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DOCUMENT DE TRAVAIL 2002-009

INSTITUTIONAL PIGGYBACKING − ACCELERATING THE INTERNATIONALIZATION OF THE FIRM IN THE TELECOMMUNICATIONS INDUSTRY André Richelieu

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© Copyright André Richelieu 2002

Institutional piggybacking — Accelerating the internationalization of the firm in the telecommunications industry

Author: Prof. André Richelieu Marketing Department,

Faculty of Business Administration Laval University

Québec City (Québec) G1K 7P4 Canada Phone: (418) 656-2131 Ext. 7710 Fax: (418) 656-2624 E-Mail: [email protected] Biographical note: André Richelieu is Assistant Professor of Marketing at Laval University. His research interests focus, among others, on the internationalization of the firm and on the institutional levers firms can use in order to enter foreign markets.

Abstract

The institutional support a company can get when going international is often overlooked in the literature. In this paper, we articulate the concept of “institutional piggybacking”, which is described as a catalyst to enter foreign markets and accelerate the internationalization of the firm, using institutional levers. Referring to the case of Canadian telcos as an example, we aim at developing new points of reference for managers who operate in industries where risks are irreversible and who need to exploit or influence the business environment when entering a foreign market. Key words: internationalization, institutional support, risk, international projects, governance models, telecommunications.


Institutional piggybacking — Accelerating the internationalization of the firm in the telecommunications industry

In search of new guidelines

If the telecommunications industry has long been limited to phone services, it has now

diversified to include mobile, Internet, cable and entertainment. The telecommunications

industry is less and less telephone oriented, and more and more geared toward

communications. It is merging with the media and entertainment industries, as

exemplified by the acquisition of sports teams by communications corporations in

Canada, the United States and Europe. The reason beyond the redefinition of the

telecommunications industry is that phone companies, along with their competitors in the

mobile, long distance, Internet and cable are looking to combine the dissemination of

voice, image and data through one network, in order to deliver value added services. In

other words, companies try to combine the content with the pipeline, as the race for

convergence is on. This integration implies a redefinition of the markets and products, as

well as of the way firms compete in these markets, among others international ones.13

As telephone operators (telcos) are increasing their involvement outside their boundaries,

our knowledge of the internationalization of the firm is challenged to provide new points

of reference. By internationalization, we refer to the process through which a company

increases its international involvement and the strategies, or modes of entry, it uses to do

so.21 Thus, the main objective of the paper is to introduce and articulate one key variable

in the internationalization of the firm which is often neglected, looking at specific actors.

This variable is the institutional support, national or foreign, used by companies to enter


2

foreign markets and accelerate the internationalization process of the firm. The specific

actors are Canadian telcos. Even though Canadian telcos may appear to be marginal on

the international scene, the telecommunications sector is vital to the national interest of

any country. Limited resources may force Canadian telcos to find ways to go

international that could help bring another perspective to the internationalization of the

firm, especially in an industry where the risk associated with a given project is high or

even irreversible, and the potential reward very uncertain.31 Our intent is to add a

managerial contribution to the existing knowledge on internationalization.

With this idea in mind, we will first look at the recent trend in the telecommunications

industry. Second, we will underline the need for the inclusion of an institutional

dimension in the reflection surrounding the internationalization of the firm. Third, as a

case in point, we will present how the institutional support can be articulated within the

internationalization of the firm. Fourth, we will highlight the success criteria of an

international project, using institutional levers, before ending the paper with some

concluding remarks.

The “great disturbance” in the telecommunications industry

Two main factors are behind the major changes underway in the telecommunications

industry: deregulation and technological innovations.34 35

The United States and Great-Britain paved the way of deregulation in the 1980s. In

Great-Britain, British Telecom was privatized under the government of Margaret

Thatcher, which initially led to a spectacular improvement in both the bottom-line of the

company, and the infrastructure and quality of telecommunications. In the United States,


3

AT&T was broken up in several regional operators, the Regional Bell Operating

Companies (RBOC) or Baby Bells, in 1984. That year marks the beginning of

competition in the long distance market, as well as the emergence of regional monopolies

for local calls, each region being served by only one RBOC. Deregulation had a major

shift in 1996, when President Clinton signed the Telecommunications Act, which allowed

competition among local and long distance operators in the same market.

