the impact of multinational enterprises

8/12/2019 The Impact of Multinational Enterprises

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What is multinational enterprise?

According to Franklin Root (1994), an MNC is a parent company that:

Engages in foreign production through its affiliates located in several countries,

Exercises direct control over the policies of its affiliates,

Implements business strategies in production, marketing, finance and staffing that transcend

national boundaries.

Introduction

A Multinational Corporation is an enterprise that delivers services or production in more than

one country. There are two models of Multinational Corporation. The first model of a

multinational corporation is the one with an established headquarter that is based in one nation

while some other facilities are based in locations in other countries. This type of a model allows

the company to take advantage of benefits of incorporating in a given locality while at the same

time they are able to produce goods and services in areas where the cost of production is lower.

Multinational Corporations have risen as one source of foreign direct Investment in the major

industrialized nations (Spero & Hart, 1997). The second model of a multinational corporation is

a case whereby there is a parent company in one nation and subsidiaries in other countries

around the world. With this model all the functions of the parent are based in the country of

origin the subsidiaries more or less function independently. Multinational corporations have a

powerful influence in international relations and local economies they play an important role in

globalization. Multinational Corporations have grown in power a visibility but they have also

been viewed more differently with both governments and consumers worldwide (Alan & Alain,

2008).

In addition, multinational corporations often access new markets by creating joint ventures with

existing firms operating in the markets. In joint ventures, the venture partner in the market to be

entered remains with a considerable share or even complete autonomy. The establishment of

joint ventures has most of the time proved unsuccessful in the long run for multinational

corporations, which are likely to find their venture partners have tough competitors when a more

direct entrant of the new market is attempted. Multinational corporations are thus able to succeed



on new markets in a number of ways which allows existing concerns in the market to be

accessed with a varying degree of autonomy and control over operations. Because of the

enormous size of MNC’s they enjoy massive economic, legal and political power which enables

them to dictate the markets (Stopford, 1998). This research paper digs deep into identifying the

political and legal challenges that have hit the Multinational Corporation. It also discusses

various theories of MNC’s and how they have impacted in existing corporations.

Politics and power within MNC

While there are no doubts about the economic success and pervasiveness of multinational

corporations, their motives and actions have been called into question by social welfare,

environmental protection, labor organizations and government agencies worldwide. Due to these

conflicts, there has arose numerous concerns about the influence of politics and legal constrains

that should be met. Multinational companies are faced with various challenges most of them

surrounding politics and power. In his book, The Economist, Bill Emmott argues that the power

of multinationals as well as their predominance cannot be undermined. He further evidenced the

extent to which they have powers. Due to interests from developing countries on MNC’s, the

latter have gained indirect power influence, upon policies that a state may adopt, they have both

economic powers and political influence (Emmot, 1993).

Multinational Corporations operations are likely to affect political, social environmental and

economic factors that diminish the risk of an outbreak of armed conflicts. Although MNC’s

involved in large scale extractive operations have developed extremely comprehensive

methodologies for undertaking stakeholder analysis and impact assessments. Multinational

corporations have a number of means in which they can influence corporate decisions.

Governments can restrict access to grants, subsidies, tax credits, loans, and investments

insurance. Multinational Corporation has effect on employees and labor unions in influencing

firm practice and the expected standards of operation.

Interference and regulations by governments have played a role in multinational corporations.

There have been political interferences with the affairs of multinational corporations especially

host governments which demand certain conditions that should be met with the Multinational

Corporations. In developed countries, these limitations tend to cluster mostly on industries that



are of impact to the economy such as telecommunication equipments industry. Most modern

governments have given priority to the goals of public policy of economic efficiency,

improvement and growth and betterment of living standards. In analyzing the legal and political

influence, one must examine the types of interventions from governments (Geppert, 2003). Host

governments have in many instances restricted the freedom of a multinational corporation in

deploying resources and limitations to strategic freedom. Governments have moved towards

regulating the entire industrial sectors. The regulations have primarily affected multinationals in

the form of sensitive issues as product choice, level of employment, use of technology and

national trade balance (Phil and Anthony , 1998).

There are other legal challenges of compensation plans as drawn by different countries. The

complexity of developing a systematic compensation programs requires corporate wide

solutions. There are significant problems of compensation programs for expatriates, host

countries and the third country nationals. The expatriates pay systems are often different from

those used for host country. There have been conflicts of expatriate employees paid more than

the local employees who have jobs equal or greater importance and complexity. A successful

strategy of compensation involves keeping expatriates motivated at the same time meeting the

objectives of the MNC. International compensation systems have become more challenging, the

international compensation policies can produce intense internal conflicts within an MNC any

stage of globalization. Over time there has been an increase on legal challenges whereby a

Multinational Corporation requires legal advice with respect to various facets of their operations

and organizations (Imber, 1983).

In an organization where there are un-equal power relations, identity disclosure and cultural

distinction drawing in MNC’s political conflicts are norms. Political conflicts in headquarters are

subject number of important factors still limiting the effectiveness of MNC in the region. When

the government is unable to integrate consultation across all issues related to national planning

and development conflicts in the organization are evidenced. In addition a lack of political will to

make the process work for example failure to consult and lack of follow-up on agreed matters is

a catalyst of political conflicts. According to Macdonald, politics within an organization that

involves workers and their managers affects their technical and organizational capacity. Lack of



the Multinationals do not have. No matter how small a state is, it does not impair its ability to

control a Multinational Corporation and lay down the conditions under which multinational

corporations may establish subsidiaries within its borders to restrict and regulate their operations

when they are established or to nationalize them. The states still maintain their ability to have

direct control and influence over their internal and political affairs (Grigsby, 2011).

