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GCC telecom operators going global despite challenges

Friday, 09 April 2010 14:45

Fuelled by their financial strength, and compelled by increasing competition and saturation of their home markets, Gulf Cooperation Council (GCC) telecom operators have launched unprecedented international expansion programmes since 2004 . Going global, however, comes with a new set of challenges.

The operators that most effectively address these challenges will be best positioned to capture maximum value from their investments and earn a place among the world’s leading global operators, according to a new study by Booz & Company.
Before 2004, all GCC incumbents combined were operating in only six markets outside their home countries. Today, this number stands at 78, with government policies in GCC countries stimulating this drive for corporate globalisation. As the profitability and financial strength of GCC operators have grown, so too has competition in their home markets. This created a surge in globalisation, as operators sought growth through mergers and acquisitions. The disclosed value of GCC incumbents’ cross-border M&A activity between 2004 and 2009 exceeded $33 billion.

Going global, however, comes with a new set of challenges. “The leaders of GCC operators can ensure successful global growth by ensuring that their companies are properly positioned, to capture the maximum value from their international investments,” said Karim Sabbagh, a partner at Booz & Company and global leader for the company’s communications, media and technology practice.

As operators pursue global expansion, their market and operational footprints tend to evolve in three stages: from a domestic focus to a regional focus to a global focus — most GCC operators are in the first two stages of this evolution. There are five sets of challenges that GCC operators need to address in their quest to go fully global: governance models, organisational models, management processes, values and culture, and talent management.

Corporate governance is an ongoing challenge. “To successfully compete globally, GCC operators will have to elevate governance from its current oversight role to a vital mechanism for streamlining the strategic planning process across subsidiaries, thus creating alignments and generating value within the entire group,” explained Mohamad Mourad, a principal at Booz & Company. In the past, most GCC telecom operators worked in protected markets with high margins and little external pressure to produce results. Consequently, some of these operators have legacy systems of governance that often hinder them as they go global.

Overcoming the governance challenges of globalisation will enable operators to address the remaining organisational challenges. There are a number of measures that will contribute to more effective corporate governance. GCC operators can review and adjust the composition of their executive committees at headquarters, by being more inclusive with senior management of international subsidiaries. They should give these executives the opportunity to participate in strategic decision making at the corporate level, as well as standardise decision-making processes across the group.

GCC operators should also examine and redefine decision rights in order to create the proper balance between control in corporate headquarters and autonomy in subsidiaries. “This will ensure clear decision rights that cement the ability of headquarters to establish, execute, and enforce key corporate imperatives; and will provide sufficient authority for each international subsidiary to make effective decisions based on local challenges, within the parameters of corporate imperatives,” Sabbagh said.

Finally, GCC operators should ensure that their corporate imperatives are properly represented within their subsidiaries by training the executives who will represent the company on the supervisory boards of subsidiaries. These representatives must be able to identify and analyse the issues that arise within the subsidiary and align them with the overall corporate strategy.

There is no single organisational model that is best for GCC operators seeking growth but as they go global, inefficiencies that currently exist within their organisational structures will be magnified. These inefficiencies can include misaligned spans of authority, excess layers of management, and paternalistic management models. The inability of support functions, such as human resources and shared services, to cope with global needs can also hinder growth.

Global Arab Network

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Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network