Case Study Business Internationalization

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CaseStudy: Business Internationalization

Businessesthat are interested in internationalizing their operations shouldhave the ability to reason globally and comprehend the internationalcultures. NTT DoCoMo is one of the companies operating in thetelecommunication industry and intends to internationalize byentering the Indian market through a joint venture with TTSL Company.The joint venture agreement stated that NTT DoCoMo would purchase 26% of the Tata Tele Service Limited’s (TTSL) stake at $ 2.7 billion.The joint will benefit the two firms where NTT DoCoMo will have areliable source of revenue from India, while TTSL will acquire fundsto finance its growth plan. This paper will address twointernalization issues (including the assimilation of technology byTTSL and the need for NTT DoCoMo to defend its request for vetorights) affecting this joint venture transaction. The paper willanalyze the issues and recommend the most appropriate solutions thatcan be used to address the issues.

Background

NTTDoCoMo is a public company formed in 1992 following the demerger of amobile communications company named NTT. The term DoCoMo is anabbreviation of the phrase “doing communications more”. Thedemerger was done to reduce the monopoly of Japan’s nationaltelecommunication company NTT. In addition, the subsidiary, DoCoMo,was initiated to help NTT internationalize its operations.

TheTATA Tele Service Ltd was incorporate in India in 1996 as asubsidiary of Tata Group. Currently, TATA Group holds 80 % of TTSLshares, while the rest are owned by private investors andcorporations, such as Tamasek Holdings. TTSL operates in thetelecommunication sector as an unlisted firm.

Keyissues

Assimilationof technology by TTSL

Differencesin the levels of technology between the Indian and the Japanesetelecommunication companies is a major issues that is likely toaffect the joint venture between NTT DoCoMo and TTSL. Indiancompanies lag behind in terms of technology compared to the Japanesecompanies that apply the latest technology available in the market.For example, TTSL is still using the 2 G spectrum, while NTT DoCoMohas already transitioned to 3 G. In addition, there is a greatdifference in the key factors that account for the growth of the twofirms. The growth of NTT DoCoMo has been based on technology andinnovation, while TTSL is focusing on an increase in subscriptionwith limited emphasis on technological competitiveness. For example,the ability of NTT DoCoMo to develop more convenient and roboticgadgets is one of the factors that contributed to its success in theJapanese market. Moreover, NTT DoCoMo provides value added servicesthat include data transfer and visual communication, while TTSLprovide mobile phone services as a functional tool only. Thissuggests that there is a difference in terms of the two companies’capacity to conduct research and maintains the competitiveness of thenew conglomerate formed after the joint venture. The main issue iswhether TTSL will be able to incorporate the new technology into itsoperations and embark on innovation to maintain its competitiveness.

NTTDoCoMo’s acquisition of veto rights

Thejoint venture transaction was reached following an agreement that NTTDoCoMo would buy a 26 % stake in TTSL at $ 2.7. The 26 % ownership isquite below the required percentage that can allow NTT DoCoMo toexercise control over TTSL’s operations. From the agreement, the 26% would be obtained by divesting the Tata Group off 20 % and theissue of 6 % as a new stock. Prior to the joint venture, the TataGrouped owned 80 % of TTSL shares and Tamasek Holdings owned 9.9 %,while private investors owned the rest. Divesting the 20 % of TataGroup shares and issuing a fresh 6 % stock means that the othershareholders will retain 74 % of TTSL’s ownership. This means thatNTT DoCoMo will have a minority stake, making the request the vetopower a challenge. From the look of things, NTT DoCoMo contributionin terms of technology is expected to be significant, a role that maynot be expected to be played by a minority stakeholder. Themanagement of NTT DoCoMo feels that the minority shareholding willlimit its involvement in the management of the joint venture. NTTDoCoMo believes it will be expected to act as a source of valuecreation for the joint venture, including the 3 G spectrum,technology, and international clientele. Apart from safeguarding itsinterests in the new venture, NTT DoCoMo will need to influence thekey decisions in order to ensure that operations are carried out inthe right way and help the joint venture adopt the new technology.The main issue is how NTT DoCoMo should provide a cogent argument forseeking veto rights in spite of its minority shareholding.

Recommendations

Aneffective value chain strategy

Thedoubted assimilation of technology by TTSL suggests that the jointventure will require the input of NTT DoCoMo in terms oftechnological advancement. However, since the joint venture is basedin India, where technology is lagging behind, plans should be made toensure that technology is successfully transferred from the Japanesefirm, NTT DoCoMo to the joint venture. Consequently, the jointventure should develop an effective value chain strategy. This meansthat the joint venture should identify the separate links, includingthe research and development, organizational management, andmarketing. The links should then be located in the market segment inwhich they will bring competitive advantage and comparativeadvantages to the joint venture.

Theresearch and development functions should be left with NTT DoCoMo,while marketing and administrative functions are left to TTSL. Thiswill address the key issue (such as lack of a strong intellectualproperty regime in India) associated with the transfer of technologyfrom Japan to India. In addition, this recommendation will increasethe comparative advantage for the joint venture since it will becheaper to conduct research and development using NTT DoCoMo’sfacilities and experts instead of hiring new experts and buying newfacilities for the joint venture. Moreover, this will address thechallenge of technology assimilation because it will be easy for TTSLto adopt technology that has already been developed by one of theshareholders and transferred to it cheaply.

NTTDoCoMo’s capabilities of a global manager

AlthoughNTT DoCoMo has a minority shareholding, it has a superior experiencein the international business and technological development comparedto TTSL. From the case, NTT DoCoMo was wired for globalization, whichmeans that its parent (NTT) started it as a tool for exploring theinternational market. NTT DoCoMo can show that it has acquired theability to develop and utilize global strategic skills. This impliesthat NTT DoCoMo is in a better position to manage change in abusiness environment that is characterized by stiff competition andrapid changes in technology. By showing that it has been operatingglobally and listed in the New York, London, and Tokyo stockexchanges, NTT DoCoMo will be able to prove that the award of vetorights is instrumental in the growth and competitiveness of the jointventure. This is because a long-term experience in the global marketimplies that NTT DoCoMo will be able to establish the balance betweennational responsiveness and global economic opportunities, all forthe benefit of the joint venture. Therefore, veto rights can beawarded to NTT DoCoMo in areas of strategic policy through mutualagreement, while overlooking the proportion of the shareholding. Theaward of the veto rights to NTT DoCoMo will create a platform for thejoint venture to transition to the latest technology and acquire thecapabilities of a globally competitive venture.

Conclusion

Businessglobalization has become has become a common phenomenon in thecontemporary business environment. NTT DoCoMo’s decision to enterthe Indian market through a joint venture with TTSL is one of theeasiest and fastest strategies of internalization. However, thesuccess of the joint venture will depend on how its stakeholders willhandle the key issues arising from the transactions. At first, theissue of technology assimilation by TTLS should be resolved throughthe development of an effective value chain strategy. This willresult in the allocation of different functions to units that canyield competitive and comparative advantages for the joint venture. NTT DoCoMo has the global strategic skills, which means that itshould be awarded veto rights. This will give NTT DoCoMo anopportunity to influence the design of strategic policy using itslong-term experience in the global business operations.