Theories of MNC and their effects on real life

Multinational Corporations allocate many different theories to achieve the status of a

multinational entity. Internalization theory, product cycle theory, obsolescing bargain theory, and

oligopoly theory along with the tariff-jumping hypothesis, bring light on how the foreign

corporations continue their path of vertical integration. However, even with these lucrative

investment strategies it is not easy to distinguish benefits or hurt to the host country. These

research paper compares who benefits the most Four theories and one hypothesis have been put

forward to explain how structural goals are achieved by Multinational Corporations.

How is a company classified as MNE?

Subsidiaries in foreign countries;

Operations in a number of countries

High proportion of assets in or/ and revenues from global operations

Stakeholders are from different countries

History and evolution of MNEs

These corporations originated early in the 20th century and expanded after World War II.

A multinational corporation developed new products in its native country and manufactured

them abroad.

Almost all the earliest and largest multinational firms were either American, Japanese, or

West European.

During the last three decades, many smaller corporations have also become multinational.

Such enterprises maintain that they create employment, create wealth, and improve

technology in countries.

Reasons for the Establishment of MNCs



To increase market share.

To secure cheaper premises and labour.

Employment and Health & Safety Legislations in other countries may be more relaxed.

To avoid or minimise the amount of tax to be paid.

To take advantage of government grants available.

To save on costs of transporting goods to the market place.

To develop an international brand.

Advantages of MNCs to the Host Country:

Transfer of technology, capital and entrepreneurship.

Increase in the investment level and thus, the income and employment in the host country.

Greater availability of products for local consumers.

Increase in exports and decrease in imports.

Acquisition of raw materials from abroad.

Technology and management expertise acquired from competing in global markets.

Export of components and finished goods for assembly or distribution in foreign markets.

Inflow of income from overseas profits, royalties and management contracts.

Di sadvantages of MNCs:

Trade restrictions imposed at the government-level

Limited quantities (quotas) of imports.

Effective management of a globally dispersed organization.

Slow down in the growth of employment in home countries.



Destroy competition and acquire monopoly.

Cri ticism of MNCs:

Creation of false needs in consumers.

Interference and dominance in the internal affairs of sovereign nations.

Invasive advertising and corporate lobbying.

Creation of monopolies in the market and elimination of local competitors.

Depletion of resources due to their continuous use by these corporations.

Centralization of R&D operations in their home country.

Low consideration for human rights and welfare.

The problem of Dumping.

Key chal lenges that Paki stan MNCs Face:

Domestic market like India vis - a - vis International expansion.

Language.

Culture.

Autonomy to “local” managers.

Styles of doing business.

Handling of potential liabilities related to Labor, IPR etc.



Case study



Telenor

The Norwegian Telecom company Telenor’s operations in Eastern Europe and Asia have made them a

major player in emerging markets. In this investigation Telenor is used as a critical case, or a case that is

used as a representative of other cases. When searching for a case that could be used for this purpose I

used an information-based strategy for selection of samples and cases. My goal was to find a critical case

that allows me to achieve information that permits logical deductions of the type “is this (not) valid for

this case, then it applies to all (no) cases” (Flybjerg 2004). Telenor is an especially good case to

investigate the implications that can arise when a multinational company from a developed market is

operating in emerging markets, for several reasons. Firstly Telenor fit my first criteria; they are a

multinational company from a developed market who is operating both in developed and emerging

markets. Being a company that has existed for more than 100 years they carry the typical characteristics

of a developed market-based firm with their typical values and longstanding traditions. It is exactly this

heritage that can create implications when adjusting to operating environments in emerging markets.

Hence, if there are challenges in emerging markets due to being a typical MNE from the developed world,

they should be encountered by Telenor. The value of investigating Telenor’s operations in emerging

markets specifically, compared to many of their peers, lies in that Telenor was a first-mover in several

emerging markets. This means that they had to deal with all the implications that are related to being a

developed market MNE in that market, and hence their experiences in those markets will reflect the

broadest range possible of the actual challenges and implications to business in that market. A company

who enters emerging markets that is already inhabited by other developed market MNE’s will enjoy the

benefits of efforts made by early entrants to adapt to the operational environment (Khanna and Palepu

2010). Therefore they may not have to deal with the same degree of challenges in emerging markets as

first movers. Secondly Telenor is a good case for investigation because they are present in emerging

markets in different regions. As stated by Khanna and Palepu (2010) emerging markets should be

distinguished collectively from developed markets, but also individually from each other. By

investigating a company that is present in emerging markets both in Asia and Europe I get the opportunity

to investigate if emerging markets differ from each other, and the implications to strategy related to this.

There is a wide range of companies to choose from that fit these criteria. Early I narrowed my search for

case companies down to companies that fit the criteria above, that is also in the telecom sector. The

reason why a company from the telecom sector is especially interesting when investigating business



strategies in emerging markets is the rapid growth in this sector. Between 2000 and 2005 the number of

mobile subscribers in developing and emerging economies grew more than a fivefold (Allen et al 2007).