In Canada, deregulation took off in 1992, when long distance was opened to the

competition, before the same occurred with the local calls in January 1998. Then, in

October 1998, the Canadian Radio and Television Commission (CRTC) put an end to the

monopoly of Teleglobe on international calls. Thus, it is theoretically possible for a

customer in Canada to choose their provider for the local, long distance and international

services.35 In theory only, because if the long distance has seen the competition increase

steadily, it is not the same for the local service, the latter not being profitable enough on

its own to attract newcomers.4

Technological changes happened essentially through the Internet, even though people

believed the catalyst would be cable television. The surge of Internet among businesses

and households in the mid-1990s has allowed, first, the dissemination at low cost and

high speed of voice, image and data.9 Second, Internet has provoked a disintegration of

the value chain in the telecommunications.28 In other words, companies specialize in

what they do best in order to consolidate their position, and create alliances according to

their needs.40

Moreover, technological breakthroughs bring with them new players, which offer

customers more choice, because the variety of products and services is increasing. Mobile


4

phone, cable and digital television, to name a few, create new ways of reaching the

customer, as well as opportunities for new players. The progress of technology helps

reduce constantly the cost of services offered to customers, who can decide how and

where to communicate, and from which provider to buy the service, à la carte or in a

package.5

For the telcos, the monopoly disappears and the telephone minute becomes a

commodity.36 For example, in a year [1999], long distance tariffs have dropped between

30% and 70% in Europe.5 In fact, the rhythm of technological developments leads to a

fast commoditization of value added services, which forces companies to find new

sources of revenues faster than they used to.36 Competition develops in long distance,

mobile phone, cable television and the Internet. The newcomers, whom Rabeau35 calls

the «Agile Gladiators», are challenging the incumbents («Titans»). The incumbents aim

at accelerating the integration of voice, image and data, and win the «battle of the

telecommunications». This is especially true in international markets, where incumbents

try to satisfy needs that are local, regional and international at the same time.38 That is

why some telcos develop or acquire local networks, before connecting customers to their

regional or global network. Among these customers, are the Multi National Corporations

(MNC), which ask for better communications services that enable them to connect their

local subsidiaries at a global level.13

The need for an institutional dimension on internationalization

Since the cow milk, once represented by the long distance calls, has disappeared,

revenues from international endeavors are critical to finance the development of new


5

services as well as the appropriate infrastructure, and consequently nurture the growth

agenda of telcos around the world. This is especially true in Canada, which has a

population of only 31 million people spread over 10 million km2.35 In order to better

understand the international endeavors of these telcos, we should first have an overview

of the theories on the internationalization of the firm. There are two main schools of

thought on the internationalization of the firm: the sequential and the leapfrog models.

The sequential school

The key model of the sequential school is known as the Uppsala model, following the

work of Johanson & Wiedersheim-Paul19, as well as of Johanson & Vahlne.20 21 22 The

Uppsala model states that a firm will gradually increase its international involvement

abroad, starting with exporting until it reaches foreign direct investment (Graph 1).30

Inspired by behaviorist theories30, the Uppsala model makes the assertion that the more a

company gets involved in foreign markets, the more it learns about them, thus reducing

the uncertainty and the perceived risk.11 20 Consequently, a firm can then use strategies or

modes of entry that require more resources and get involved in countries that are

culturally more distant in terms of business habits and practices, law system, economic

development, etc.2

The sequential school is very mechanistic and deterministic in its approach. In fact, the

sequential model is influenced by the period when it was introduced, when the means of

communications were less developed and the nature of competition more regulated than

today. Furthermore, the sequential model would seem to apply more to smaller firms

which have very limited resources, and are more vulnerable to irreversible risks in the


6

event that the international endeavor fails. That’s why some authors have tried to

conceptualize other models that take into account today’s access to information and the

fact that industries are opening to a world scale competition.

