GDIB Term 3 Assignment July 12, 2021

1. Use the terms below to argue in favor (or against) Airtel decision to go to Africa. (If your
university registration / roll number ends with an even number you will argue for, if it ends in an
odd number you will argue against)

a. GDP

b. GDP-P

c. PPP

d. Hoesfede Dimensions of Culture

e. High and Low Context Societies

f. Don’t limit your answers to only these terms, use all your Marketing learnings.

ANSWER:

My university reg no is 200101618111. So, I will argue against the Airtel decision to go to Africa.

The management at Airtel decided to establish operations abroad. In January 2009, Airtel launched
Airtel Sri Lanka and followed it up by acquiring a 70 per cent stake in Warid Telecom, Bangladesh. Airtel
decided to enter African market with the acquisition of Zain in 2010. Zain Africa BV’s has operations in 15
countries with an enterprise value of US$10.7 billion. Zain Africa in 2010 had 42 million subscribers and
an annual revenue of US$3.6 billion. This deal was an attempt to extend Artel’s global footprint bring the
company to the league of leading mobile operators in the world. Once the deal is completed, Bharti was
expected to acquire subscribers of Zain across 15 regions in Africa and increase its user base to 179
million.

There were huge financial losses for Airtel as Airtel has debt obligations in USD while they conduct
business in local currency. Africa had a high average depreciation rate of more than 21.6 per cent. The
debt to finance the deal was expected to be serviced entirely by its African operations with principal
payments also starting to kick in within a short period of time. This was the starting reason for Airtel’s
decision of going to Africa being wrong.

The Airtel’s decision of going to Africa was wrong at various levels due to various factors that are
described below:

Gross domestic product (GDP) is the total monetary or market value of all the finished goods and
services produced within a country’s borders in a specific time period. As a broad measure of overall
domestic production, it functions as a comprehensive scorecard of a given country’s economic health.
There are three ways of measuring gross domestic product (GDP) – by the value of production ( GDP(P)),
by the total incomes generated (GDP(I)), or by the value of spending on the goods and services
produced (GDP(E)). When all foreign transactions are excluded, then in theory the three sums should be
the same.

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Below map shows the countries in Africa which airtel does business and their GDPs:

The 15 countries that Bharti Airtel had acquired from Zain in Africa were: Burkina Faso, Chad,
Democratic Republic of the Congo, Republic of the Congo, Gabon, Ghana, Kenya, Madagascar, Malawi,
Niger, Nigeria, Sierra Leone, Tanzania, Uganda and Zambia. Whats evident in the map above is that the
15 countries where airtel does its business are also mong the ones in africa with the lowest GDP. This is
another reason why Airtel entering their business into these countries was a wrong decision.

Purchasing power parity (PPP) is a popular metric used by macroeconomic analysts that compares
different countries' currencies through a "basket of goods" approach. Purchasing power parity (PPP)
allows for economists to compare economic productivity and standards of living between countries. The
name purchasing power parity comes from the idea that, with the right exchange rate, consumers in
every location will have the same purchasing power.

What is evident from the below PPP distribution map of the globe is that there is a huge contrast among
the Indian subcontinent and the African continent. The Purchasing power parity of India where Airtel
and its good amount of top management officials belong to has a high PPP compared to Africa where
the PPP is quite less. This would mean that the profit-making strategies of Airtel in India did not work
well for them in Africa as the customer behaviour and PPP is different.

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Data Source: Wikipedia

Hofstede’s six dimensions of culture talks about:

1. Power Distance Index (PDI): It refers to the inequality that exists between individuals with
power and without power. A lower index shows that people are questioning the authority and making
attempts to distribute power. In contrast, a higher index signifies that hierarchy has already been
established in society without a doubt.

2. Individualism Versus Collectivism (IDV): It explores the extent to which individuals in a society
are integrated into a specific group, the ties that people have within their community and the perceived
dependence and obligation on groups.

3. Masculinity versus Femininity (MAS): It refers to role distribution between males and females
in society

4. Uncertainty Avoidance Index (UAI): It refers to how people cope with anxiety in a society and is
often described as the tolerance level of society for uncertainty or vagueness.