The use of mobile phone has improved living standards of millions of people by providing easier

communication, access to quick medical help, job opportunities, and even banking. The benefits of the

mobile phone has transformed into success for mobile companies in emerging markets and competition

can be fierce, both from other multinationals, but also from local companies. By choosing a case company

that operates in a sector that has international competition, but also local, I’m able to also analyze the

broadest possible set of implications of operating in emerging markets. If I instead selected a case

company from a sector that is dominated by multinational players, as the international airline industry, the

analysis would be of competition between MNE’s from developed markets to capture emerging markets,

and not so much strategies of developed market MNE’s in emerging markets. Last, the initial investments

for telecom operators entering emerging markets can be high, while the growth potential is enormous,

which means that profit margins can be great for those who succeed, but those who are unable to gain

critical mass struggle (www.dn.no July 14th 2010). Therefore telecom operators must carefully plan and

execute their strategies when entering emerging markets, which assures me that I will be able to identify

distinct strategies to base my investigation on if I choose a telecom company as a case company.

1.1.1 Company information

Telenor started out as a government agency in 1855 and has been known under various names. When the

monopoly over the sale of telephone sets in Norway ended, and the Norwegian market for

telecommunications terminals opened up to competition in 1988, they were operating under the name

Norwegian Telecom (Televerket). In 1995 Televerket changed its name to Telenor, but was not partly

privatized and listed on the stock exchange before year 2000. Today Telenor is one of the leading mobile

operators in the world, with 203 million mobile subscriptions, a growth from 15 million subscriptions in

10 years. Telenor was one of the top 500 global companies by market value in 2010 according to the

Financial Times Global 500, and are among the top performers on Dow Jones Sustainability Indexes.

They have 33.200 employees worldwide and revenues of NOK 95 billion in 2010, where more than 50%

of these revenues come from markets that are not developed. Telenor’s main operations are concentrated

in three geographic regions that include developed, newly industrialized, and emerging markets:

The Nordics

Telenor is a leading provider of mobile and fixed services in Norway, Sweden and Denmark. The

operations in Scandinavia represent Telenor’s operations in developed markets.



Central and Eastern Europe

Telenor Group has a strong position as provider of mobile services in Hungary, Serbia and Montenegro.

They also have an economic share of 39.6 per cent in VimpelCom Ltd., who offers mobile services in

Russia, Ukraine, Kazakhstan, Georgia, Uzbekistan, Tajikistan, Armenia, Kyrgyzstan, Cambodia, Laos

and Vietnam. All markets in this group are defined as emerging markets according to the worlds

Emerging Markets Monitor.

Asia

The Telenor Group is one of the largest mobile operators in Asia through their operations in Thailand,

Malaysia, Bangladesh, Pakistan, and India. Malaysia is considered a newly industrialized economy, while

the remaining countries are defined as emerging markets according to the worlds Emerging Market

Monitor (www.telenor.com).

Theory

The selected theories cover two main areas. The first are theory about international production, and

the second are theory about emerging markets. Following this I introduce theory about corporate

branding and the theoretical view of strategy. Each section starts with an overview of relevant

theories within the area, and the relevance of selected theories for this investigation. I also discuss

possible limitations of the selected theories and the consequence the theory selection may have on the

investigation. The selected theories are context-independent and can be applied to “all” situations.

My goal is to reach an understanding of Telenor in several different specific contexts. The context-

independent theories can help me reach that goal because they will help me develop an

understanding. By applying these theories the investigation of one specific case I will put myself into

the context being studied, and hence theory will be used as a reference point, and a guide to

maneuver.

Internationalization theory

Internalization theory explains the existence and functioning of the multinational enterprises. It

contributes to understanding the boundaries of the MNC’s, its interface with the external

environment and its internal organizational design. This theory is based on activities in the

presence of market imperfections just as they domestically expand, there are three prerequisites

to be met by a Multinational Corporation to compete with local firms firstly it must have market

http://www.telenor.com/






power that is derived from specialized knowledge. Secondly it has to consider the particular

foreign location that is hungry for new investments relative to the alternative locations including

the home market (Rugman, 1981).

The product cycle theory

This is an economic theory that was developed to explain the observed pattern of international

trade. The theory suggests that a product’s life-cycle in all the parts in the world markets’

production gradually move away from the point of origin. In most instances, the product is

imported by its original country of invention. Personal computers in the United States mark a

perfect example of this theory. This theory is best explained by the five stages of production

which firstly include the introduction stage where a new product is introduced to meet local

needs and it is then exported to other countries which have similar needs and incomes. An

example is the IBM personal computers that were produced in the US and they later on spread to

other industrialized countries (Dennis, et al. 2009).

Growth is the second stage of a product after production. Normally a product is produced

elsewhere and introduced in the country of origin and this moves production to other countries.

Upon maturity of a product, the industry concentrates on the lowest cost of production. The

fourth stage according to this theory is the saturation stage which is at the time when the sales of

a product reach the peak and there is little possibility to increase. At the early part of this stage,

sales remain stable which then starts falling and the process continues until the substitutes enter

the market. The last stage of a product cycle is the decline stage which is mostly evidenced in

poor countries which remain the only market for the productions. An example of this stage is the

textile industry where goods are exported to developing countries due to lack of market (Hill,

2007).

The obsolescing model

This theory was first developed by Raymond Vernon and it explains the changing nature of the

bargaining relations between a Multinational Corporation and a host country as a function of

goals, resources and constrains on both parties. In this model, the initial bargain favors the

Multinational Corporation but the relative bargaining power is shifted to the host country from

the MNC’s. This ranges from higher taxes to complete expropriation of MNC’s assets. The



Telenor’s history dates back to 1881 when The Norwegian government passed the Monopolies Act,

which gave the state, under the name The Norwegian Telegraph Administration, exclusive rights to

convey messages by means of telegraph lines and similar installations. This monopoly was extended in

1899 with The Telegraph Act, giving the state exclusive rights to run telephone services.