Insert Graph 1 about here

The leapfrog school

The main idea behind leapfrog is that companies can increase their internationalization

process by jumping steps, often bypassing exporting, and go directly to modes such as

joint ventures (JV) or foreign direct investments (FDI) (Graph 1). Factors that could

trigger leapfrog are twofold, and take into account push (threat) as well as pull

(opportunity) reasons.3 On one hand, there are internal factors, for example the

competencies and resources of the firm, the attitude of managers toward international

endeavors, and formal planning of international activities within the core business of the

firm. On the other hand, there are external factors, such as heavy competition in the

industry, the means of communications available, and the needs and wants of customers

worldwide.25 30 32

Born global firms are an example of a more voluntarist approach in accelerating the

internationalization process.25 Born global firms are relatively small companies, with

revenues under $100 million U.S. They integrate technology in their processes and in

their products, in order to develop innovative products, and start getting involved

internationally within two years of their inception. Their dynamism and their vision of the

world, which they associate to a big market, enable these born global firms to compensate

for their relative lack of resources. By focusing on niches that cut across boundaries,


7

these firms can minimize the competitive pressures from bigger companies. These

companies operate in high-tech sectors, whose markets and products have a broader

global appeal than more traditional manufactured goods.

Undoubtedly, an early entrant which penetrates the market before its rivals is potentially

able to generate superior economical rents, position itself as the reference to customers,

and even shut down the market by monopolizing the resources and networks available.18

This being said, leapfrog can be somehow very idealistic. Leapfrog is engraved in the

enthusiasm for joint ventures in the 1990s, and the use of new technology, such as the

Internet that gives visibility but not necessarily the capacity to deliver goods in foreign

markets.33 Authors who conceptualize leapfrog do not emphasize enough the need for

resources required to bypass export and jump to a joint venture, for example. In capital

intensive industries, such as the telecommunications, where the risks become irreversible

because of the nature of the investment involved, this is an element to consider.

The institutional support — A missing variable in studies on internationalization

Both the sequential and the leapfrog schools underline a series of variables that help

understand the internationalization of the firm. These variables include, on the internal

side of the firm, the knowledge managers have of the foreign market, the attitude of the

managers, the resources of the company, the use of formal planning in integrating

international activities within the overall operations of the firm, etc. On the external side,

variables encompass the cultural distance between the home and foreign market, the

nature of the competition in the industry, the means of communications available, the

needs and wants of customers, etc.


8

But one variable that is generally missing in the literature when analyzing how a

company goes international is the institutional support a company must get in order to

anchor its project abroad. The reasons for this need are threefold, and are in line with the

new governance models that are emerging.10 31 First, the projects are becoming

increasingly complex and the actors involved are more and more diverse. Second, the

business environment of a country, also known as the institutional framework, creates or

destroys a business opportunity. Third, the ability to influence and exploit the

institutional framework can help a firm create value. In this instance, a failure or careless

involvement abroad can easily become irreversible, because it can seriously undermine

the financial viability of the company and its ability to undertake new endeavors.7 31 An

example is given by the phenomenal debt of European telcos which acquired third

generation mobile licenses, while the network and the applications still need to be

developed. As a case in point, the debt of British Telecom rose to $ 43 billion U.S. in

2001, which forced the company to sell its stakes in the two Japanese companies it owned

to Vodafone.41 Vodafone itself announced the biggest losses ever registered by a British

company in May 2002. Japan’s NTT revealed that it would write off $15 billion U.S.

from the value of overseas assets acquired when prices and expectations were high.

Losses for 2001 were estimated at $ 6.5 billion U.S.42 This leads us to the main

contribution of the paper, which we will now introduce: institutional piggybacking.

Institutional piggybacking (IP)

We define institutional piggybacking as a way for a firm to use the resources and network

of national and international institutions and companies, in order to exploit or influence


9

the institutional framework to its advantage and gain market share abroad. As we will see

in the next section with a concrete example, institutional piggybacking would allow the

firm to reduce the risk in its international endeavours, using three levers: i) international

institutions (World Bank, for instance); ii) national and foreign governments, including

their ramifications (Canadian International Development Agency [CIDA], Export

Development Canada [EDC] or their equivalent in other countries, etc.); as well as iii)

private partners that have contacts within national or international institutions. Through

institutional piggybacking, a company would be able to gain the necessary legitimacy to

anchor its project abroad, thus increasing the chances of success on foreign soil. For the

reader’s benefit, Export and Development Canada offers, among other services, insurance

to Canadian exporters to cover the risks of non payment. The Canadian International

Development Agency finances international projects in developing countries.