5. Long-Term Versus Short-Term Orientation (LTO): It refers to the connection of the past with
current as well as future challenges.

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6. Indulgence Versus Restraint (IVR): It considers the tendency of society to fulfil its desires.
Countries that have high IVR score encourage free fulfilment of an individual’s emotions and drives. The
society fosters dialogues and debate in meetings, prioritizes mentoring, coaching and feedback and
emphasize work-life balance.

Airtel followed a low tariff strategy in Africa, like India. This did not translate to the level of success
achieved in India with the same tariff strategy. This happened because all the factors described by
Hofstede are not the same in Indian subcontinent vs the African subcontinent. The minute factory
model that worked perfectly well for Airtel in India did not work in Africa as the volumes of calls are not
there in Africa due to the variation in factors mentioned above.

High and Low Context Societies Low context refers to societies where people tend to have many
connections but of shorter duration or for some specific reason. In these societies, cultural behaviour
and beliefs may need to be spelled out explicitly so that those coming into the cultural environment
know how to behave. A high context culture is one where most of the communication is done indirectly
and more dependence is on non-verbal communication and gestures. In a high context culture,
relationships are built slowly which are generally long term and stable and are dependent on trust and
loyalty. High context culture is mostly found in Asian, African, Latin American, and central European
countries. The advertising strategies must be based on these factors and was not played well by airtel in
Africa.

The acquisition of Zain was not worth US$9 billion because:

 Zain was then losing money in several of the key markets.

 All-debt deal would increase in Bharti’s leverage for funding the deal [8.5billion $ was in debt]
 In September 2009, Zain Africa collectively reported an annual net loss of US$112 million against
a profit of US$169 million in the corresponding period of the previous year.
 Seven of the 15 countries reported losses.
 Nigeria, which was optimistically pushing the US$1 billion mark, lost US$88 million.

Airtel pumped in some $5 billion cash (that is in addition to $9.5M), money that was spent reorganizing
the networks and sales and distribution infrastructure in Africa. This further added to the losses.

 At the end of the March 2013 —Airtel had 63.4 million subscribers (projected 100M) from the
17 countries, with a net loss of $345 million (projected $2B) from a revenue of $3.76 billion
(projected $5B)—missing its targets by quite a bit.

 Two years later, things are not much better.

 At the end of March 2015, the latest earnings available. Bharti Africa netted losses of $585
million on a revenue of $4.2 billion. The subscriber numbers stand at 76.2 million, at the end of
March.

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2. India is transitioning from Hybrid Economy to Pure Economy. How does this catalyze or hinder
following sectors? At least one of the 4 below should be a contrarian view of other 3

a. IT Sector b. Primary Health Care c. Agriculture Sector d. FMCG

ANSWER:

India believed in a hybrid economic model post its independence in 1947. India considered
Industrialization as the key to economic growth. The size of the Indian economy, and the philosophical
underpinnings of the industrial policy that there was a significant role for State intervention in ensuring a
fair distribution of wealth, meant that the process was government-driven and controlled. Despite the
regulatory constraints on local business, a negligible level of foreign investment and lack of international
competition, India managed to sustain a growth rate of 4 percent per annum from 1960 to 1990.

India then later managed to change from a closed to open economy. An indication of the success of these
reforms is given by the change in India's current account deficit. In 1991 it had risen to 3.3 percent of
Gross Domestic Product (GDP); by 1993 it had fallen to 1.8 percent, and by 1995 to 0.6 percent. The
hybrid economy was in place till recently where now it tends to move towards a Pure economy.

A pure economy is an economic system, that relies exclusively on markets to allocate resources and to
answer all three questions of allocation. This theoretical ideal has no governments, markets are used to
make all allocation decisions. In pure market economies, markets are used by buyers and sellers to
voluntarily exchange goods, services, and resources. Buyers seek to pay the lowest prices. Sellers seek
to receive the highest prices. Resources are allocated to the production of the goods with the highest
prices and greatest satisfaction of wants and needs.

