Orascom Telecom Holding S.A.E.

(OTH) was part of the Orascom group of companies,

which was established in 1976. Orascom Telecom Holding S.A.E. was established in 1998
and had grown to become a major player in the global telecommunications market. Orascom
entered the field of information technology and telecommunications by trading and
distributing IT and telecom equipment in Egypt. It had become the market leader
representing the most important companies in these sectors. OTH’s first business was with
the Egyptian Company for Mobile Services, generally known as Mobinil. Mobinil was a top
market player, supplying over 24.2 million subscribers, with a market share of 43.6
per cent as of September 2009. Mobinil was one of Egypt’s five biggest companies in
terms of market capitalization listed on the Cairo & Alexandria Stock Exchange (“CASE”).
OTH was considered to be among the leading and most diversified network operators in the
Middle East, Africa and South Asia. OTH had indirect equity ownership of Globalive
Wireless, which had been granted a spectrum permit in Canada. OTH was also awarded the
management contract of Alfa, one of the two Lebanese mobile telecommunications operators
from the government of Lebanon.9 Finally, Orascom’s mission and objective was to serve
the largest possible number of customers, covering the most populous countries in the world.

THE TELECOM INDUSTRY IN EGYPT, ALGERIA AND INDIA

Egypt
Despite the financial crisis, the information and communication technology sector in Egypt
was doing well and had achieved many improvements in the last decade. For example, the
formation of the Ministry of Communications and Information Technology had directed
Egypt to begin a new age of more liberalized policies with business as an essential theme
distinguished by new rules and regulations. Furthermore, mobiles had become the largest
private-sector investment in the country’s telecommunications sector. Also, a report by the
Information Technology Industry Development Agency (ITIDA) showed that exports of
telecommunications had reached $1.5 billion by 2010.10

Therefore, the free flow of exports and the establishment of the Ministry of Communication
had made Egypt an attractive market for international and local investment. Egypt was also
one of the first countries to establish 3G mobile services in 2007, as the country was well
connected by several international submarine fiber optic cables in combination with a
national fiber infrastructure. What was more, the record price for the license of Etisalat,
which was the third-largest mobile network in Egypt after Mobinil and Vodafone, showed
that the Egyptian market had a potential for growth, and this was proven as the penetration
rate had reached 53 per cent in 2009.

Algeria
Algeria had only one state-owned mobile network, which had opened the door for investment
in the country. The fixed-line penetration was 10 per cent, while mobile penetration was 80
per cent, and therefore it was profitable to invest in the country. Also, Algeria was one of the
wealthiest countries in Africa as it had plenty of gas and oil reserves, which had increased
the consumption and thus the GDP of the country.

The GDP was increasing at a rate of 3.8 per cent, which showed that Algeria represented a
good opportunity for investment. This demonstrated that the telecommunications sector in
Algeria was not really affected by the crisis as people’s incomes were high and they spent
their money buying mobile phones while investors invested their money in this profitable
 sector.11 Moreover, reforms in the telecommunications sector had led to a shift from a
socialist economy to a policy open to both foreign and domestic private investment.

India
India represented one of the most important countries in telecommunications, as it was the
fourth-largest telecom market in Asia and the eighth largest in the world. At current levels,
telecom intensiveness of the Indian economy measured as the ratio of telecom revenues to
GDP was 2.1 per cent as compared to over 2.8 per cent in developed economies. Taking a
historical view of the telecom industry in India, it had been monopolized in the past by the
government and controlled by the state. After some reforms had been established, telecom
services were open to the private sector, and reforms had also resulted in high-quality
services and low tariffs, which encouraged investment in the country. The telecom industry
was doing well in India; there were 113.3 million new customers added in 2008 and forecasts
showed that by the end of 2010 the revenues from this industry would reach $43 billion.
These figures showed that the demand of the Indian people was not affected by the economic
crisis, as the number of new subscribers was very high; and the main reason behind this was
the reduction in tariffs for international long-distance calls as well as handset prices. For
example, Telecommunications tariffs in India had declined significantly in recent years.
Tariff reductions by the Department of Telecommunications (DoT) had caused peak
international call tariffs in India to decline from Rs.60 per minute in 2000 to Rs.48 per minute
in 2002, and to Rs.40.80 per minute in 2003. Following regulatory changes in January 2006,
international long distance (ILD) charges were no longer fixed by the DoT and were instead
determined by service providers.12 Therefore, it seemed that the competition in the Indian
telecom sector was very high and that in order to be able to penetrate the market, one needed
all the right technical and financial facilities.