Furthermore, institutional piggybacking would play the role of a catalyst. Indeed, it

would enable a firm to accelerate its international involvement by using more committed

modes, such as joint-ventures and foreign direct investments, or by going into markets

that are culturally distant. This process is done faster than what the sequential model

suggests, but takes into account the limited resources of relatively smaller firms that are

overlooked by the leapfrog model. By introducing institutional piggybacking, we aim at

incorporating an institutional dimension in the discussion on the internationalization of

the firm that is often neglected, even though it is more and more documented that

institutional support can increase the chances of success of international projects.1 31

For companies doing business in emerging countries or countries in transition, an

institutional approach to internationalization could be appropriate. Indeed, «government


10

and societal influences are stronger in these emerging economies than in developed

countries».(p. 252)17 More economically oriented theories appear to focus solely on the

firm as the center of the internationalization, whereas the firm is one actor among others

in a complex system, which needs help to manage risks.31

In a word, going international is vital for Canadian telcos and the use of institutional

support could be valuable in entering foreign markets. Now, how does it transpire in the

internationalization of the Canadian telcos we studied?

Institutional piggybacking as a catalyst

Institutional piggybacking in action — Diogenes in Tanzania

We will look at a project undertaken by a company we called Diogenes, for

confidentiality reasons. The name Diogenes comes from the fact that the company is

looking for its niche, like the Greek philosopher who was searching for the Truth with his

candle. Diogenes started its international endeavors in 1984. The operating revenues of

the mother company are below $ 1 billions U.S. The revenues from international projects

represent 3% of the revenues of the mother company. We should take note that Diogenes

is a Crown Corporation, owned by its provincial government. Every dollar spent and any

loss must be explained to the Parliament. Thus, Diogenes is very risk averse, and we will

see that this has a strong influence on the approach the company takes internationally. As

a point of comparison, the most dynamic telcos worldwide can generate revenues from

international projects that are worth 20% or more of the revenues of the mother company,

such as Deutsche Telekom.14


11

Diogenes’ endeavor was a two-phase turnkey project which consisted in exporting

equipment and expertise to Tanzania. The client was the Tanzania Railways Corporation

(TRC), the national railways company owned by the Tanzanian government.

The first phase took place between 1988 and 1993. Diogenes used an export consortium

which involved a Montréal-based consulting firm, in order to design and implement the

telecommunications system along the 1,500 kilometer route from Dar Es Salaam to

Mwanza, in the North-Eastern part of the country. Diogenes was responsible for

managing the project, and providing the engineering, design and consulting services

necessary to complete the project. Diogenes basically helped the TRC improve its

telecommunications services along the Dar Es Salaam to Mwanza route. It was a CIDA

sponsored project, with a financial guarantee provided by EDC to secure up to 90% of the

revenues from the project. In fact, Diogenes now only undertakes projects where CIDA,

EDC and international institutions are involved, in order to reduce, among other things,

the financial risks. As a Crown Corporation, the possibility of losing money is a major

psychological barrier when it comes to pursuing international endeavors. Furthermore,

institutions and companies allow Diogenes to acquire information on the market and the

actors that do have a decision-making authority, to integrate business networks abroad,

and thus gain legitimacy to exploit or modify the institutional framework in the host

country.31

The second phase started in 1999 and ended in 2002. Diogenes’ mandate was to

modernize and improve the TRC telecommunications network from Morogoro to

Dodoma, a 264 kilometer route, in the center of the country. Diogenes was responsible

for the installation of the fiber optic and transmission material. Diogenes was the project


12

manager, hiring local companies to transport the equipment and install it. Diogenes

offered a one-year maintenance service until March 2002. Once again, it was financed by

CIDA, with a guarantee from the EDC. Both phases combined brought Diogenes $13

million U.S.

Insert Table 1 about here

The project, overall, was a success because of the following elements that we identified

during our analysis (in brackets the success criteria, as they are identified by the literature

in relation with exporting, Table 1):

- The client was satisfied with the work done by Diogenes, which is a key element for

all of Diogenes’ projects according to their managers.

- The timeframe and the budget were respected (“respect of the budget”).

- There was no human tragedy among Diogenes’ employees sent to Tanzania.

- Diogenes acquired an international experience. In fact, the TRC project was one of

the first international projects undertaken by Diogenes, and it took place in Africa.

