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CHAPTER 2
CASE STUDY 2: MOBILE COMMUNICATIONS: ENTRY INTO AFRICA

1. Discuss the difference between the use of cell phones in the African cellular
phone market compared with cell phone use in developed-country cellular
phone markets.

In those developed countries like the United States, Canada, and Europe, the
telecommunication industry invested in landlines before moving to mobile phone networks.
However, in Africa, the mobile phone has effectively skipped the landline. Because some
regions in Africa don’t have effectively fixed landlines for telephone service. Landlines
require that wires be installed on every road and into every community, with smaller lines
into every household. A full landline network can be prohibitively expensive, especially in
countries with poor roads, vast distances, and low population densities like Africa.

Two main characteristics of mobile users in Africa:

They have a tendency to use pay-as-you-go models that they pay before they use and they
can’t use more than they have paid for. Data in Africa is expensive, with prepaid plans, users
avoid contracts and have more flexibility.

They own multiple SIM cards, switching between them on a day in order to avoid the high
cost. Whereas, in those developed countries most people just use one consistent SIM card.

In developed countries, people often use some big brands like Apple, Samsung… but in
Africa, the price of the mobile phone from these brands is high for them to afford, they need
a mobile phone with a cheap price. They have to switch SIM on a day so a dual phone that
let them use two SIM cards in a single phone is popular in Africa

2. How might the different ownership structures in Africa reflect the potential
economic system in the host countries?

An economic system is a system of production, resource allocation, and distribution of

goods and services within a society of a given geographic area. It includes the combination
of various institutions, agencies, entities, decision-making processes, and patterns of
consumption that comprise the economic structure of a given community. It has three
questions to ask: what to produce, how to produce and who receives the output of
production.

The rest of the Africa continent is less or even least-developed, economically. The
ownership structure is defined by the distribution of equity with regard to vote and capital but
also by the identity of the equity owners. Several factors account for the rapid growth in
generally poor consumers and they describe mobile communication like a mobile phone as “
link with the l.outside world”.
Economic system is an important factor that the host countries should consider when
choosing ownership structure because it has a direct impact on the business ability. If the
right ownership structure is chosen, the business will develop rapidly and the potential of
competition will be high.

Beside the growing economy, many business companies appear with a variety of ownership
structures.

3. Would the model for mobile phone expansion apply to other less- or least-
developed countries? Why or Why not
The mobile model should be expanded to less- or least-developed countries because
it has a lot of benefits:
● A cell phone helps the leader of village can link with the outside world
● When farmer’s wife went into labor but he was staying far away town, a mobile phone
call rushed him back to take her to hospital
● Cell phones help parents find the right antidote to save a young child when bitten by
a snake
● In some areas of the continent, mobile minutes have become a substitute for actual
money
note: chỗ này ai thuyết trình có thể chém thêm mấy cái benefits trong cuộc sống vô nha
In addition, there are 5 impacts of mobile phones in the developing world:
● Mobile Banking: For many people living in the remote regions of third world countries,
traditional brick and mortar banks are often out of reach. Mobile banking, however, is
helping initiate financial inclusion. By connecting major banks to online banking
networks, individuals can now easily transfer money with even just a flip phone.
● Education: One can increasingly find the cell phone utilized for education in the
schools of many developing countries. The utilization of mobile apps has transformed
teaching in such places.
● Disaster Relief: Today mobile devices are a unique communication tool for disaster
relief in developing countries.
● Governance: In countries and regions with low population densities, it has
traditionally been exceedingly difficult for governments to reach out to the individuals
residing there. However, mobile technology has simplified seemingly impossible
tasks such as long-distance polling and voter registration.
● Health Care: The impact of cell phones in the developing world has also stretched to
the area of health care.

4. How do Porter's five factors explain the high level of industry competitive intensity
in the African mobile phone market?

Threat of new entrants:

- Africa represents the fastest growing and most exciting mobile phone market in the
international marketplace, more than 28% of African consumers use mobile phones,
which represents a larger market than North America. It can be seen that African
mobile phones are a potential market. However, there are large barriers to entry in
terms of cost and government approval.
=> The threat of new entrants is low.
Bargaining Power of Customers:
- The bargaining power of customers is high because many telecommunication
companies join in the African mobile phone market lead consumers to have many
choices.
=> The bargaining power of customers is high
Overall Degree of Competitive Rivalry:
 - Markets tend to be intensely competitive with three, four, five, or even six local
providers.
- => The overall degree of competitive rivalry is high in Africa.
Threat of substitutes:
- The direct competition to mobile phones appears to be fixed telephone lines.
However, Between 1998 and 2008, Africa added only 2.4 million landlines. During
this same time, the number of mobile phone lines that have been subscribed to has
skyrocketed. There is clearly very little competition from fixed telephone lines
=> the threat of substitutes to the mobile market in Africa is low.

