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Strategic Outsourcing at Bharti Airtel Limited

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Evan Shamblin

on 30 October 2013

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Transcript of Strategic Outsourcing at Bharti Airtel Limited

Strategic Outsourcing at Bharti Airtel Limited

Background
Next Stage of Growth
Mobile licenses for 15 out of 23 total circles (2001-2002)
Fixed-line licenses for 6

Launched national and international long-distance service

Present in all major economic/industrial centers (2003)
91% of all mobile users in India
Predicted to obtain full coverage in India by 2005

Financial Situation in 2004
Customer base growing 100 percent per year

100 percent increase in revenues from ($1,113.4 million)

Improved operating margins from negative to positive

Net loss in 2003 to net income in 2004 ($117 million)

Return on equity nearly 12%

India Telecom Industry
1991 liberialization- industry revenue up 17%

High competition due to technological changes and interest from consumers

Move from 2G to 2.5G or 3G technologies

The Proposals
Reactions
Issues
Analysis
History
Founded 1995 by Sunil Mittal with $900 in start-up capital

Goals for creation were to
take advantage of the liberalization of the Indian telecom market and
bid for a government license to operate the first private mobile telecom service in the Delhi area

Initial Growth
Won government tender and immediately launched service
Airtel
Global System for Mobile (GSM) technology

Single-minded devotion for first 8 years

First private provider on the market in Delhi

India’s first private provider to turn a profit (1998)

Continuous Expansion
Aggressively pursued the acquisition of licenses for mobile operations in other geographic regions

Sold 20% equity to the private equity firm Warburg Pincus (1999)

Went public on the Indian National Stock Exchange, the Mumbai Exchange, and the Delhi Stock Exchange (2002)
$172 million IPO
$1 billion through foreign direct investments by end of 2002

Equipment Vendor
Ericsson, Nokia, and Siemens

Bharti pays a vendor fee for actual capacity used by customers

The vendors are responsible for the maintaining the network, but Bharti owns the network

Absorb 800 employees from Bharti

SLAs built into the agreement

3 year deal subject to renewal


IBM
IBM provides everything from computers up to the actual telecom network

SLAs built in to ensure quality

Revenue sharing agreement

270 IT employees from Bharti become IBM employees

Five to ten year deal



Network Vendor Objections
Equipment Investment Risk

Employees Transitioning and Culture Shock

Vendor could be missing out on a major opportunity in India


IBM Objections
Revenue Sharing Agreement
Long-term success of Bharti

Potential Culture Shock


Reactions from Directors & Managers
Shocked silence and complete resistance

Loss of control and dependence on vendors

Managers concerned about the speed of productivity and efficiency of operations

Family run business caused complications for Akhil Gupta

Employee Reactions
Software and hardware applications might no longer be supported with the infrastructure changes

HR concerned about the transfer of nearly 1,000 employees to a new company

IBM’s business environment and how employees will be treated

Competition
2002 – 2003 Indian market highly competitive

6 Main Competitors

Mobile rates as low as 3-4 US cents

Average monthly revenue per customer down 50% in 3 years

Growth
Value-added services

March 2004 – 1,400 towns using GSM
December 2007 – all 5,161 towns

March 2004 – 5,000 base stations
March 2007 – 40,000 base stations

EDGE & 3G

Advantages
Helps expansion of smaller businesses

Reduces overall costs

Reduces labor costs

Lowers operational and payroll costs to help competitive advantage

24-hour customer service and technical support lines available

Bharti will be able to better manage their IT and their usage

The ability to share best practices with other companies can help improve the efficiency of overall operations
Disadvantages
Potential loss of control

Different standards and mission statement causing convoluted business goals and inconsistent business practices

Additional internal and external fees

Tied to the financial well being of another company

Contract renewal risk

Threat of security and confidentiality

Quality and the speed at which innovations are introduced to the market can suffer; inherent lag time

Public image can sometimes suffer

Alternatives
Hire between 2,000 and 3,000 new employees

Current employees may be overworked to keep up with the market

Huge costs for new hires and retention issues

Increasing IT costs for excess capacity

Overall increase in costs inhibits innovation

Potential to lose some of the 21 licenses they have obtained if they cannot meet the needs of customers

Competitive advantage suffers

Market Share for Top Seven Telecom Operators
IT Issues
Scalability of IT network

Obsolescence

Incompatibility of inherited IT systems

Bharti’s IT requirements:
Telecom network systems and software
Customer management information systems
Business-support software


Human Resources Issue
2,000 – 3,000 additional employees needed

Difficult to hire and retain best and brightest

Top multinational firms vs Bharti start-up


Implications for Employees
Change in the employment packages

Employee morale

Confidence in the company suffers

Implications from Directors & Managers
Disgruntled Employees

Employee productivity can suffer

Director and Manager productivity can suffer

Board of Directors faced with new constraints

Possible financial reporting changes

Increase in legal fees



Sign the Deals
Full transcript