- The TRC project was the first step in opening an office in Tanzania, which is the

equivalent of a sales subsidiary abroad (“strategic expansion in foreign markets”).15 27

- Diogenes positioned itself for other projects in Tanzania, in Africa and in the railways

industry (“contribution to the overall international objectives of the company”).

- The financial objectives were achieved, Diogenes making a profit (“increase in the

company’s sales and profits”). The rate of return varies from one project to another,

but Diogenes must not face losses: “we cannot afford loss leaders” said one of the

managers interviewed. This may seem like a short term view, but as we mentioned

before, the fact that Diogenes is a Crown Corporation explains this situation.


13

This being said, two problems arose during the TRC project. First, the Tanzanian

government hired a Western consultant to make sure all the standards were respected by

Diogenes. This consultant appeared to be very zealous with the standards Diogenes had

to comply to, which caused Diogenes to incur extra costs. Second, the maintenance of the

equipment will be a problem in the future in order to preserve the integrity of the

infrastructure. The TRC got accustomed to having Diogenes take care of everything.

Now that the maintenance contract is over, it will be another story.

If we go back to Table 1, the following success criteria transpire in the TRC project:

strategic expansion in foreign markets, increase in the company’s sales and profits12 23 24,

respect of the budget and contribution to the overall international objectives of the

company.8 Even though the last two criteria appear in the literature as relating to FDI and

not specifically to exporting, they are highlighted in relation with the TRC project. We

believe this is due to the fact that this was a turnkey project which required an

involvement in the foreign country, as would have a FDI, but without the same intensity.

Beyond Diogenes

Now, the question we might ask is the following: Is Diogenes an isolated case?

Moreover, is the TRC project unique? In fact, through in depth case analysis of nine

international projects undertaken by three Canadian telcos, we were able to highlight the

use of institutional support by the most successful companies (Table 2). Three telcos have

been chosen by convenience and represent 50% of the total population of Canadian

telcos. The other two telcos we studied are David and Ulysses.


14

David refers to the David who challenged and defeated Goliath, as David in our sample is

motivated to compete with the biggest telcos. David started its international activities in

1997. The operating revenues of the mother company are between $1 and 5 billion U.S.

But the revenues from international projects represent only 0.5% of the total revenues of

the mother company. Unfortunately, David appears more confident in what it has to offer

than what the company really seems able to achieve internationally.

Ulysses is a conqueror, with huge resources, thus inviting us to make a parallel with the

hero of Homer. Ulysses started its international projects in 1978. The revenues of the

mother company are above $ 4 billion U.S. The revenues from international projects

represent 5% of the revenues of the mother company.

Insert Table 2 about here

Institutional piggybacking and the success of international projects

What makes for a successful project — Some points of reference

Beyond the outcome of the projects per se, it is interesting to analyze what might be the

criteria of success for an international project in the telecommunications industry.

According to our analysis, three categories of elements can be highlighted: i) the business

environment of the host country, ii) national and international institutions, and iii)

financing.

First, the business environment of the host country must be relatively structured and

stable. The company should also be able to exploit or influence the business environment

or institutional framework. Diogenes is counting on the institutional framework to anchor

its projects and avoid major disturbances its limited resources would not permit to face.


15

For both Diogenes and Ulysses, the idea of anchoring a project in the institutional

framework of the host country is underlined by their managers. Truly, a company needs

to take foot in the institutional framework, at home but fundamentally abroad to gain

legitimacy. The company also must know how and where to influence the institutional

framework31: in Tanzania, Diogenes succeeded; in Cuba, David failed, mainly because

the institutional framework destroyed the business opportunity due to the lack of

infrastructure, people’s mentality, work ethics and red tape (Table 2). We could also say

that by anchoring its project abroad, the company creates a relationship with a customer,

and this relationship can be stronger when the customer finds a personal interest.6 For

potential competitors willing to get a foothold in the market, this relationship could even

be a serious entry barrier.

Second, the national and international institutions, as well as private partners, legitimate

the company abroad and help it anchor the project in the institutional framework of the

host country. Diogenes has developed an expertise in the use of these institutional levers,

to the point that this expertise has become a key success factor. Institutions and

companies allow Diogenes to acquire information on the market and the actors that do

have a decision-making authority, to integrate business networks abroad, and thus gain

legitimacy to exploit or modify the institutional framework in the host country.31 This

was underlined in the presentation of the TRC project.

