Zambia: Valuable lessons for aspiring 'foreign investors'

Those aspiring to break into economies at the bottom of pyramid (e.g. Zambia) face the main challenge of how build a business model that would adequately 'sell to the poor', through the acquistion of resources at a cost below their potential and deploying these resources into capabilities that create higher than average benefits for constomer. Simply put the poor are poor and therefore you need to find ways of stimulating demand, and while at the same time navigating your way around the endless list of trouble spots e.g. corruption, undefined property rights and so forth.

The the winners of the Second Annual IFC/FT Essay Competition provide valuable insights on how such problems can be overcome by 'foreign investors' (or multi-national companies as they call them) building strategic alliances with local social entreprenuers. The paper presents the following example:

In the late 1990s Norway’s incumbent telecommunications company, Telenor, was facing saturation in its home market and needed a strategy of expansion that would open up new opportunities. It entered into a joint venture with the Grameen Bank in Bangladesh to provide mobile telephony to one of the world’s least developed countries. The Grameen Bank, founded in 1976 by Professor Muhammad Yunus, for which he was awarded the Nobel Peace Prize 2006, provided microfinance to millions of poor in most villages of Bangladesh, and had set up a number of other enterprises to create economic opportunities for the poor. What made Telenor eventually decide in favor of the joint venture in a country known for its political instability and corruption was the excellent reputation of the local partner in Bangladesh. The joint venture between Telenor and the Grameen Bank led to the formation of two separate organizations. Grameen Phone, the commercial company was operated by experienced Telenor managers and its strategic objective was to maximize financial returns. Grameen Telecom was set up as theadministrative interface to the existing Grameen Bank BOP model. Its strategic objective was quite different – to maximize the numbers of jobs created for the rural poor – and it had a very different organizational culture and management structure.

When it started out in 1997, Grameen Phone was one of four companies to receive a license to operate a mobile network in Bangladesh. It became profitable in 2000, and had more than two million subscribers in late 2004, and 6 million in February of 2006. Grameen Phone is now one of the largest private companies in Bangladesh and the second largest tax-payer reflecting significant profit levels. In 2006 it had a market share of over 60 percent in a country of 150 million people, which signifies the potential for further growth. By 2006, Grameen Telecom had created more than 250,000 jobs for micro-entrepreneurs, or better known as “Village Phone Ladies.” These are poor rural women who, despite being illiterate, quickly learned how to operate a mobile phone and to generate income from these phones. Grameen Telecom is financially self-sustainable and provides more than 10 percent of the revenues of Grameen Phone.

In achieving this spectacular growth, Telenor was able to access important capabilities and resources through collaboration with Grameen Bank. These included both tangible and intangible resources. An important tangible resource was the existing fiber optic network that had been built with funding from the Norwegian Agency for Development (NORAD) for the internal communication of Bangladesh’s national railway system. The fiber optic network was never used to anywhere near its full capacity. Consequently. Telenor and Grameen Bank were able to acquire jointly a key asset relatively cheaply, which significantly reduced their investment risk. The Grameen Bank’s social objectives to bring employment and other benefits of economic development to the rural areas of Bangladesh opened up funding avenues that would not have been available to a private company. In this way, the joint venture was able to leverage funding from organizations such as NORAD, the Asian Development Bank, the IFC and the Commonwealth Development Corporation. These agencies absorbed some of the market risk of the venture, in return for efforts aimed at social and economic development, thereby lowering Telenor’s cost of capital.

However, tangible resources were by no means the most important in allowing Telenor to overcome significant hurdles in doing business in an emerging market. In fact, factors such as public trust in the Grameen name, the high level of brand awareness and the impeccable reputation of Mr Yunus, founder of Grameen, which allowed the partnership to shun corruption -- were crucial intangible resources and key factors in the success of the initiative. First, to protect Telenor’s reputation it was imperative to find the right partner that could resist the corrupt practices prevalent in low-income countries. Second, the existing brand equity and high level of trust in the Grameen name were critical in obtaining a licence and also in the generally costly process of building the consumer market and in consolidating the new brand, Grameen Phone. Finally, Mr. Yunus’ prior success and experience in building the Grameen Bank and other Grameen initiatives, contributed important local knowledge, reduced uncertainty and search costs, and enabled agreement on economic and social objectives.

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