Telenor in Bangladesh (B) Case

Telenor in Bangladesh (B) Case Analysis

Describe the risks for Telenor as an investor in the GrameenPhone joint venture. Why did Telenor proceed?

For Telenor, the risks of investing in the GrameenPhone were significant from a financial and operational standpoint, as both the costs and scope of operation could impact their firm over the long-term. The risk of participating in a joint venture in a 3rd world nation where the norms, values and customs of customers were not known by Telenor was a significant risk at the corporate culture level. Another significant risk was the process required for gaining a mobile license in Bangladesh, the many requirements and regulations that Bangladesh had on multinational corporations (MNCs) operating in their country, the threat of tariffs and duties the Bangladesh government could potentially use to restrict the flow of funds out of the country, in addition to periodic civil and political unrest.

Despite these risks, Telenor continued to pursue the joint venture based on the relatively modest investment required of $40M; the significant market size of the Bangladesh market at 6 million subscribers, a market bigger than Norway; and the partnership with Grameen Telecom, a well-financed subsidiary of Grameen Bank, Bangladesh's most popular and respected financial institution. Telenor also believed that Corporate Social Responsibility (CSR) programs and initiatives could be successful, hence their decision to take the risk with the joint venture. In Grameen Telecom, Telenor found an alliance partner with the same mindset and values regarding CSR as a corporate objective and a means to gain access to new emerging markets in 3rd world nations. The level of risk was also mitigated by Telenor providing 51% equity investment, Grameen Telecom, 35%, Marubeni, 9.5% and the balance from Gonofone Development Corporation (4.5%).

Was Telenor justified in its decision? What were the direct and indirect benefits to Telenor?

Telenor senior management was justified and successful in the joint venture, as direct financial benefits of Telenor's investment in GrameenPhone soared to $600M, or more than 15 times its majority equity investment of 51% by 1999. By 2000, GrameenPhone generated an annual profit of $14M, ahead of the business plan which had called for break-even by 1999. Financially the investment was exceptionally successful with total revenue in 2001 reaching $131M with 39% profitability. By any measure of direct financial benefit and value, Telenor's investment in GrameenPhone had been an exceptional success. By 2003, GrameenPhone had generated 600 jobs internally and 40,000 jobs externally in 29,000 Bangladeshi village through the Village Phone Project.

Additional direct benefits included the expertise gained of operating in rural, 3rd world nations where infrastructure was evolving yet not completely implemented yet. Operating in these conditions helped Telenor gain valuable experience and insights into how to plan future joint ventures and alliances in emerging, high growth 3rd world nations.

Indirect benefits included gaining greater insight and intelligence with regard to the Indian consumer cell phone market in general, and the village and rural market needs specifically. Partnering with Grameen Bank provided invaluable experiences in seeing how to create profitable businesses in each village. There are many indirect benefits to Telenor and Grameen from a CSR standpoint as well, as the cell phone service they provided turned out to be a critical catalyst for growing the economies of these rural communities. By participating in the joint venture, Telenor helped create a platform of economic growth for the 29,000 villages participating in the program.

How would you calculate the SROI (Social Return on Investment) for the Village Phone Project?