Determining critical success factors of international expansion in African telephony industry.
The telecommunications sector has become the economic engine as well as an enabler of social, educational and medical progress worldwide. Mobile phones are spreading ubiquitously across the planet (Kalba, 2008). There were 3.3 billion cell phone lines in the world in 2007, representing 72.1% of telecommunication lines in the world (ITU, 2008).
The diffusion of mobile telephony in Africa has increased dramatically over the last few years. Growth has been due to a combination of increasing privatisation and the resulting competition among operators. There are more than 160 mobile license holders in Africa. The continent is now the world's fastest growing mobile market, a long way since the first cellular call in Zaire (now Democratic Republic of Congo) in 1987.
The forces of market liberalization and deregulation of the sector are inexonerably moving Africa to a new and maybe irreversible commercial era. Independent regulatory bodies are being established to oversee the opening up of domestic telecommunications markets to enable private companies to compete against incumbents, resolve disputes, set interconnection rates, support fair competition and encourage growth.
The level of competition in the sector is reflected by the following statistics (as at February, 2008): 26% of the African mobile markets had two mobile operators (duopoly), 61% had three (triopoly) or more operators and only 13% were a monopoly. Compounded Annual Growth Rate (CAGR) between the years 2002-2007 was 50.9%, compared to 27.2% for Asia, 20.1% for the Americas, 16.5% for Europe and 11.9 % for Oceania (ITU, 2008).
The emergence in the last five years or so of predominantly African based, pan regional mobile network operators is another reason for high mobile growth on the continent. The number of customers in Africa rose from 37 million in 2002 to 271 million at the end of 2007, an astounding 632% growth rate. In the same period, the mobile penetration rate rose from 4.5% to 28.1%.
What are the motives of the enterprise that have been fuelling this expansion? What level of financial resources do these enterprise hold? What market entry strategies have these companies been pursuing? What has been the geographical focus for the companies? How can these companies become more competitive?
This study attempts to answer these questions, by developing a framework to examine and analyze mobile telephony operators' international expansion on the continent. The key question to be answered in this enquiry is: What are the critical success factors of international expansion that influence mobile network operators in their international expansion efforts in Africa? The question is important because it has both theoretical and practical significance. The study proposes a multi-stage international expansion process framework that is useful for describing and analyzing the international expansion process.
The aim of this study is to analyze international expansion in the mobile telephony industry in Africa. The study will culminate in the development of a framework to analyze this international expansion in order to gain insights into international expansion activities in Africa, given the cross-cultural nature of international expansion.
The following six objectives flow from the broad objective of the study:
1. To establish the motives for international expansion by mobile telephony network operators
2. To explain the role and importance of resources in the international expansion process
3. To explain the key factors determining the choice of geographical locations where enterprises are investing.
4. To examine foreign market entry strategies (modes) used by the mobile network operators in entering foreign markets
5. To analyze the factors affecting performance of these enterprises in selected markets
6. To integrate these dimensions into a multi-stage framework of critical success factors of international expansion in the mobile telephony industry in Africa.
Thus, by providing further empiricism on the subject, the main contribution of the study will be a framework of critical success factors of international expansion in Africa that provides new theoretical insights on international expansion.
Gaps in Knowledge The study attempts to address gaps in three key areas:
a) Few researchers (Makhaya & Roberts, 2001; Gebreab, 2002) have focused on developing countries, particularly Africa, This study is important in that it contributes to international theory, using studies derived from the continent, where there is a dearth of empirical research of this nature.
b) The mobile telephony sector makes a critical contribution to the growth of the world economy. Thus, by focusing on firms from the mobile telephony service industry, this study avails useful knowledge and insight to practicing managers in the relatively under-developed stream of research on service firms (Coviello & McAulley, 1999).
c) The theory of international expansion remains poorly described causing both terminological and theoretical confusion (Fletcher, 2001; Bell, Crick and Young, 2004). Commenting on studies on international expansion, McCauley (1999) says, "More reflective articles are needed to link existing disparate empirical studies. More needs to be done to enhance the reputation of the work by showing its relevance to policy makers worldwide." This is study provides a different perspective and in the process helps to link disparate empirical studies.
