1. Do you think Bharti should enter the outsourcing agreements outlined by Gupta? What do you see as advantages and disadvantages of such agreements?
Bharti is proposing outsourcing that would hand over responsibility for the buildup, maintenance, and servicing their telecom network to Nokia, Siemens, and Ericsson. They would also outsource the buildup, maintenance, and servicing of their core IT infrastructure to IBM. I definitely believe Bharti should enter the outsourcing agreements outlined by Gupta. Bharti had challenges to expand their network as their customer base grew 100 percent per year. Not only was management having trouble budgeting for the network expansion, but also the equipment they were purchasing was no longer much use. “There were problems with our scalability in our system. With very rapid growth, we would soon be making decisions that could not be altered later on and for which we might be sorry (Applegate, 380).” This shows the company did not have the internal capabilities needed for their expected growth. Beyond their internal environment, the Indian market for telecommunications was growing rapidly. “The total telecom revenue for 2003 was $8.5 billion and was growing at 17 percent per annum. Estimates for the wireless market through 2008 showed the market growing from $1.5 billion to $10.9 billion (Applegate, 372).” This rapidly growing market has a lot of opportunity for Bharti. By 2003, the market became highly competitive. In order for a firm to survive, they had to fight to capture new subscribers and lower unit costs. These outsourcing agreements will provide Bharti with the opportunity to gain a competitive advantage. Page 303 in Applegate provides some common themes as to why a company would place a large component of their ability to execute their business model into the hands of another firm. First, Bharti would have significant cost savings. The vendors would be required to make the initial investment in network equipment. In doing so, Bharti would receive more benefits early on in the relationship. Also, “Industry practice was to purchase about 30 to 40 percent excess capacity (Applegate, 380).” This excess capacity to keep ahead of customer demand represented $300 to $400 million, a major financial requirement. Second is dissatisfaction with existing IT capabilities. As mentioned earlier, management was having trouble budgeting for network expansion and purchasing equipment that would last. Another advantage of a large-scale outsourcing agreement is a desire to focus firm strategy in other areas. “With IT outsourced, such a firm then can concentrate its energy on other competitive differentiators Applegate, 303).” It was expected that a change from 2G to 3G would occur in 2003, and therefore Bharti needed to focus on operations, their core competency. They could also focus on differentiators such as value added services to customers. Another benefit would be the access to skills and talent. “Bharti was finding it more and more difficult to hire and retain the best and the brightest (Applegate, 381).” For a local, upcoming operator like Bharti, it was difficult for them to find they staff they needed. Outsourcing skills and talent will help Bharti meet their strategic and operational IT needs. One disadvantage of the agreements, which was also a major concern of the board, was the dependence Bharti would have on their vendors. This agreement could affect the capabilities of Bharti. “The client firm comes to rely on the providers capabilities as a basis for its own capabilities (Applegate, 296).” Therefore, the relationship with the vendor will determine how well Bharti can perform its primary business mission. In addition, mistakes made by a vendor can be costly. This makes it important for Bharti to choose the service provider that is the most reliable. 2. If you were Bharti, what concerns would you have about entering an outsourcing agreement with IBM? With Ericsson, Nokia, or...
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