As we said earlier, Ulysses favors joint ventures which give Ulysses a local flavor, and

help the company anchor its projects as well as gain legitimacy on foreign soil. Joint

ventures allow Ulysses to take advantage of its partners’ influence locally. David is the


16

only one which neglects the help from institutions, limiting its involvement in

partnerships and avoiding the use of institutional levers.

Third, the opportunity to get the financing for the project reduces the risk, which is not

negligible considering the uncertainty that comes with international projects.7 31 The

importance of financing is obvious with Diogenes’ and Ulysses’ respondents. It is non

existent with David. This could be explained by the kind of projects pursued by David,

which uses exporting or exporting combined with licensing, but also by the absence of

institutional levers borrowed by David, such as EDC or CIDA. EDC can secure up to

90% of the revenues from an international export-related project. We clearly observe a

negative attitude toward these actors among David’s managers who “don’t want to deal

with bureaucracies”, which in the end closes some doors for the company when trying to

initiate international projects.

As for Ulysses, the company is looking for partners, either private or public, that can also

contribute financially to the project. Ulysses doesn’t want to be a milk cow, which can

happen sometimes to Western firms in emerging countries.39

Hence, not only should the institutional framework be stable, but the company must be

able to influence the institutional framework, using institutional levers, in order to create

value; external value for its customers, but also internal for its shareholders and

employees. By using institutional piggybacking, the company surrounds itself with

“legitimizors” which help the firm be seen and accepted as a trusted player in the foreign

environment, in addition to enabling the company to exploit or influence the institutional

framework. The more a company feels legitimized or is indeed legitimized, the more it

could be willing to undertake more complex projects, which enables a telco to


17

differentiate itself from its competitors and create additional value. Graph 2 positions

each project of the three telcos studied in terms of the complexity of the project and the

stability of the institutional framework in the foreign country. Projects that are above the

curve are generating value.

Insert Graph 2 about here

Some competencies to influence the institutional framework and manage the risks

Thus, it is important that the firm develops some competencies in order to interact with

national and international institutions and companies in order to understand, exploit and

modify in some cases the institutional framework. By exploiting and influencing the

institutional framework, the firm reduces its risks and increases the chances of success of

the project. The ideal situation would consist in combining a local partner who knows the

situation in their country and possesses certain levers, with an international institution

that can influence the institutional framework in the host country. Not only should the

firm be able to influence and exploit the institutional framework, it should know how and

where to influence it.31 According to our analysis, here are the three sets of competencies

required to influence the institutional framework and reduce the risks.

First, the firm must secure its long term perspectives before undertaking an international

project. That’s why Ulysses is partnering with recognized local partners via joint ventures

that allow Ulysses to share and reduce the risks, in addition to influencing the

institutional framework in the host country.

Second, partnerships should be flexible enough in order to enable the partners to adjust

when unexpected events arise. In this area, Ulysses is choosing joint ventures which are a


18

less static form of collaboration, according to Chan-Olmsted & Jamison.13 Diogenes tried

to use a kind of flexible arrangement through an investment consortium in the

Philippines, for the last phase of the MTPO project. This can be associated with an

attempt to be part of the new forms of governance where risks are shared among a series

of complementary actors.31 But the truncated institutional framework led to the failure of

this phase of the project: the contract was awarded to Diogenes without a proper tender

process.

Third, the company has to win its legitimacy when facing lobbies and public opinion,

which can happen sometimes.16 29 Diogenes has learned it badly during the last phase of

the Philippines’ project. Diogenes realized that the benediction of the government is a

necessary but not sufficient condition to legitimize a project in a turbulent environment.26

37 At the end of the day, the project just disintegrated: “Events combine with strategic

inaction to trigger feedback processes that sponsors try to stop, but in the absence of solid

governance and without the capacity to face difficulties, disintegration ensues”.(p. 133) 31

As far as Ulysses is concerned, it seems that the company has succeeded in cajoling the

population of countries where it does business, by giving among other things a local

flavor to its joint ventures, such as in Colombia with Colombcel.

Conclusion In this paper, we introduced and described institutional piggybacking as a catalyst that

would enable a firm to accelerate its international involvement by using more committed

modes, such as joint-ventures and foreign direct investments, or by going into markets

that are culturally distant. This, more quickly than what the sequential model suggests,


19

but by taking into account the limited resources of relatively smaller firms that are

overlooked by the leapfrog model.