International Expansion: The Concept
Andersen (1997) concedes that no agreement even exists on the definition of the concept of international expansion. Welch & Luostarinen (1988:156) define international expansion as "the process of increasing involvement in international operations." Calof and Beamish (1995:116) consider international expansion as "the process of adapting a firm's operations to international environments."
The above definitions are unsuitable for this study. A definition of international expansion is operationalized as follows: "international expansion is the series of steps taken by an enterprise, either acting alone or in consort with partners to enter a foreign market with a view to setting up or acquiring operations in that country."
Several issues cloud the process of modeling international expansion. Broadly, firms can be classified as Multinational Enterprises (MNEs) or Small to Medium Enterprises (SMEs) and therefore behave differently. Enterprises behave differently across industries and in different environments. Firms also behave differently in different environments. Clearly, with so many factors involved, it is difficult to come up with a credible theory of international expansion, hence different approaches as expounded in the models that follow.
The Uppsala Model
The Uppsala model, also known as the Stages Model, postulates that an organization usually starts its international expansion process by way of direct exports to a foreign country. Gradually, the organization starts exporting with the help of independent representatives or agents abroad. The firm then develops sales subsidiaries in a foreign country. The fourth and final stage is the establishment of a production/manufacturing facility abroad.
The two key concepts of the model are knowledge about foreign markets and operations and an increasing commitment of resources to foreign markets (Johanson & Vahlne, 1990). The Uppsala model is closely associated with the scholarly research of Johanson and Wiedersheim- Paul (1975) and Johanson and Vahlne (1977). The two concepts are the critical success factors for enterprises engaged in international expansion, but these factors are inadequate. The applicability of the 'stages' theory to service enterprises has been questioned (Sharma & Johanson, 1987; Chadee & Mattsson, 1998). Even the authors of the original model agree with this limitation. Johanson & Vahlne, (1990) conceded that their model was not valid for service industries, because the original sample focused only on Swedish industrial firms. It is often more difficult to operate with intermediate steps to the foreign investment stage in the services sector (Welch & Luostarinen, 1993).
Andersen (1993: 216) criticizes the model because it does not explain, "Why and how the process starts, and the sequence of states or conditions is not discussed." The model does not explain why enterprises enter these foreign markets in the first place, that is, what their motivation is. Cattani and Tshoegl (2002) argue that firms may use acquisitions to bring in knowledge, a mechanism that the Uppsala model neglects. These are gaps, which the current study fills in.
Although the validity of the stages model has been questioned, this research supports the view that the stages model is a useful point of departure that requires translation to a services environment. This is a necessary condition to explain the process of international expansion in the mobile telephony services industry. The Stages model will form the theoretical foundation of this study.
The Network Approach
The network approach has foundations in social exchange theory and focuses on the behaviour of enterprises in the context of business and social relationships (Hakansson & Johansson, 1988). International expansion is seen as a cumulative process of relationship creation, maintenance, development and ending (Johanson & Mattson, 1988). Thus, cross border involvement of a firm will be a nexus of treaties, with relationships with other firms- some involving equity and others not.
The network approach suggests that a firm's international expansion strategy emerges as an erratic pattern influenced by several formal and informal relationships with business partners, family and friends at the various stages of the enterprise value chain (Gemser, Brand and Sorge, 2004). The relationships have to be developed and nurtured along the whole value chain of the enterprise with sub-contractors, suppliers, distributors, wholesalers and other stakeholders (Kossut & Kaczmarek, 2003).
While the arguments put forward by the Network theory may be true, business and social relationships cannot be the only critical success factor in the international expansion of enterprises. Networks, it could be argued, provide mechanisms to overcome resource deficiencies, rather than being drivers of international expansion (Bell et al., 2004). Primarily, networks may bring business or investment opportunities to the attention of the enterprise, which the enterprise may pursue if they are deemed attractive.
In addition, the precise nature of how network relationships influence the international expansion process is not always clear.
The Resource-based Approach
International expansion requires significant resources and considerable effort to realise. Resource availability plays an important role within the resource-based approach that provides a useful perspective on the international expansion of firms (Autio, Sapienza and Almeida, 2000; Hauge and Havnes, 2001).
