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Strategic Outsourcing atBharti Airtel

Tarang Doifode (PGP/17Kevin G Mathew (PGP/1

Sreekanth PS (PGP/1Tara Rajagopalan (PGP/17Preethi Jayaram (PGP/17

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Bharti - Network Vendor

Principal Bharti Airtel; Agent Ericsson/ Nokia/Siemens

Transaction Cost Economics Core competency is Operations;external transaction costs lower than internal because GSMtechnology open standard with several suppliers & vendors, search switching costs low but no expertise within organization

Property Rights: Once erlang capacity is installed, ownership ofassets belongs to Bharti (operations & maintenance however lieswith vendor)

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Bharti Network vendorObject of the Clause Clause alternative in the contract Explanation

Strategic Co-ordination Routine Goal: To have GSM in 5161 census to40,000 base stations

Organizational Co-ordination Routine Rules governing network design & impmaintenance and operations decideincluding cases where capacity woare mutually negotiated between thclearly defined

Operational Co-ordination Routine Terms of the contract mutually negotiathe two and clearly defined (qualit

Credible Commitments Unilateral application Property rights lie with Bharti, so the veessentially depositing a hostage wi

Supervision Mechanism External non-specialized arbitrator The Court and the Law are mode of conflresolution

Remuneration System Intensity of use Payment and prices per erlang were basoverall density all the revenuesbe borne by Bharti

Contract Duration Short term Defined for a period of three yearsis renegotiated

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Classification of Bharti Network vencontract

Market type contract Absence of credible commitments, self-supervision mechanism, short term

duration, governance based on routines (strategic, organizational andoperational)

This contract can be classified as a market-type contract except for theunilateral application of credible commitment part

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Bharti - IBM

Principal Bharti Airtel; Agent IBM

Transaction Cost Economics Core competency is Operations ndesign; internal transactions too high - cannot do architecturesoftware and hardware design BUY

Property Rights: IT Infrastructure belongs to Bharti

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Bharti IBMObject of the Clause Clause alternative in the

contractExplanation

Strategic Co-ordination Decentralized Authority It was an on -demand strategy where the IT

decisions where made in the course of execution o(eg: BI and data warehousing, ERP Systems implethough not previously decided)

Organizational Co-ordination

Decentralized Authority Not every aspect of the contract could be envisaged eissues would be passed on to the highest governing

Operational Co-ordination

Decentralized Authority Not every aspect of the contract could be envisaged eissues would be passed on to the highest governing

Credible Commitments Bilateral application Bharti is restricted to using software developed by IBMdeveloping customized software that can be used o

Supervision Mechanism Specialized supervision Joint governing body constituted

Remuneration System Fixed sharing rule IBM and Bharti share revenues based on projected growBharti Airtel subscribers and corresponding growthneeded (and decrease in fixed costs due to econom

Contract Duration Long term 10 year contract legacy systems involved, techrevised

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Classification of Bharti IBM contrac

Decentralized Authority Decentralized Org. Authority

Decentralized Oper. Authority Bilateral application

Specialized supervision Fixed sharing rule

Long term

Asymmetric

Symmetric

Unspecialized

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Issues to be addressed by contract

Software / hardware applications not supported by IBM would nolonger be applicable Solution: Bharti is used to making short term fixes - this system of fragmen

contracts is being replaced by IBM providing end to end IT solutions Implications the deal would have on the time-to-market of new

services to customers

Revenue sharing was a major and unfamiliar risk for IBM wgrowth projections did not happen as estimated? Recommendation: The contract could be renegotiated at shorter interval

time (eg: 2 or 3 years rather than 5) wherein IBM would have more concretinformation with passing time to refine the revenue projection models

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Thank you