Sonia Dahab & José Nazário

Internationalisation Strategies
Partnership Strategies in the

Telecom Industry
A case of success
Sonia Dahab José Nazário

Universidade Nova de Lisboa Universidade Nova de Lisboa
Agenda
• Objective of the study
• Analysis Model
• The Partnership
• Measuring the success of the Partnership
• Determinants of success
• Conclusions
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
Agenda
• Analysis Model
• The Partnership
• Conclusions
Analysis Model
to manage re
l i ty lat
i
Ab ion
Re sh
gul Financial ip
ato tr y
r y us
Ind
Operational
Strategic
?
e
Le
ctur
ve
lo
Stru
Organizational
fF
it
Global
Internal Factors
Ability
Ability to
to manage
manage relationship
relationship
Experiences
Experiences
• Number of past Partnerships (small or large)
Past
Past
• To create, disseminate, develop and apply the knowledge acquired in past Partnerships
•Communication
Competencies
SpecificCompetencies
• Trust
• Empowerment
• Negotiation skills
• Win-Win situations
Specific
• Cultural sensitivity
• ….
Dedicated
functions
• Selection of partners
Dedicated
functions
• Planning the Partnership
• Negotiating, managing and ending the Partnership

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

Internal Factors
Level
Level of
of Fit
Fit
• National
Cultural
Cultural
• Industrial
• Corporate
Organizational
Organizational
• Decision making process
• Reporting
• Incentives to employees
Capabilities
Capabilities
• Complementation of resources and knowledge

(Skills)
(Skills)
• Willingness to invest
Internal Factors
Partnership
Partnership Structure
Structure
• Organization of the partnership
• Transfer pricing agreement
• Sharing of profits
• Type of structure (equity non equity)
• Governance
• Control mechanisms
• Exit mechanisms
Measures of success
• Abnormal Stock market returns
Financial
Financial
• EVA (Economic Value Added)
Performance
Performance
• Increase profitability and growth
• Duration
Operational
Operational
Performance
Performance
• Stability of the structure (CEO’s, ownership,…)
Organizational
• Objective completion
Organizational
Performance
Performance
• Quality of the interaction among partners
• Appropriation of new capabilities

Strategic
Strategic
• Impact on competition
Performance
Performance
• Impact on the Competitive Advantage of the partners

Agenda
• Analysis Model
• The Partnership
• Conclusions
The Partners
• 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)
(50%) • €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
(50%)
• > €35 billion in revenues (2005)
The Partnership in Brazil
Internationalisation Strategies (Vivo)
Leilão Telebrás VIVO VIVO

(1998) Quota
(1Qde Mercado
2001)
Market (Set 05)
Share (2005)(4Q 2003)
8%
11%
Brazil
Vivo
In isismarket
5 years the
thelargest
leader
mobile
with 36%
Partnership 36%
market
market
has in
share
covered Latinand
more America
€1,5 90%
than billion in 23%
Ebitda
of the territory… 22%
Vivo TIM Telecom Americas Oi Outros

Evolution of the partnership
1996 1997 1998 1999-2001 2002-…
PT’s
Mobile Telef.
Regulatory constrains
Companies
Global Alliances
er
tn
ar
ch
Agreements
p
TEF’s
Telebrás
rea
TeleLeste
of
of strategic Mobile Telef. Bahía e Sergipe
Auction
B
ge
TeleSudeste
alignment Companies Rio J. e E.Santo
an
al
Telesp Celular
De
Cross
Ch
Sao Paulo
ownership in
entry JV’s TEF’s TEF’s
Fixed Telef.
CRT Celular Fixed Telef.
Concert Rio Grande do Sul
Companies Companies
Alliance
Agenda
• Analysis Model
• The Partnership
• Conclusions
Measuring the Success of the Partnership
PT
TEF
PT
Abnormal stock market return TEF
(15 days accumulated)
ROIC - WACC
Revenue growth of current operations 3,7%
(2003-1997 CAGR) 4,9%
2,2%
19,3%
1,9%
13,2% 0,7% 2,7%
-0,1% -1,9%
Financial
Financial 2,1%
2,0%
9,6%
8,8%
Performance
Performance 1,8% 1,6%
0,6%
1997 1998
1999Brasil 2000Non 2001 Brasil
2002 2003
Non 20042001 2005
Announcement Brasil Telebrás auction Announcement
of strategic Brasil
of JV
alignment Vivo
agreements
+ €800
Abnormal million
Contribution
Stock EVA
Market
to growth
Returns
Operational
Operational
Performance
Performance
Anos
0
2
4
6
8
10
12
Automóvel
Eq. Telecom
Serv. Telecom
PT/TEF
Computadores
Comp. Electrónicos
Motores
Eq. Agrícolas
Serv. Financeiros
Média = 5,5 anos
Eq. Pesados
Eq. Leves
Prod. Médicos
Longevity
Fab. de Metal
Proc. de Metal
Minas
Eq. Escritório
Petroquímica
Above average longevity
Farmacêutico
Eq. de precisão
Software
Aço
• 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

Organizational recognition:
Organizational
Performance • PT is in 415th place in the FT500 ranking
Performance
• TEF is in 58th 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.
Internationalisation Strategies • 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%
Strategic
Strategic • Better image and increase quality of services rendered
Performance
Performance
30
25
20
Euros
15
10
0
1997 1998 1999 2000 2001 2002 2003
CCPU (PT) CCPU (TEF)