The implication for this high cost according to Borrmann (2001), is that the strategic option of acting as a mobile network operator in the mobile telephony market is exclusively reserved for big companies or alternatively for consortia of several medium-sized companies with strong financial backers. The issue of firm size then comes into play. Firm size is really a proxy for resource requirements.
Thus, the resources available to the firm or within its operating network limit a firm's activities. Networks are particularly critical in the provision of resources especially to an industry in which resource requirements are very high. However, resources although critical, are not the only critical success factor for enterprises. Other issues may contribute to the success or failure of international expansion endeavours.
Points of Departure
This study makes a number of departures from the reviewed literature. First, this study deliberately focuses on a single industry in order to eliminate inconsistencies in the measurement of variables, definitions and unrelated patterns that are attributable to different industry characteristics (Vida, Reardon & Fairhurst, 2000).
Second, there is general agreement that the international expansion of MNEs differs from the international expansion of SMEs. Since MNEs and SMEs exhibit different characteristics, this study has included only MNEs in its sample.
Third, the environment shapes the pattern of international expansion. The issue of different environments may have contributed to the murkiness around the international expansion theory of the enterprise. In order to accommodate this point, this study has focused on international expansion in one specific region- Africa.
Fourth, the theoretical framework presented in this study identifies the key factors that are important to enterprises expanding into Africa. This is because the Stages model, the Network theory and the resources-based theory individually identify fewer critical success factors for the international expansion of enterprises.
Dimensions of International Expansion
Dimensions of international expansion are factors or criteria that describe, analyze or evaluate the process of international expansion. Welch and Luostarinen (1988) argue that international expansion can be associated with developments along each of the dimensions. The authors identified four dimensions of international expansion, namely, the 'what', the 'how', the 'where' and the organizational structure. Burgel, Murray, Fier, and Licht, (2000) identified five dimensions of international expansion as the incidence, the degree of international expansion, the timing of market entry, target countries and the market entry modes.
Whalley (2001) proposes a different set of five dimensions to evaluate international expansion of companies in the telephony industry: psychic distance, equity, lines-of- business, the degree of market competition and the linkages between domestic and international activities. Autio, Lummaa and Arenius (2002) used three dimensions in their framework, which are depth, distance and diversity.
This study has identified five dimensions that are suitable to track, analyze, measure or recount the international expansion patterns of mobile telephony industry in Africa as 1. The motive to expand internationally, 2. Resource endowment, 3. Geographic focus, 4. Market entry strategy and 5. Performance in foreign markets. These factors are also the critical success factors for international expansion on the continent.
Based on the analysis of international business literature, this study proposes the following propositions:
Proposition 1a: Growth of the company (in terms of profit) is a major economic reason for mobile telecommunications operators investing in Africa.
Proposition 1b: Growth of the company (in terms of customer numbers) is a major strategic reason for mobile telecommunications operators investing in Africa.
Proposition 2: Enterprises engaged in sustained international expansion efforts are likely to have abundant financial resources.
Proposition 3: Mobile 9etwork Operators (M9Os) with origins in Africa are more likely to invest in Africa first before investing elsewhere (psychic distance).
Market Entry Strategy
Proposition 4a: The market entry mode for Mobile 9etwork Operators investing in Africa is likely to be to strategic alliances.
Proposition 4b: The key consideration for strategic alliances of Mobile 9etwork Operators investing in Africa is likely to be to reduce political risk.
Propositions 5: Growth is likely to be higher for Mobile 9etwork Operators operating in countries with significantly higher political and economic risk. Research Design and Methods
The study covers the period 1995 to 2007. It adopts a positivistic research philosophy, guided by values of objective analysis, use of structured methodology and the acquisition of quantifiable data that is amenable to statistical analyzes (Saunders, Lewis & Thornhill, 2003). In addition, the research was guided by propositions as which it will seek to confirm or reject. As the positivistic philosophy entails, this research used survey research as a research strategy and questionnaires as data collection instruments.
The unit of analysis in this study is the organization, specifically its choices, decisions, actions and reactions in choosing and entering international markets. The study targeted selected company executives and consultants at the company's headquarters and subsidiaries in the various African countries. Over 300 questionnaires were sent to six target enterprises (which account for 60% of mobile phones in Africa). The questionnaire response rate was a satisfactory 33%.