This shift from Hybrid to pure economies have an impact on all industries in India.

IT Industry:

The shift from hybrid to pure economy has catalyzed this growth of our Indian IT sector. There is a huge
boom of new international entrants into our Indian tier 1 and tier 2 cities which provide opportunities for
Indian IT talent pool. Pure economy fosters competition and attractive venues for more Multinational
companies to do business in India and employ more Indians. The Indian IT sector has a big share in
India’s overall GDP.

The Information Technology (IT) industry is an essential component of the technology-driven knowledge
economy of the 21st century. Globally India has been recognized as a knowledge economy due to its
impressive IT industry. The IT industry mainly encompasses IT services, IT-enabled services (ITES),
ecommerce (online business), Software and Hardware products. The growth of the IT industry in India is
unprecedented across the economies of the world. All the sub-sectors of this industry have made strides
in revenue growth in the last two decades and fueled the growth of the Indian economy.

The main advantage of a pure economy is the absence of bureaucracy and red tape. This reduces
administrative costs to the business; money which the company can put into other endeavors such as
research and development. Indian IT industry has grown rapidly with an exponential growth rate after the
economic reform of 1991-92. Indian IT companies have set up thousands of centers within Indian and
around 80 countries across the world. Most global corporations are sourcing IT-ITES from the Indian IT
industry, it accounts for approximately 55 percent of the global service sourcing market (US$ 200-250
billion) in 2019-20.

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Pure economies allow business owners to innovate new ideas, develop new products and offer new
services. Entrepreneurs need not depend on government agencies to tell them when the public needs a
new product. They can study consumer demands, research popular trends, and meet the customer's
needs through innovation. The market size (especially export) of the IT industry has grown manifold from
approx. 67 billion US dollars in 2008-09 to 191 billion US dollars in 2019-20. The revenue is expected to
grow in the coming years with an accelerating growth rate and expected to reach 350 billion US dollars by
2025. India’s digitally skilled pool has grown over the period and accounted for around 75 percent of
global digital talent.

Primary Health Care [PHC]:

WHO defines Primary Health care as a whole-of-society approach to health and well-being centered on
the needs and preferences of individuals, families and communities. It addresses the broader
determinants of health and focuses on the comprehensive and interrelated aspects of physical, mental,
and social health and wellbeing.

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It provides whole-person care for health needs throughout the lifespan, not just for a set of specific
diseases. Primary health care ensures people receive comprehensive care - ranging from promotion and
prevention to treatment, rehabilitation, and palliative care - as close as feasible to people’s everyday
environment.

We can say that the significant challenges in front of Primary Health care system in India are:

 Poor patient to doctor ratio.

 Lack of Infrastructure
 Low public spending
 Low health cover for the rural population
 High out of the pocket expenditure
 Unequal distribution of Human Resources

The shift to pure economy does not do any good to India’s already suffering PHC. The primary objective
for any company in a pure economy is to make a profit. In many cases, hospitals may sacrifice patient
and employee safety, environmental standards, and ethical behavior to achieve those profits.

Another risk in this shift to pure economy is businesses are free to pursue profit in whatever way they
please, Services like PHC that are not profitable generally will not be largely available. This can limit the
availability of affordable healthcare to people and may impact the health and well being of a major part of
rural India where these businesses may not end being profitable.

Also, there is a high demand for Primary health services in India due to following reasons:

 India ranks high in the list of most ill nations.

 Over 32% of total deaths in India occur due to health-related diseases.
 According to global burn up diseases studies, India’s ranking in the Healthcare Index is 154 out of
190 countries.
 Despite such poor statistics, the budget allotment in healthcare services is meagre. India spends
around only 2% of its GDP on Healthcare.

Agriculture Sector

Agriculture is the primary source of livelihood for about 58% of India’s population. Gross Value Added by
agriculture, forestry, and fishing was estimated at Rs. 19.48 lakh crore (US$ 276.37 billion) in FY20.
Share of agriculture and allied sectors in gross value added (GVA) of India at current prices stood at 17.8
% in FY20. Consumer spending in India will return to growth in 2021 post the pandemic-led contraction,
expanding by as much as 6.6%.

