Telkom's market entry strategy in Nigeria.

Abstract

An acquisition as a foreign market entry strategy seeks to cooperate with local partners. According to (Erel, Liao, & Weisbach, 2012), the volume of cross-border acquisitions has been growing worldwide from twenty three percent of the total merger volume in 1998 to forty five percent in 2007. However, the results have not always been positive. The purpose of this research is to explore the acquisition strategy followed by Telkom South Africa when it entered Nigeria. Factors investigated include international business expansion principles, country choice and entry strategy selection. The main findings of this study are that Telkom suffered a loss of over R10 billion in its Multi-Links operations because (1) the company failed to conduct proper market research in the Nigerian telecommunications market and ended up investing in the CDMA technology which was less popular instead of the more popular GSM technology (Mfuphi, 2011), (2) over invested in Multi-Links operations, which is in line with the views of (Sudarsanam, 2003) that managers of acquirers sometimes get involved in the thrill of the chase resulting in shareholder value destruction, especially where their individual utilities stand to be increased and (3) throughout the acquisition of Multi-Links, those involved were left to be on their own with no indication of supervision. Further findings suggest that Telkom failed to make use of Multi-Links as a local partner to gain local knowledge instead choosing to partner with Blue Label Telecoms which was a South African based business. Contrary to established views on doing business in Africa which requires a more hands-on approach and patience for results, Telkom had its management based in Pretoria while managing an operation in Nigeria and the business expected quick results from the operation. Management arrogance and complacency further complicated the x

problem as they expected to transplant a business model from South Africa into Nigeria, hence partnering with BLT. The research methodology used in this study is a qualitative research method where interviews, through semi-structured questions, were conducted with industry experts and Telkom management employees. Press releases related to the subject were also used as a data collecting instrument. The case study was used as a research strategy to reconstruct and investigate past events. This research adds on the study by (Singh & Montgomery, 1987) that related acquisitions have greater dollar gains than unrelated acquisitions and that acquired firms in related acquisitions have substantially higher gains than acquired firms in unrelated acquisitions. Related acquisitions will have higher dollar gains if (1) all or most of the factors necessary for consideration in entering a foreign market have been taken into account, (2) all the steps necessary when executing an acquisition strategy have been followed and (3) the management reasons for the acquisition hold through in at least one of the accepted reasons for acquisitions being to create economies of scale, or scope, or to increase the market power of the acquiring firm. Further research needs to examine the role of the agency problem where managers pursue their own personal interests as a value destroying factor in all acquisitions, whether related or unrelated.