Q1. Use:
a) The Uppsala model to discuss what mode of entry should be considered for this
particular industry and for each country? Would it differ from one country to the
other? (8p)

b) The Eclectic model (incl. transaction cost theory) to discuss what mode of entry should
be considered for this particular industry and for each country? Would it differ from
one country to the other? (8p)

c) The network model to discuss what mode of entry should be considered for this
particular industry and for each country? Would it differ from one country to the
other? (8p)
Q2. Based on your argumentation in the above questions, which country should Orascom
expand into? Please explain. (6p)
Insightness is a young start-up in Lund active in the field of visual devices for drones. The
main product of the company is a high-tech digital visual technology that allows drones to
better identify (“see”) moving objects that they may enter in collision with. This is especially
important nowadays, when drones are more and more expected to interact in urban
environments (such as through mail delivery). In these cases, issues of safety for humans may
be especially at stake. The visual technology developed by Insightness allows drones to
recognize potential colliding objects, and avoid them. The current customers of the company
are a few small producers of drones in the university business incubator of Lund University.
The company is considering starting from the very beginning a very aggressive
internationalization strategy to try and be present in the largest and richest European markets
as well as in the US, i.e. aiming for a born global strategy.

Q3. Relying on the literature that studies the internationalization strategies of born
globals and the resource-based view please motivate whether you think that the company
could achieve such a goal. Please indicate which factors and which strategies could allow
the company to successfully internationalize. (10p)
In 2010, the United Steelworkers (USW) union, the largest industrial labor union in the U.S.
petitioned the Office of the U.S. Trade Representative (USTR) to put a stop to China’s unfair
trade practices in the wind turbine industry. The USW had a strong interest in this case because
it believed that unfair competition from China in this sector was taking jobs away from its
members.
In China, the development of wind energy began in 1985 when the Danish company, Vestas,
exported four turbines. However, wind power did not begin to develop rapidly in China until the
1990s, when the government began providing financial incentives for the development of wind
farms, most of which were, and continue to be, state-owned. In addition to low-cost financing, the
central government guaranteed developers a price for the electricity they produced that would
cover their costs, plus provide a profit for the investment. During 1996-2000, the government,
began requiring that wind farm developers use at least 40 percent locally produced equipment. To
assist Chinese manufacturers in particular, the government created a program with the objective to
facilitate technology transfer between Chinese and foreign firms to construct wind turbines by
creating joint ventures (JVs). The JVs would be required to use a minimum of 20 percent local
content, an amount they would be obligated to increase over time as the transfer of technology
to Chinese firms allowed local content to increase. In 2003 another program, further
strengthened the local wind turbine industry. This program provided wind farm developers who
won competitive bids a number of government benefits, including the right to develop a wind
farm in a particular location, tax breaks, and guaranteed agreements to purchase a specified
amount of electrical power. In return, the developers had to comply with new regulations that, by
2005, required them to use at least 70 percent locally produced wind power equipment. But in
2008, the Ministry of Finance went a step further to support Chinese wind turbine manufacturers.
It provided financial payments to wind turbine makers on the condition that they were at least 51
percent Chinese-owned.
As a result, most foreign manufacturers, including Vestas from Denmark, Gamesa from Spain,
and General Electric (GE) from the U.S., opened up manufacturing plants in China. The Chinese
government dropped the local content requirement for wind farms in 2009, after the U.S.
complained; but by that time most foreign manufacturers had already established plants in China
and had local providers to supply components. U.S. wind power equipment industry was losing
market share. By 2010, China had surpassed the U.S. in total installed capacity of wind turbines.
In this period, domestically manufactured wind power equipment increased from 30 % to 90 %,
and four Chinese companies established themselves among the top 10 manufacturers in the world.

On the whole, China’s policies to support the development of wind power, such as power
purchasing agreements or tax incentives to promote wind power use, were compliant with WTO
rules. Certain violations the USW’s petition mentioned, such as allowing only Chinese wind
turbine manufacturers, not foreign manu- facturers, to receive carbon credits for reducing
greenhouse gases under the Kyoto Protocol, seemed likely to be violations. But the Special Fund
for Wind Power was indisputably a violation of the WTO’s rules. The Special Fund subsidy was
a subsidy contingent on domestic content that even before the trade dispute could progress to
hearings at WTO headquarters in Geneva, China backed down and eliminate the Special Fund.
Nevertheless, General Electric (GE) and other foreign firms, such as the Spanish company
Gamesa, were reluctant to bring a trade dispute to the USTR because that could result in
retaliation from the Chinese government.

Q4. How would you explain the U.S. administration’s stance on this issue from a
liberalism vs. realism perspective? (10p)
Q5. Based on the legal restrictions in China, use Brouthers (2013) article “Institutional,
cultural and transaction cost influences on entry mode choice and performance” to
discuss how these limit the entry mode choice of foreign firms. (10p)