Pure Economy shift has attracted Foreign Direct investments in Agriculture industry due to ease of doing
business and interventions from governments. According to the Department for Promotion of Industry and
Internal Trade (DPIIT), the Indian food processing industry has cumulatively attracted Foreign Direct
Investment (FDI) equity inflow of about US$ 10.24 billion between April 2000 and December 2020.Some
major investments and developments in agriculture are as follows:

 In March 2020, Fact, the oldest large-scale fertilizer manufacturer in the country, crossed one million
production and sales mark.

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 Nestle India will invest Rs. 700 crore (US$ 100.16 million) in construction of its ninth factory in Gujarat.
 In November 2019, Haldiram entered into an agreement for Amazon's global selling program to E-tail its
delicacies in the United States.
 In November 2019, Coca-Cola launched ‘Rani Float’ fruit juices to step out of its trademark fizzy drinks.
 Two diagnostic kits developed by Indian Council of Agricultural Research (ICAR) - Indian Veterinary
Research Institute (IVRI) and the Japanese Encephalitis lgM ELISA were launched in October 2019.
 Investment worth Rs. 8,500 crore (US$ 1.19 billion) have been announced in India for ethanol production.

The pure economy characterizes increased productivity, increased competition, better prices, and foster innovation.
With this change, India is expected to achieve the ambitious goal of doubling farm income by 2022. The
agriculture sector in India is expected to generate better momentum in the next few years due to
increased investment in agricultural infrastructure such as irrigation facilities, warehousing, and cold
storage. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian
farmers. India is expected to be self-sufficient in pulses in the coming few years due to concerted effort of
scientists to get early maturing varieties of pulses. 

FMCG – Fast Moving Consumer Goods:

Fast moving consumer goods (FMCG) is the fourth largest sector in the Indian economy. There are three
main segments in the sector – food and beverages, which accounts for 19 per cent of the sector;
healthcare, which accounts for 31 per cent of the share; and household and personal care, which
accounts for the remaining 50 per cent share.

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FMCG market is expected to grow 9-10 per cent in 2020. FMCG’s urban segment grew by 8 per cent,
whereas its rural segment grew 5 per cent in the quarter ending September 2019, supported by moderate
inflation, increase in private consumption and rural income.

Accounting for a revenue share of around 45 per cent, rural segment is a large contributor to the overall
revenue generated by the FMCG sector in India. Demand for quality goods and services have been in
demand in rural areas on the back of improved distribution channels of manufacturing and FMCG
companies. Urban segment accounted for a revenue share of 55 per cent of the overall revenue recorded
by the FMCG sector in India.

Indian Government has approved 100% foreign direct investments in the cash and carry and single-brand
retail segment and about 51% in the multi-brand retail segment. In fact, India has witnessed a steady and
healthy FDI flow of 16.8 billion USD as of March 2020.

Pure economy has reduced government intervention in doing businesses that makes foreign direct
investments easier in the FMCG sector. Indian FMCG sector has emerged as a fertile hotspot for foreign
investments, which promises to offer sustainable growth and derive a steady profit. In addition to growing
consumer demands, several government policies, and current trends in FMCG industry in India are also
making it a boon for foreign organizations willing to expand here in near future.

With an immense opportunity for growth in the FMCG market, what cannot be dismissed is the
overwhelming competition that any new organization setting foot in India must face. This, in turn, is
increasingly establishing the importance of business consulting firms in India.

Competition arising out in pure economies usually leads to better quality products for consumers at
lower prices because companies need to figure out how to attract customers. This allows them to
innovate not only in the production of the good or service but also in its quality. Innovation leads to better
technology that further improves society.

Inflation is the biggest danger of pure economies in FMCG. When the demand outgrows supply, it sets
the scene for companies raising prices. This sort of disparity can have a very bad chain reaction. This
means that consumers have less money to spend on other things – even on necessities.

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