(www.telenor.com). By the millennium The Norwegian Telegraph Administration had changed from

being a state monopoly in the market for telecommunications terminals, into a public company named

Telenor. By the year 2000 Telenor was present in Russia, Check Republic, Ireland, Austria, Hungary,

Lithuania, Montenegro, and Bangladesh (1995) through joint ventures. Further they were licensed to

Develop GSM networks in Bangladesh and Montenegro (1995), and also in Austria, Greece, Ukraine,

Germany (1997, with partners). Right before the millennium they also expanded their operations to

Southeast Asia by acquiring at 33% holding in Malaysian company DiGi. Today they have also started

commercial business in Thailand, Malaysia, Hungary, Montenegro, Serbia and India.

Early Expansion

In 1969 The Norwegian Telegraph Administration changed name to Norwegian Telecommunications

(Televerket), and the year 1988 marked the end to the end of Norwegian Telecom’s government granted

monopoly over the sale of telephone sets, when the Norwegian market for telecommunications terminals

opened up to competition (www.telenor.com)

* Televerket logo 1969. Source http://www.la9dl.no/lx-telegram.html

The First Moves Abroad

If we put the international contracts to develop satellite and GSM networks aside, Telenor’s international

expansion starts in 1995 when Northwest GSM, in which Telenor has a 13 per cent ownership share,

officially opens in St. Petersburg, Russia and Telenor invests in a joint venture in Bangladesh. Around the

same time Telenor invests in several international telecom companies (www.telenor.com). While Telenor

is beginning to expand their business abroad internet has its real breakthrough in Norway and Telenor

builds a new, high capacity infrastructure for the Internet in Norway. The investment amounts to more

than NOK 100 million (USD 1,913 million) and provides a network with a capacity for more than 400

000 users. Telenor also consolidates its position in TV distribution and becomes the market leader in

satellite-based broadcasting in the Nordic region (www.telenor.com). At the same time Telenor is

responding to technical development and cooperates with Canal Plus (Europe’s largest broadcasting

company) in developing a digital standard for satellite broadcasting. The Norwegian telecommunications

network became fully digitalized by 1997 (www.telenor.com).



The investments in Norway while expanding abroad indicates a horizontal expansion strategy where

Telenor wants to expand their business abroad, without abandoning their operation in the home market,

Norway (Guilén and Garcia-Canal 2010). 1998 is the year when the last part of the monopoly on

telecommunications ends: the Norwegian telecommunications market is opened up to full competition

after the first deregulation of the market 10 years earlier. In 1999 Telenor is set for a merger with their

counterpart in Sweden, Telia, but this is stopped by Norwegian and Swedish authorities. The negotiations

broke down largely due to the underestimation from both sides of the cultural differences between the

negotiating parties and has been referred to as one of the largest unsuccessful projects in modern Nordic

history (Fang et al 2004). According to Eekhoff and Moch (2004) mergers is a common instrument for

companies seeking control of a market. If the merger of Telia and Telenor had gone through they would

have formed one of Europe's largest Telco’s, valued as high as $82.7 billion (www.bnet.com). The

proposed merger with Telia also shows that Telenor has a strong wish to become a market leader in their

home market, and being one of Europe's largest telecom operators they would also have gained

significant power in the other markets they were about to enter at that time. Companies have strong

incentives to avoid or suppress competition and to gain monopoly power, and the temptation to gain

monopoly power will not disappear as long as there are rivals competing in a market (Eekhoff and Moch

2004).

The attempt to gain market control in Sweden and Norway can be interpreted as an attempt by Telenor to

gain back their monopoly position. We do not know what Telenor would have looked like today if the

merger had been successful, but perhaps the failed merger was an additional push on Telenor to continue

to pursue their international expansion strategy. After all, Telenor has a long history as market

monopolist, and operating as a market leader was probably well incorporated in Telenor’s corporate

culture at this time so it is understandable why they were taking measures to ensure continuation of this

position. With expectations of continually increasing competition in their home market, the merger with

Telia was a perfect tool to secure Telenor’s strong market position in Norway, and also in the rest of

Scandinavia. When this is no longer an option Telenor is forced to think outside its home market to

ensure future growth.

In 1999, the same year as the Telia merger falls through, Telenor acquire a 33% holding in DiGi in

Malaysia and thus they expand their operations to Southeast Asia. They also acquire part of VimpelCom

in Moscow when they enter a joint venture agreement with Russian business group Alfa, and hence get

directly involved in commercial operations in Russia (www.telenor.com).



With the new investments we can see the strategy of Telenor emerging as a pattern. The overall plan is

not yet completely clear based on the different markets they are making investments, however it seems

like a pattern is taking place where Telenor invests more and more in emerging markets. In their

description of the premises of the learning school Mintzberg, Ahlstrand, and Lampel (2009) concludes

that strategies appear first as patterns out of the past, only later, perhaps, as plans for the future, and

ultimately, as perspectives to guide overall behavior. They also make reference to the work of McGill

University's faculty of Management that defines strategy as pattern or consistency in action. In the

positioning school strategy is deliberate, whereas in the learning school strategy is seen as emergent.

Emergent strategies are strategies that are created by understanding through actions what their intentions

should have been in the first place. In other words it is the consequences of actions or planned strategies

that lead to a pattern. Following I present evidence that Telenor’s international expansion strategy after

the failed merger with Telia takes on a pattern as international expansion into emerging markets, but that

this may not have been a defined strategy at the beginning of their international expansion.