In order to address the issues of wording, ambiguity and clarity of questions in the questionnaire, pilot testing was performed on 10 questionnaires. Pilot testing proved very useful in detecting and correcting weaknesses inherent in the questionnaire design. Triangulation was useful in checking the reliability of data between the collected data set and a review of internal company documents along with published data.
In the first section of the analysis, descriptive statistics was the tool used to analyze the data (cross-tabulations, frequencies, percentages, means, charts, graphs and tables). In the second section of the analysis, propositions in the study were assessed using hypothesis tests for proportion and spiderweb plots. The alternative hypothesis for the propositions is H1: Z > 0.67. The purpose was to assess if a large enough proportion of respondents rated these aspects as important.
Profile of Respondents
The questionnaire contained concepts and themes from international business. This implied a certain amount of knowledge and by extension education was required to answer the questionnaire. Fifty-three percent of the respondents had a Bachelor's degree whilst a further 41% had a postgraduate degree.
The period for employment for respondents was approximately 6 years and 5 months. It was important for respondents to have a reasonable amount of association with an enterprise in order to appreciate the international expansion and decisions of the enterprise. Forty eight per cent of respondents reported their positions as senior management while 34% indicated they occupied middle management positions.
Background to Enterprises
An understanding of the history, background and size of the enterprises under study, as reported in this section, is important in order to interpret the empirical results. Table 1 shows the key characteristics of the enterprises in this study.
A. Motive to expand internationally
The alternative hypothesis for propositions 1.1 and 1.2 is H1: Z > 0.67. The purpose was to assess if a large enough proportion of respondents rated these aspects as important. Proposition 1.1 is assessed using the information in Table 2 while the results of the hypothesis test are displayed in Table 3.
Not a single company rated the growth of the company in terms of profit as the least important factor, while more than 90% overall rated it as the most important economic motive to invest in African markets. The probability level is smaller than 0.0001, hence the null hypothesis is rejected, which is interpreted as support for proposition 1.1.
Proposition 1.2 is assessed using the information in Table 4 while the results of the proposition test are displayed in Table 4.5.
Once again, the null hypothesis has no support in favour of the alternative hypothesis (Prob Level < 0.0001). Approximately 93% of the companies rated growth in customer numbers as important or very important, thereby validating proposition 1.2.
B. Resource Endowment
Proposition 2 is assessed using the information in Table 6 while the results of the proposition test are displayed in Table 7.
The null hypothesis that two-thirds or less of respondents indicated that their companies' level of resources is abundant cannot be rejected as the probability level is 0.9999 leading to the conclusion that companies do not suffer from a lack of financial resources.
C. Geographical Focus
The spiderweb plot in figure 1 graphically illustrates that proposition 3 is not supported: the geographical distance is rated as the least important (rating=1) or unimportant (rating=2) on both items measuring its influence on market investment decisions.
[FIGURE 1 OMITTED]
D. Market Entry Strategy
Proposition 4a is assessed using the information in Table 8 while the results of the proposition test are displayed in Table 9.
The null hypothesis has no support in favour of the alternative hypothesis (Prob Level > 0.05); hence there is no statistical support that at least two-thirds of respondents investing in Africa are more likely to choose strategic alliances as a market entry option. Still, more than 70% of the enterprises enter the African market using strategic alliances, lending a measure of credence to hypothesis 4a.
Proposition 4b is assessed using the information in Table 10 while the results of the statistical test are displayed in Table 11.
Once again, the null hypothesis cannot be rejected (Prob Level > 0.05), i.e. there is no statistical evidence that more than two-thirds of respondents consider a reduction in political risk as a key consideration for strategic alliances. Thus hypothesis 4b has no support.
E. Performance in African markets
Proposition 5 is assessed using the information in Table 12 while the results of the statistical test are displayed in Table 13.
The null hypothesis has no support as the exceedance probability < 0.05 and we conclude that growth is indeed likely to be higher for Mobile Network Operators operating in countries with significantly higher political and economic risk.
The Motive to Internationalize is a Key Antecedent
The motive to expand internationally is an important antecedent in international expansion. The motive acts as a guide in international expansion endeavors. The clarity of the motive is important in keeping an enterprise focused on its vision in a particular market. This position is line with observations made by Hollensen (1999) that before a company expands internationally, something within or external to the company (herein called the motive) must trigger the process.
