Cutting ties: The Etisalat DB fiasco is a lesson for firms looking for global expansion
Dropped bids in Syria and Kuwait and now in a legal wrangle in India, Etisalat isn't stopping global rollout as it strengthens Chinese ties. Precious de Leon reports.
July 14, 2011 12:08 by Precious de Leon
Reading through the vague details of the Etisalat DB fiasco makes Kipp feel like the world just dropped straight into the middle of the story and that we are all just trying to catch up.
Kipp supposes this is because the story starts off innocently enough and without much of a bang. Everyone’s looking to gain more market reach in emerging markets like China and India so it’s not a farfetched idea that Etisalat also looks for ways to extend their reach in the subcontinent.
As the interestingly named telecoms analyst Simon Simonian of Shuaa Capital tells The National, he believes Etisalat had “good” intentions in pursuing its Indian venture and that it was looking at long-term potential for investment.
But that’s where ‘normal’ and ‘standard’ stops and the story becomes a cautionary tale for companies looking to expand its international scope. Sure it makes sense for foreign companies to team up with a resident company that knows the local business terrain. There’s a lot of risk to being a new entry competitor, after all. But a partnership with a local company only really comes with a different set of risks. And being sued for “baseless” “operational mismanagement” is one of them.
Baseless claims or not. The real question here is: How did it lead up to this? Who has the driving force of this collaboration from the beginning? Where there pitches for partnership or was Majestic the first one to raise their hands or approached? Kipp can just barely hear heads roll.
Etisalat has already had a less than perfect history in acquisitions this year, having dropped bids for Zain in Kuwait and its bid for a licence in Syria all within March this year. So it’s not good to hear that one of the associations they do have internationally is now creating headlines—and not the good kind.
Well, Kipp supposes Etisalat executives can console themselves with the recent announcement that the telco company has been named a ‘Superbrand’. According to a press release announcing this honour, the brand ‘Etisalat’ has “earned an enviable position in the industry, characterized by innovation, reliability, value and customer-centricity at the core commitment to break new grounds in the Middle East, North Africa and beyond.” Hmm, could this admissible in court?
LOOKING FARTHER TO THE EAST
In any case, looks like this lawsuit has not deterred Etisalat from reaching out to emerging markets. It is trying its hand at creating strong connections in China, having just announced this Thursday (July 14) that it has signed a Memorandum of Understanding (MoU) with the Export-Import Bank of China and Huawei International. The deal will allow Etisalat access to Huawei technology to be implemented across its 18 markets, with financing from Export-Import Bank of China.
It’s not exactly winning a license bid in China, but it is a step forward in strengthening connections with the Sleeping Giant by creating relationships with Chinese companies.
Kipp can bet (if it was legal in these parts) that scrutiny of partnerships will be the name of the game for the rest of Etisalat’s global endeavours.
If you’re not familiar with the Etisalat DB lawsuit, here’s what The National listed in terms of events:
- Etisalat acquired its stake in Swan Telecom for $900 million (Dh3.3 billion) in March 2009 in a deal that included management control.
- That company was renamed to Etisalat DB, of which Etisalat owns 44.73 percent and Majestic Infracon Private owns 45.73 per cent. Majestic is controlled by Shahid Balwa and Vinod Goenka, under the DB Group, in which the two executives also have seats.
- Balwa and Goenka were arrested earlier this year in an alleged corruption scandal on the allocation of India’s 2G mobile phone licence.
- Majestic is currently suing Etisalat (and other individual directors of Etisalat DB) for what the Indian media reports allegedly as ‘operational mismangement’