Weak Points
• Risky country and Exchange
Organizational
Performance
Performance
rate
Financial
• Competitive pressure to drop • Different rhythms of making

prices and loss of market share decisions
• Regulatory pressure
Performance
Operational
Performance
Strategic
• Lack of operational “fluidity” as • Competitive advantages are
some structures and systems able to be copied
were not yet totally integrated
Agenda
• Analysis Model
• The Partnership
• Conclusions
L - Low
Determinants of Success M – Medium

H - High
M
• Past Experience (Medium)

• African, Asian, South American and US companies
• Lack of systematization and dissemination of past knowledge
Ability
Abilityto
to
manage
managethe the
relationship
relationship
• Dedicated alliance functions (Low)
• No permanent functions of partnership monitoring
L - Low
H - High
Internationalisation Strategies Skills
Ability
Abilityto
to
manage
managethe the
relationship
relationship
(cont.)
(cont.)
• PT has a more decentralized decision making process

M Managers
than
“…the withamong
TEFof trust
level high leadership skills
both parties wasand experience
high and transpired
HH Transparency and isemption
H • Good
to communication
all the people involved in the negotiations…”.
L - Low
H - High
M => H • 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
Strategic
Strategic • PT always matched TEF in resources and knowledge
Fit
Fit
• 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

L - Low
H - High
• Compatibility of personal agendas (Low => High)

• But it was not always like that…
PT
Venturing
Venturing
2005Extractive Sharing Option
Long-Term Fit Problematic Fit Problematic Fit Possible Fit

Possible Short-
Extractive Problematic Fit Short-Term Fit Problematic Fit
TEF
Strategic Term Fit

Strategic Possible Short- Possible Short-
Fit
Fit (cont.)
(cont.) Sharing Problematic Fit
Term Fit
Fit
Term Fit
Possible Short-
Option Possible Fit Problematic Fit Short-Term Fit
Term Fit
1997
L - Low
H - High
H
“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
Cultural
Cultural
• Industry Culture (High)
Fit
Fit
• Same industry in Europe
• National Culture (High)

• Portugal and Spain rank exactly the same in the Hofstead scale
L - Low
H - High
H => M
“…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
Capabilities
Capabilities management skills
(Skills)
(Skills)
Fit
Fit
Fit decreased over time due to:

• PT’s increasing international experience;
• TEF’s increasing integration in the Brazilian culture
L - Low
H - High
M
• TEF has a more centralized decision making process, leading

to less empowerment of expatriate managers in Brazil
Slowing of decision making process

Organizational
Organizational
Fit
Fit
• Internal rules, processes and reporting are the same among

both partners
L - Low
H - High
L => H
• 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

Structure
Structure
• 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

L - Low
H - High
Internationalisation Strategies L + High GDP growth (11% CAGR)

Global
Global - Brazilian currency depreciation
- Social and political instability of Brazil

Factors
External Factors
M - Regulator only allowed effective concentration of operations in

2001
Regulatory
Regulatory
External
- Regulation trend towards favouring fixed operators (Vivo is

only mobile)
L + Vivo has the highest operational margin
Competitive
Competitive
- Higher competition
- Price decreases leading to less margin and market share
Agenda
• Analysis Model
• The Partnership
• Conclusions
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 (1997 - 2004)
Dedicated Alliance
Functions
Structure of Partnership Past Experience
Capacity Fit Specific Competencies
Organizational Fit Strategic Fit

1997
Cultural Fit 2004
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

Questions?

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Internationalisation Strategies

Partnership Strategies in the

Sonia Dahab José Nazário

• Objective of the study

• Measuring the success of the Partnership

• How to identify a successful Partnership?

• Present the importance of Partnerships for the

• Portugal Telecom (PT)

• Identify the degree of success of the 50/50 Partnership

• Objective of the study

• Measuring the success of the Partnership

• Planning the Partnership

• Negotiating, managing and ending the Partnership

• Importance of the Partnership => Free-Riding

• Different competitive positioning => Paternal Posture

• Defensive Agenda => Shor term fit

• Common Strategic Vision

• Decision making process

• Complementation of resources and knowledge

• Organization of the partnership

• Transfer pricing agreement

• Type of structure (equity non equity)

• Appropriation of new capabilities

• Impact on the Competitive Advantage of the partners

• Objective of the study

• Measuring the success of the Partnership

• Main International presence is in the Brazilian mobile market

(50%) • €6 billion in revenues (2005)

• Spanish Telecom incumbent present in the mobile, fixed and

• Main International presence is in Latin America in the Fixed

Leilão Telebrás VIVO VIVO

Vivo TIM Telecom Americas Oi Outros

• Objective of the study

• Measuring the success of the Partnership

• PT and TEF become companies of international

• Good relationship among partners:

• Increase competitive advantage of partners

CCPU (PT) CCPU (TEF)

• Risky country and Exchange

• Competitive pressure to drop • Different rhythms of making

• Objective of the study

• Measuring the success of the Partnership

Determinants of Success M – Medium

• Past Experience (Medium)

Internationalisation Strategies Skills

• PT has a more decentralized decision making process

M => H • Shared Strategic Vision (High)

• 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

• After entering in Brazil the complementarity of footprints was

•Market acceptance (High)

• Leadership position in the market

• Market analysts saw this partnership as the right choice

• Compatibility of personal agendas (Low => High)

Long-Term Fit Problematic Fit Problematic Fit Possible Fit

Strategic Term Fit

• Corporate Culture (High)

• National Culture (High)

• Complementing in some cases: language skills and cultural resembles with

Fit decreased over time due to:

• TEF has a more centralized decision making process, leading

Sonia Dahab & José Nazário

Sonia Dahab & José Nazário