Bargaining Power of Suppliers:

- The bargaining power of suppliers to the mobile communications industry in
Africa is weak. The African cellular phone market’s rapid growth exemplifies
the potential and it also has radically changed the African employment
landscape. The industry provides direct and indirect employment to thousands
of people. Many of these firms came into existence simply to serve the
telecommunications industry. In addition, telecommunications firms are one of
the best-paying companies in the country. Without the telecommunications
industry, many of these suppliers would see their incomes reduce or dry up
completely. Suppliers of the products and services required by the telecoms
industry are a dime a dozen in Africa. It is clear that those companies need
the telecommunications industry more than the telecommunications industry
needs them.
=> The bargaining power of suppliers in this industry is low.

5. How might an African government apply Porter’s national competitive advantage

diamond to further spur cellular phone specialization within a country?

Demand conditions:

African represents the fastest growing and most exciting mobile phone market in the
international marketplace, with more than 50% growth in market size per year since 2002
More than 28% of African consumers use mobile phones, which represents a larger market
than North America

=> Africa offers a potentially rich target market for mobile phone providers

In Africa, cell phones can be used to track the price of crops and to receive reminders to
take medicines so that they can save wasted trips outside of the village.

=> The phones typically strip down many Western features and instead provide call
and send messages

=> Stimulate early demand for advanced products and Focus on specialized factor
creation.

Structure, Firm strategy, Rivalry :

The market tends to be intensely competitive with three, four, five or even six local providers.

The local competitors use a variety of ownership structures (Ownership varies from state-
owned industries to joint ventures to subsidiaries) and present a strong challenge to outside
competitors

=>Encourage companies to raise their performance, Stimulate local rivalry by limiting

direct cooperation and enforcing antitrust regulations

Government:
There are large barriers to entry in terms of cost and governmental approval

=> Outside companies entering the highly competitive market have struggled
Related and supporting industries:
The pricing system” pay-as-you-go models” allows consumers more flexibility than a
traditional monthly plan. It leads to an increase in usage rates

Multiple SIM memory cards allow consumers to switch to whichever company provides the
best rate for the call being made. Short calls or even flashing - the act of calling and hanging
up after one ring so that the person will not be billed for the call which also helps keep costs
low

Traditional banks struggling to penetrate many parts of the continents are solved by mobile
banking. For instance, Vodafone used its m-Pesa mobile banking service to expand into
Kenya. More than 50% of the Kenyan market uses mobile banking for transfers. While the
transaction are small, around 1,500 Kenyan shillings ($20), the lower fees than traditional
banks have saved poor Kenyans an estimated $4 million per week

THEORIES OF ENTRY MODE SELECTION

Internationalization Theory
It has been one of the most discussed dynamic theories. It explains the process of

internationalization of companies, namely how organizations learn and the impact of learning

on the companies’ international expansion. The model was introduced by Johanson, Vahlne,

Wiedersheim-Paul. The internationalization theory is also known as the Uppsala Model.

The Uppsala model sub-divides the process of entering an international market into four

different steps, where the successive stages represent higher degrees of international

involvement and market commitment. Those steps have to be viewed from a company’s

perspective combined with the market and the market knowledge.

Step 1 – No regular export activities

Step 2 – Export via independent representatives

Step 3 – Establishment of a foreign sales subsidiary

Step 4 – Foreign production

Step 1 is the initial one where the company starts to enter a foreign market but does not

export on a regular basis. Market knowledge is limited and experience is gained by chances

not systematic.

In step 2 the company exports systematically through agents. This indirect export will

provide the company with some experiences and market knowledge about the customers in

this market.

If a company is willing to commit itself to more export, in step 3 it will take over the

middleman’s operation and try on its own. This means that the firm has to have the
necessary knowledge and information about the market and how to establish its own

operations.6

The last step is to establish the production facilities of the company in the market it already

exports to. This happens as the company has the feeling of having enough knowledge and

wants to gain locational advantages. Of course it can always be that it is forced to offshore

as regulation demands this or risks like currency risks can hedge this way.