The Pattern of Strategy in Telenor’s Early Expansion

Based on the writings on horizontal expansion into foreign markets by Guilén and Garcia-Canal (2009)

there should be a pattern in Telenor’s foreign expansion where they start with countries that are closer in

socio-cultural distance, and then commits resources to foreign markets as they accumulates knowledge

and experience to manage the risks of expansion and coping with the liability of foreignness. This pattern

is not completely clear in Telenor’s early expansion. A common trait is that they expand into European

markets. While they make an attempt to enter Sweden by merging with Telia, the emphasis seem to be on

markets that are more emerging than their home market Norway, as Russia, Check Republic, Hungary,

Lithuania, and Montenegro. However they also make investments in telecom companies in developed

markets. There is also an early movement into a joint venture in Bangladesh in 1995; a market that you

would expect is very different in terms of sociocultural distance from Norway.

*GrameenPhone logo 1997, source http://www.fhiredekha.com/forum/index.php?topic=63.0 **Picture,

source http://www.grameenphone.com/

According to Malaviya (2004) there are several reasons for why Telenor decided to enter Bangladesh in

1995. He considers the most important reason to be the Village Phone Project, a pioneering initiative to

empower rural women of Bangladesh, started by Telenor’s joint ventur e partner in Bangladesh,

GrameenPhone. Grameen Telecom Corporation is a non-profit sister department of the internationally

acclaimed micro-credit pioneer Grameen Bank. The name GrameenPhone translates to “Rural phone”

(www.grameenphone.com). Malaviya (2004) claim that the Village Phone Project added a dimension to



the venture. To pursue a win-win socially responsible bottom line became a personal crusade for

Telenor’s CEO Tormod Hermansen. He identifies the two other main influences on Telenor’s decision to

enter Bangladesh as the low financial risk with an initial investment of US$40 million, and a potentially

large market with relatively no competition. To some degree this explains why Telenor at an early stage

of their international expansion entered a socioculturally distant country as Bangladesh. In addition to the

opportunity to enhance an image as a socially responsible corporation, Telenor’s move to Bangladesh

helped them accumulate knowledge and experience in emerging markets in Asia with relatively low

financial risk. When Telenor later started to expand their business to other Asian countries it may have

been an emergent strategy, a result of the action that was the decision to enter Bangladesh, which enabled

them to learn about Asian emerging markets which in hindsight open for a strategy to pursue international

expansion in emerging markets in Asia.

Identification of New Opportunities in Emerging Markets – Telenor in Pakistan

Telenor Pakistan is a wholly owned subsidiary of Telenor. They started their operations in 2005. Telenor

is the single largest European investor in Pakistan and Telenor Pakistan is the second largest network in

Pakistan with a market share of 24% (www.telenor.com.pk).

Telenor’s entry into Pakistan was to a large degree based on their positive experience in Bangladesh.

Telenor was the only company who made a bid on the US$291 million mobile telephone license in

Pakistan, no one else dared to enter the unstable country. At the time of entry Telenor installed a top

management team in Telenor Pakistan that consisted of managers from Telenor's operations in Norway,

Hungary, Russia, and Bangladesh (Malaviya 2004).

This shows that Telenor is extracting knowledge gained in other developing countries by employing

managers mainly with experience from these countries, while at the same time including managers from

Norway to maintain their corporate culture and values. Similarly to Bangladesh Telenor could expect

challenges in the labor market in Pakistan when searching for talent and there were not any native

Pakistanis in the first management team in Pakistan, while the operations in Eastern-Europe usually had

one or two representatives from the local labor market. The first CEO of Telenor Pakistan was the

Norwegian Tore Johnsen. Today the CEO is Jon Eddy Abdullah who took over for Johnsen in 2008 when

Johnsen became the CEO of DTAC. Abdullah was previously the Chief Technology Officer at DiGi in

Malaysia so also he has experience from within Telenor from before (www.cellular-news.com July 2008).

Initially after the launch Telenor targeted small towns and rural areas of Pakistan to gain support of the

people living there in sight to become the 1st Mobile Operator to cover such areas. This 60



strategy has contributed to quickly gaining customer support over the country and is a clear parallel to the

strategy of GrameenPhone in Bangladesh.

Introducing Mobile Banking

Telenor made one of their greatest technological breakthroughs for succeeding in emerging markets in

Pakistan when they launched EasyPasia in 2009. EasyPasia is a service for mobile banking that allows

customers to make payments, withdraw cash and create saving accounts using their mobile phone

subscription. In emerging markets a large proportion of the population is often not connected to a bank,

and in some emerging markets consumers are now going directly from operating with cash, to mobile

banking. In 2010 approximately 89% of the adult population in Pakistan was not connected to a bank,

while 62% used a mobile phone. There are more than 20,000 EasyPasia shops all over Pakistan serving

all customers with Financial Services. In comparison the entire banking network in Pakistan has 8,500

branches.

In preparation Telenor purchased Tameer Microfinance Bank in 2008. The services offered by EasyPasia

are Utility Bill Payment (UBP), Money Transfer (Domestic & International money transactions), Mobile

Wallet, and Airtime Top up, all through the customers’ mobile phone. Because Telenor Pakistan used

their normal retailer shops as merchants it became easier for people in Pakistan to make money

transactions through the EasyPasia’s branches than by going to a bank. The merchant branches also offer

cash in and out services. Telenor has more than 22 million subscribers in Pakistan and they are now able

to open a bank account at an EasyPasia merchant. Over PKR 11 billion (USD 120 million) has been

moved through 6 million transactions from Telenor Pakistan’s merchant shops.