In this regard, a solid and coherent institutional framework is considered as the most

important factor in the performance of a project, because clearly established business

rules allow the actors involved to focus on creating value and not only on playing

political games. The institutional framework influences the attitudes and behavior of the

different actors and draws the limits within which the projects can be anchored. It offers

different possible scenarios and helps reduce the risks and uncertainty.31 David’s project

in Cuba is an example of a poor institutional framework, even though the company was

able to get the initial contract.

We believe that institutional piggybacking could be positioned in the context of the new

governance models, where complementary partners combine to reduce the risks and

create value in international projects.31 In this regard, we identified three factors for an

international project to succeed and three competencies firms should develop to influence

the institutional framework and manage the risks. Indeed, going international can be seen

as a matter of how to influence and exploit the institutional framework in order to anchor

a project abroad, and thus increasing the chances of success of the project. This seems

even more relevant in industries where risk has become irreversible because of the money

involved in international projects, such as in the telecommunications sector, but not

limited to the latter. In this study, we have looked at Canadian telcos. Nonetheless,

European telcos, as well as players in industries where the risk of international projects is

considered irreversible, would definitely be interesting cases to analyze in relation with

the use of institutional levers in future investigations.10


20

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24

GRAPH 1

The sequential vs. the leapfrog models

Joint Venture (JV)

Licensing

Direct Exporting

Foreign Direct Investment (FDI)

Indirect Exporting

Com

mitm

ent o

f res

ourc

es

Time

Leapfrog

Sequential


25

TABLE 1

Criteria of success for each mode of entry

Exporting Licensing Joint venture FDI

Keeping control

of the

intellectual

property

Innovation in

products and

processes

Successful

transfer of

technology and

knowledge

(especially tacit)

Ability to keep

the best

employees

Respect of the

budget (keeping

expenses under

control)

Reduction of the

company’s costs

Contribution to

the overall

international

objectives of the

company

Innovation in

products and

processes

Sources: 8, 12, 18, 23 & 24.

Strategic expansion in foreign markets

Higher notoriety of the company’s goods and services

Market share increase

Increase in the company’s sales and profits

© C

opyr

ight

And

ré R

iche

lieu

2002

26

TA

BL

E 2

Ove

rvie

w o

f the

nin

e pr

ojec

ts u

nder

take

n by

Dav

id, D

ioge

nes &

Uly

sses

Telc

o

Proj

ect a

nd ta

rget

ed

coun

try

Mod

e of

ent

ry

Out

com

e C

riter

ia o

f suc

cess

as

perc

eive

d by

the

resp

onde

nts (

by

decr

easi

ng im

porta

nce)

Dav

id

Gen

ium

, Uni

ted

Stat

es

Expo

rting

and

lic

ensi

ng (I

nter

net

porta

l sof

twar

e)

Mix

ed

(cou

ld g

o ei

ther

way

ac

cord

ing

to o

ur

anal

ysis

, bas

ed o

n th

e re

spon

dent

s’ p

oint

of

view

and

the

crite

ria in

Ta

ble

1)

Supp

ort f

rom

te

chno

logy

savv

y pa

rtner

s. A

ccep

tanc

e by

co

nsum

ers.

Hig

her n

otor

iety

of t

he

prod

ucts

. M

arke

t sha

re in

crea

se.

Incr

ease

in th

e sa

les

and

prof

its.

Dav

id

Nte

rWeb

, Uni

ted

Stat

es

Expo

rting

and

lic

ensi

ng (p

latfo

rm a

nd

softw

are

for

gove

rnm

ent s

ervi

ces)

Mix

ed

Selli

ng li

cens

es to

te

lcos

.

Dav

id

Cub

acel

l, C

uba

Expo

rting

(exp

ertis

e an

d so

lar p

anel

s to

Cub

a’s n

atio

nal t

elco

)

Failu

re

Less

bur

eauc

racy

. Le

ss u

ncer

tain

ty.