During their research, they find out that companies usually start to expand in a market that

has less psychic distance. The chances of being successful in those markets are higher and

market uncertainty is low. Psychic distance is correlated with geographic distance and is also

defined as the distance between home market and a foreign market resulting from the

perception, learning and understanding of business differences. Johanson and

Wiedersheim-Paul define it as the differences in language, culture, political systems,…, that

makes it hard or easy for a company to enter the new market. When a firm has chosen

where to go, the psychic distance is assumed to reduce to the increased market-specific

knowledge. If knowledge can be transferred from one country to another, firms with an

extensive international experience are likely to perceive the psychic distance to a new

country as shorter than firms with little international experience.

Internalization Theory

Internalization theory is usually applied at the firm level to analyse FDI, licensing and

subcontracting. It synthesises internalisation theory and oligopoly theory. It analyses a global

industry where firms innovate competitively, and freely enter and exit the industry. It presents

a formal model which highlights the interdependencies between rival firms. Each firm
responds to its rivals by jointly optimising production and innovation through inter-dependent

ownership and location decisions. The competitive outcome determines which firms serve

which markets, which firms enter or exit the industry, and the internalisation strategy of each

firm.

There are two dimensions of competition in the model: short-run local competition, in

which individual firms compete to supply a local market, and long-run global competition in

which firms compete to innovate technologies.

Short-run competition is modelled using the economic theory of markets while long-run

completion is modelled using the theory of non-cooperative games. The number and nature

of firms, and the boundaries between them, are all endogenous. Each firm’s strategy

responds to other firms’ strategies, but some aspects of strategy are more ‘strategic’ than

others; innovation, R&D location and headquarters location decisions interact more with

other firms’ decisions than individual market entry decisions

Industry-level analysis is important when discussing ‘industry recipes’ – whether different

industries are populated by different types of firm (Spender, 1989), and if so why. The

question of why certain industries were more ‘multinational’ than others was the original spur

to the development of internalization theory. Industry analysis is relevant to contemporary

issues, such as whether multinationals in certain industries are more likely to be regional

than global, or are more inclined to engage in out-sourcing and off-shoring. While these

issues can be partially addressed in terms of ‘representative firms’ there is no substitute for a

comprehensive analysis of an industry as a whole.

Section 2 reviews the literature, focusing selectively on key issues that are addressed by

the model.
Section 3 motivates the model

Section 4 summarises its overall structure.

Section 5 explains the model is solved using a three-stage procedure (technical details are

presented in the Appendix).

Section 6 discusses applications to various industries, including automobiles,

pharmaceuticals and IT; it also explains how the results clarify important issues in IB theory.

Section 7 summarises the conclusions and discusses implications for future research.

Eclectic or Oli Theory

An eclectic paradigm, also known as the ownership, location, internalization (OLI) model or

OLI framework, is a three-tiered evaluation framework that companies can follow when

attempting to determine if it is beneficial to pursue foreign direct investment (FDI).

The eclectic paradigm takes a holistic approach to examining entire relationships and

interactions of the various components of a business. The paradigm provides a strategy for

operation expansion through FDI. The goal is to determine if a particular approach provides

greater overall value than other available national or international choices for the production

of goods or services. The eclectic or oli theory is effectively implemented when the following

three factors are satisfied:

● Ownership advantages can be thought of as “why” for multinational corporation

foreign activities. It represents the reasons the markets spend the time and effort to

enter a foreign country. Two types of ownership advantages are present: asset

advantages and transaction advantages. Asset advantages represent anything the

 company does well such as trademark, production technique or business

skills,...Transaction ownership advantages relate to the ability to capture

transactional benefits, such as lower costs, from the common governance of a

network of ownership assets

● Eclectic theory explains the "where" of entry location advantages. Many factors

such as. local resources, natural and human, governmental activities, market

potential, and lower political risk make some countries more attractive and are

entered first.

● The final factor of eclectic theory is internalization advantages. These are the

"how" of market entry, and the advantages that come from making the correct

entry decision. To select the right type of entry mode, companies need to balance

risk, uncertainty, the ability to exploit economies of scale, and cost.The correct

selection will lead to internalization advantages.