Because Telenor purchased Tameer Microfinance Bank, who has a full banking license, they are also able

to offer saving accounts. This is part of the reason why CNN in an article in 2010 predicted that Telenor's

mobile banking is probably the model for the future, thought there is similar models provided by other

companies, most notably Safaricom in Kenya with its profitable M-Pesa that have made the life of

millions of people better with a service that allows customers to send remittances and pay bills via SMS.

However, because they do not have a banking license like Telenor they are not allowed to open bank

accounts. For Telenor in the near future a largely untapped market waits. There are about 1 billion people

across Asia, Africa and Latin America who do not have a bank account but do have a cell phone,

according to CGAP and the GSMA. In a few years that number that should reach 1.7 billion

(edition.cnn.com January 2010). Growth and Market Share



To understand why they succeed in emerging markets specifically we must understand the way Telenor

generate their resources and capabilities in different locations where they are available. This is described

by Dunning (2001) as internationalization advantages – the advantages by producing through a

partnership agreement.

When Telenor enters markets with high growth potential, but also with an established telecom sector they

choose to gain market share through acquisition. Common for Pannon of Hungary, Mobtel of Serbia and

Promonte of Montenegro is that they were the second largest, or the largest telecom operator in their

country, also before they were acquired by Telenor. 65

In countries with less developed telecom sector as Bangladesh, that was very little developed, and

Pakistan where the telecom sector was basically absent, Telenor choose an organic growth strategy.

Through The Village Phone Project in Bangladesh GrameenPhone created a large rural network by

placing almost 70 000 mobile phones in 40 000 villages, at the same time as they concentrated on growth

in urban areas. In Pakistan Telenor targeted small towns and rural areas of Pakistan to gain support of the

people living there in sight to become the 1st Mobile Operator to cover such areas. When Telenor started

their operations in Pakistan they established more than 20 000 local branches around the country. While

this has proved to be a successful strategy in Bangladesh and Pakistan Telenor has gained critique for

implementing the same growth strategy in India where Union or introduced more than 210 000 local

branches at the time of its launch. The major difference between India and the two previous countries is

that India has an established telecom sector with fierce competition, despite a similar low degree of

mobile penetration in the Indian market, to Bangladesh and Pakistan at the time of Tel enor’s entry to

these markets.

Target Consumers and Technological Development

While all countries discussed in this investigation unless specified otherwise can be characterized as

emerging markets, emerging markets should be distinguished collectively from developed markets, but

also individually from each other (Khanna and Palepu 2010). While both Pakistan and Hungary are

considered as emerging markets due to voids in the institutional environment, they differ strongly from

each other. Differences can be found in almost every aspect of the market, but most importantly regarding

consumers and their needs.

When it comes to technological development and customer needs Hungary, Serbia, Montenegro and

Bangladesh, together with Malaysia and Thailand can be distinguished from Pakistan and India. In

Pakistan and India one of the main challenges is reaching the BOP, while in the writings about Telenor’s



operations in emerging markets in Eastern-Europe I have found no mention of such challenge. In

Bangladesh there is an aim to reach the BOP, but the mobile market has advanced the 16 years since the

opening of their mobile network, which is also equal to the time Telenor has been present there. Hence

Telenor are also serving a more technically demanding consumer group in Bangladesh. In comparison

there has only been a mobile phone sector in Pakistan for six years.

While Telenor are making innovations from mobile banking in Pakistan, to simpler adaptations as the $1

prepaid scratch card in Bangladesh right after the millennium, their main product offerings in Eastern-

Europe, Thailand, Malaysia, and Bangladesh today are products similar to what they offer in the

developed markets in Scandinavia. While Telenor will introduce many of their customers in India and

Pakistan for their first mobile phone, and increasingly their first encounter with banking in Pakistan, the

focus in Hungary, Montenegro, Serbia, Bangladesh, Thailand, and Malaysia is on keeping current

customers and winning new ones by offering modern technology.

On the official websites of Telenor Pakistan the promoted products offerings are Talk Shawk that is a

service that provides the ability to call, send text messages and also access the internet. The promotion for

accessing internet with the phone focuses on entertainment value, as searching for songs or finding food

recipes. They are also promoting a new auto-charge service so that customers’ calls will not disconnect –

again – due to running out of prepaid calling balance, because as consumers in India and the BOP

segment in Bangladesh, the mobile users in Pakistan prefer to buy their phone credit in advance. They

also promote packages where you get a discount in calling price to family and friends, because the mobile

phone is to a large degree still used mainly to stay in touch with friends and relatives. There is also

mention of their postpaid service where you receive bills according to your usage that is the standard

solution amongst developed market consumers, but the main emphasis in this promotion is to convince

consumers of why this is a good option. The third main promotion on Telenor Pakistan’s website is

mobile banking, so in short the focus is on calling, text messaging, the ability to connect to the internet

for entertainment use, and mobile banking (www.telenor.com.pk). Similarly Uninor’s websites focus on

promoting low calling rates, the ability to send text messages, their prepaid services, and access to

internet. Mobile banking is not introduced in India (www.uninor.in).