Clie

nt w

ith su

ffic

ient

re

sour

ces (

finan

cial

, hu

man

). D

ioge

nes

TRC

, Tan

zani

a Ex

porti

ng (t

urnk

ey

proj

ect f

or T

anza

nia’

s ra

ilway

s com

pany

)

Succ

ess

Cus

tom

er sa

tisfie

d.

Sche

dule

and

bud

get

resp

ecte

d.

© C

opyr

ight

And

ré R

iche

lieu

2002

27

No

hum

an tr

aged

y.

Fina

ncin

g.

Stra

tegi

c ex

pans

ion

in

fore

ign

mar

kets

. In

crea

se in

sale

s and

pr

ofits

. C

ontri

butio

n to

the

inte

rnat

iona

l obj

ectiv

es

of th

e co

mpa

ny.

Dio

gene

s TT

CL,

Tan

zani

a Ex

porti

ng (t

urnk

ey

proj

ect f

or T

anza

nia’

s na

tiona

l tel

co)

Succ

ess

Sam

e as

for T

RC

, plu

s:

Hig

her n

otor

iety

of t

he

good

s and

serv

ices

of

the

com

pany

. D

ioge

nes

Firs

t thr

ee p

hase

s of

MTP

O, P

hilip

pine

s Ex

porti

ng (t

urnk

ey

proj

ect f

or P

hilip

pine

s’

regi

onal

telc

o)

Succ

ess

Sam

e as

for T

RC

, plu

s:

Loca

l sub

-con

tract

or.

Goo

d eq

uipm

ent

prov

ided

by

supp

liers

. D

ioge

nes

Phas

e 4,

MTP

O,

Phili

ppin

es

FDI (

inve

stm

ent

cons

ortiu

m)

Failu

re

Gov

ernm

ent

trans

pare

ncy

in th

e te

nder

pro

cess

. Li

mite

d co

rrup

tion.

Ec

onom

ic a

nd p

oliti

cal

stab

ility

. Pr

ojec

t of a

reas

onab

le

size

. Fi

nanc

ing.

U

lyss

es

Hon

suk,

Sou

th K

orea

FD

I (m

inor

ity st

ake

in

a m

obile

com

pany

) Su

cces

s St

rate

gic

expa

nsio

n in

fo

reig

n m

arke

ts.

Hig

her n

otor

iety

of t

he

good

s and

serv

ices

of

the

com

pany

.

© C

opyr

ight

And

ré R

iche

lieu

2002

28

Mar

ket s

hare

incr

ease

. In

crea

se in

sale

s and

pr

ofits

. C

ontri

butio

n to

the

inte

rnat

iona

l obj

ectiv

es

of th

e co

mpa

ny.

Uly

sses

C

olom

bcel

, Col

ombi

a Jo

int v

entu

re (m

obile

ph

one

com

pany

) M

ixed

Ec

onom

ic a

nd p

oliti

cal

stab

ility

. H

ighe

r not

orie

ty o

f the

go

ods a

nd se

rvic

es o

f th

e co

mpa

ny.

Stra

tegi

c ex

pans

ion

in

fore

ign

mar

kets

. C

ontri

butio

n to

the

inte

rnat

iona

l obj

ectiv

es

of th

e co

mpa

ny.

Be

less

of a

mer

chan

t ba

nker

. U

lyss

es

Indi

aCel

, Ind

ia

Join

t ven

ture

(mob

ile

phon

e co

mpa

ny)

Failu

re

Acc

epta

nce

by

cons

umer

s. B

ette

r coo

rdin

atio

n be

twee

n fo

rmal

pl

anni

ng a

nd

inte

rnat

iona

lizat

ion

stra

tegy

. C

ontri

butio

n to

the

inte

rnat

iona

l obj

ectiv

es

of th

e co

mpa

ny.

Be

less

of a

mer

chan

t ba

nker

.


29

GRAPH 2

Creating value in international projects (Adapted from Miller & Lessard, 2000, p. 99)

Com

plex

ity o

f the

pro

ject

Degree of development of the institutional framework in the host country

3

6’ 9

6

1 2

8 4 5 7 Value creation

1: Genium, David 4: TRC, Diogenes 7: Honsuk, Ulysses 2: NterWeb, David 5: TTCL, Diogenes 8: Colombcel, Ulysses 3: Cubacell, David 6: MTPO 1-3, Diogenes 9: IndiaCel, Ulysses 6’: MTPO 4, Diogenes

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