiMax, 3G and more – all of this while reinforcing their infrastructures and business processes to deliver higher service quality and reliability.

It gets even more interesting.  Most of the people who are gaining access to communications and the Internet via cell phones have no other way to access the web, unlike developed country where cell phones are used mainky for voice with Internet access being an occasional activity.

Reliance on mobile devices for Internet access means that content developers in Africa, like other emerging regions, see mobile devices not as a substitute for their desktop, but as a primary data platform.   We’re already seeing some promising examples of voice-data convergence aimed at this growing market. We may witness the first wide-scale convergence applications coming from Africa and other developing markets.

I’ve worked with some talented, dedicated people in the region’s telecom sector.  The speed with which they’re adaptaing to the market’s growth has been impressive.  They’re making strides in building their management capabilities and business processes to meet rising consumer demands.

It’s an exciting time to be working in this market. I can’t think of a more interesting, fertile business environment today than Africa’s nascent telecom sector.  It’s a veritable hothouse for business innovation on so many levels.

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