GrameenPhone’s promoted services are slightly more advanced. In addition to promoting postpaid and

prepaid deals, they promote modern handsets as the Blackberry, International Roaming that allows users

to browse the internet on their phone while travelling in foreign countries, and they also offer internet for

computers through a USB device (www.grameenphone.com). These offers are identical to the services

provided by Telenor Montenegro (www.telenor.me/eng). In Eastern Europe Telenor is more or less



replicating their business model from developed markets in Scandinavia with regard to product offerings

and consumer targeting. Bangladesh, Pakistan and India can be separated from the two previous groups,

and individually from each other. Similar for the three last markets is a larger degree of adaptation of

homegrown business model to reach the BOP, than in the wholly owned subsidiaries in Eastern Europe,

however the degree and form of adaptation is different in every market. We have analyzed the difference

in product offerings above, which are custom designed to reach specific customers. In Pakistan and India,

though the product offerings are different, they are designed to meet the basic needs of consumers, while

in Bangladesh product offerings are tailored to also meet a more technologically demanding segment of

customers. There is no single strategy to reach the BOP in any one of the three last countries that are

applied to all three markets. While Telenor makes a major effort to reach the BOP in Pakistan with the

mobile banking system EasyPasia, this system has not been introduced to India and Bangladesh and I

have not found any evidence of the initiative with $1 scratch cards from Bangladesh being implemented

in Pakistan and India.

Telenor's values; "Make it easy, Keep promises, Be inspiring and Be respectful".

Telenor Pakistan faces challenges in retaining its employees

Telenor Pakistan – the number 2 cellular operator in Pakistan has started to lose control over its human

resource (HR) as the year 2012, so far, has witnessed most of its seasoned employees leaving the

company over clashes with senior management.

During past few months, 6 of its employees from the marketing and commercial division including

Ahmed Bilal, Shariq Mustafa, Ahmed Mustafa and Muhammad Usman have left the company and joined

ZONG. Few of these personnel were the integral part of teams that were taking care of Telenor’s famous

brands such as Easy Paisa, Khamoshi Ka Boycott and djuice.

Sources at Telenor reveal that change in policies by senior management has caused the differences to

surface between senior and middle management. Unlike past, the employee evaluation process has

become biased which has almost frozen the promotional process at Telenor Pakistan.

In the start of August, Naushad Javaid, Director HR had also resigned from the company along with his

other team members. Naushad was working with Telenor Pakistan since 2006 and was considered to be

one of most valuable assets to the company especially for shaping up the HR system.



largest GSM service provider in

Pakistan. Telenor Pakistan has more than

5,000 cell masts throughout Pakistan,

making it the 2nd largest network in

Pakistan. It has GPRS service and EDGE

service across its network in Pakistan.

Telenor has a strategic alliance with Nokia

Siemens Networks for expansion in

Pakistan. Telenor currently has these

dialing codes, 0342, 0343, 0344, 0345,

0346, 0347, and 0350.

Being a multi-national company telenor

has got good fund backing and is able to

compete with the well established

companies like Mobilink and Ufone. With

its cash it is able to make outstanding

marketing strategies.

Telenor targets different types of customers

at the same time. With Djuice its main aim

is to get hold of the youngsters. They do

this by providing cheap SMS rates. With

their post-paid package³Persona´ they

target more of the executive class.

Telenor has a strategic alliance with Nokia

Siemens Networks for expansion in

Pakistan.

the services players already offering in

Pakistan telecom industry are not much

distinct from one other. That means if

government liberalized its regulation more

there is potential in other new entrants

from abroad to invest in telecom sector

of Pakistan. On the other hand it might be

the demotivating factor because of less

differentiation creative new entrant might

not enter easily.

Initial years were not good as the entry into

the telecom industry was not at all easy.

The company also had to bear losses after

the propaganda was made against the

Norwegian

based telecommunication company after

the publication of caricatures of the Profit.

Opportunities Threats

A number of opportunities exist in the

voice telecommunication space, which are

centered on obtaining the necessary

licenses and investing in the appropriate

infrastructure. A number of players have

already begun to invest in the infrastructure

Government is now stable from the day

President General Musharaf has taken over.

Therefore telecom industry of Pakistan has

been experiencing growth since last one

and half years. Current government has

liberalized the taxation and licensing



by obtaining comparable data and video

communication licenses and are now in a

position to exploit the voice market. This in

no way limits new entrants to enter the

market but rather provides acquisition and

consolidation opportunities.

Obtain one of the existing cellular

companies. Valuation could range between

8-12 times earnings.

Market size is the biggest ever opportunity

in Pakistani telecom sector. Almost 80%of population is living in rural areas of

Pakistan in which above 70% have no

access to cellular connections. That is

market opportunity which any operator can

avail by applying expansion strategies.

Inefficiency and poor network service of other

networks:

Poor network service by the other networksis an opportunity for telenor to exploit. If

they continue their good service to its

customers, its customer base is only going

to increase. Other companies’ loss is going

to be telenor’s gain.

polices in order to attract more and more

foreign direct investment in the country.

But this political instability can occur if the

government changes and bring new

policies which might not be in favor of

telecom industry.

Telenor had to face severe criticism from

the religious forces in Pakistan after the

publishing of caricatures on the Holy

Prophet (P.B.U.H). People called for the

total opposition of the Norwegian based

company.

It is a big threat to the company as it cuts

down companies profits. Moreover, people

can even shift to other network who have

coverage in those areas. So the company

should take notice and try to provide

service in every nook and corner of the

country.

Telenor PEST analysis:

Political Analysis

http://waqarmunawar.blogspot.com/2013/12/swot-analysis-telenor-danish-firm-in.html








Political factors are those which are directly controlled by the political parties and Government they could

be able to influence directly in any situation or in any industry. So they create a major impact on any

industry. In Pakistan Political environment was not stable that is the major threat

for telecommunication industry because no one knows at what time Government will change and with the

change of government policies will also change. In Pakistan Risk of martial Law is always threat for all

the industries and in the dictatorship they could not be able to explore themselves and do not grow as they

could be. Terrorism is the Major problem that is facing Pakistan in now a day that is the most crucial

factor that is hurdle in the growing in the telecommunication sector because no one knows about the

terrorist activities. In Pakistan government dictates the pricing regulations so that influence the smooth

working of the telecommunication industry. In Pakistan Government is changing the policies very rapidly

so that creates instability. Now the government of Pakistan is trying to give the maximum Protection to

this sector and passing number of Laws to make it more safe and stable.Government of Pakistan had

developed Pakistan telecommunication Authority (PTA) so that helps in the establishing Business in

Pakistan in more efficient manner. Government is trying to provide investor friendly environment to give

the more benefit to the investors and give them maximum safety.

Economic Analysis

Economic factors are directly controlled and influenced by the financial institutions like State Bank of

Pakistan (SBP). So they help the industry in giving economic soundness and provide financial aids to

survive in the time of crises. In Pakistan Although an proper Institution for telecommunication sector

working (PTA) but Government is influencing the working of that department and imposing the policies

made by politicians. Overall economic conditions are not very good for any industry because rate of

inflation is increasing day by day and value of currency is going down which causing increase in the

value of loan payable that is another major threat for telecommunication industry. In Pakistan all the

financial institutions are controlled by government rather than the head of financial Institution State Bank

of Pakistan (SBP). Rate of interest is increasing day by day it is approximately 14.00% which is higher

than any country in the world so it makes impossible for the telecommunication industry to take loan

facility. Risk rate of economy of Pakistan goes to 3 out of 5 that is the alarming situation for the Pakistan

as well as all the industries of Pakistan. Currently government has increased the taxes on the

telecommunication sector so that reduces the income of the telecommunication sector some of the

examples of that are given below etc...

Pre-paid customers were charged 10 per cent withholding tax on every new load, which was

deducted in advance

With 15 per cent sales tax on every call increased the sales tax from 15 per cent to 21 percent

for mobile users.



During 2010 telecommunication sector attracted US $ 142.7 million FDI which was 26.4% of the total

FDI in the country during this period. So government is trying to give maximum benefit to the

telecommunication industry. During the quarter ending December 2009, telecom sector Labor Cost of

Pakistan is very Low as Compared to other Countries so that is also an opportunity for the

Telecommunication sector. Telecommunication industry is the fastest growing industry in the Pakistan

that shows that investment is quite comfortable in telecommunication sector.

Social Analysis

Social analysis is directly attached with the people and with the culture in which they are working if they

try to dictate the social factors that create the threats to that industry and if they work within the social

norms then social factors become the key to success. Pakistani people are more social so they have family

system and they want to remain in contact with other through any means so that is the opportunity for

telecommunication sector to capture the feelings of the people. Pakistani people celebrate a lot of festivals

on that occasion they try to make contact to their all family members and other at any cost these occasions

are Jashn-e-Baharan, Eid Celebrations and other cultural festivals. They create the lot of opportunities for

telecommunication industry so they make calls to their relatives particularly on that festivals. The total

population of Pakistan is approximately 169,248,500. The population is increasing rapidly which increase

the number of cellular usage and help in projecting high profits. Some campaigns to educate people and

develop the positive behavior in that social culture. Telenor is taking initiative in this regard.

AJ NAE BOLO GY TO KAL BUGHTOO GY {KhamoshiKa Boycott} (Djuice)

KRO MUMKIN (Telenor)

Low Educated people could not be able to understand the language of telecommunication (Djuice

etc.).That create misunderstanding and create threat about the particular package. Corruption is the major

threat for any industry in the Pakistan that is because people are unaware and uneducated but now these

telecommunication companies are working on that like. Although these companies are bringing positive

change in the society but also destroying the social culture and providing the negative attitude to the

young generation of the country by providing late night services that is affecting the education of the

young generation.

Technological Analysis:

Telecommunication technology is changing the behavior of the people and providing them opportunities

to get the bright future. Due to latest technology the cost of telecommunication industry is decreasing and

they are giving lowest rates to the peoples to remain in contact with relatives and with their

families. Introduction of CDMA (Code Division Multiple Access) Technology in the mobile Sims is also

creating the Opportunities for the telecommunication industry. This technology gives less radiation then

GSM technology. The latest technology of 3G mobile communications has been earmarked and PTA will







soon be inviting applications for 3G spectrum auction. This technology will increase operating capacity.

The current focus of the telecommunication industry is on increasing the coverage rather then up

gradation of the systems they should upgrade the systems to meet the requirement of the modern world.

Recommendations:-

Respond to challenges

Telenor’s aim should be to understand and respond to the challenges that society is faced with,

using their technology and competence to find innovative solutions.

They should have important contributions to make on key issues, such as alleviating poverty,

combating climate change and encouraging safe use of Information Communication Technology

(ICT).

Build trusting relationships

They should provide readiness to help find solutions to the challenges they are facing.

They should customers to be confident that the Telenor Pakistan runs its operations in a

responsible manner.

They should make it as investors expecting high standards of social and environmental

commitment to prefer Telenor.

They should work towards making Telenor's employees proud of the way we do our business.

Conclusion

In conclusion, the greatest potential threat posed by multinational corporations would be their

continued success in a still underdeveloped world market. While the productive capacity of

multinationals increases, the buying power of people in much of the world remains relatively

unchanged. This could lead to the production of a worldwide excess supply of both goods and

services. In turn it can lead to wage and deflation of prices, rapid slow down in phases of

economic life and contraction of corporate activities. These possibilities are only hypothetical

however the operations of multinational corporations will continue to expand.



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the impact of multinational enterprises

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