The growth of the enterprise is the key motive in international expansion. This is a primary economic motive for any enterprise is to make some profit. Rasheed (2005) states that growth through foreign market expansion has increasingly become a popular strategy, as previously closed foreign markets open and economies around the world globalize.
From a strategic perspective, the growth of the enterprise in terms of customer numbers is very important. Mobile customer numbers is a very important measure of size in the mobile telephony industry, even more important than the age of the enterprise. As an enterprise organically grows through increasing customer numbers, it may increase its footprint across a number of countries to realize this objective.
Adequate Resources Are Critical
All enterprises in the study indicated the possession of adequate resources and the majority believed adequate resources are necessary for successful international expansion. This result underlines the point that financial resource availability plays an important role and provides a useful perspective on the international expansion of firms (Autio et al., 2000; Hauge & Havnes, 2001).
Financial resources are not the sole determinant of international expansion in an enterprise. However, the study established that financial resources in addition to being critical to international expansion also provide enterprises with a competitive advantage over their competitors. The cash rich enterprises had more sustained international expansion forays than their peers that had less financial resources. Inferences drawn from these results suggest that financial resources accelerate the pace of international expansion in Africa.
Geographical Focus is a Trade-off between Risk and Reward
The influence of market selection gravitated more towards market factors rather than psychic distance. The most important market issue is market size in terms of population of the destination country. Wattanasupachoke (2002) concurs with this point, affirming the fact that country-specific factors such as large markets are attractive to MNEs. Although a cornerstone of the Uppsala model, the argument that psychic distance influences market selection found no support in this study.
Strategic alliances are the dominant market entry strategy
The dominant market entry strategy in Africa is strategic alliances. However, what are the reasons for strategic alliances being the dominant market entry strategy? The argument that the purpose for strategic alliances on the continent is to reduce political risk found no support in this study.
Satisfactory Performance: the Ultimate Goal in International Markets
African markets that have the highest political risks also have the highest revenue growth. This could explain why even in the most and dangerous and unstable countries in Africa, mobile telephony investments continue to thrive. This, perhaps, explains why even if a country is unstable politically, there continues to be investments in mobile telephony.
The pre-paid platform is driving excellent financial performance in Africa. As a result, prepaid billing has become the most popular choice for both mobile network operators and consumers (Ndukwe, 2005). In 2007, more than 96% of mobile subscribers in Africa were prepaid customers- by far the highest ratio worldwide.
The conclusions reached in this study have implications for practicing managers in the mobile telephony industry.
1. Clearly understand your motive for international expansion Motives are a firm-level factor and as a result they are dependent on the specific goals and strategy that the enterprise would like to pursue. Although a firm-level factor, it is still possible that industry patterns can influence motives. However, the clarity of motives is critical in staying the international expansion course should the going become tough.
2. Assess the adequacy of financial resources for the endeavor Financial resources are critical to sustained international expansion. It is important to establish that the enterprise has adequate financial resources to succeed in a particular endeavor. In the event that the financial resources are inadequate, alternative plans are required to obtain the funds.
3. Choose your markets with care Africa is an attractive mobile telephony investment destination. However, risks remain. There is need for enterprises to do their homework especially around issues of regulatory independence.
Areas of Further Research
The weighting between the factors raised in this study were not tested. For example among the key factors identified in the study-the motive to internationalize, resource endowment, geographical focuses and market entry strategy. How much effect does each particular factor have? If for example an enterprise made errors in the geographical selection of markets, could the enterprise reduce the errors with an appropriate choice of market entry strategy because it has a higher weighting?
The actual motivation for strategic alliances was inconclusive. Future studies can examine the reasons enterprises get into strategic alliances. This study could also be replicated but using a different research methodology. For example use could be made of the case study method where in-depth interviews are utilized. This would allow in-depth discussion of the key issues identified in this study.
Figure 2 below is a diagrammatic representation of a multi-stage framework that shows the key issues that influence the international expansion process in the mobile telephony industry in Africa.
[FIGURE 2 OMITTED]
Brief explanatory notes on the framework
In the diagram above, box  refers to the motive to expand internationally. The motive to expand is an antecedent, usually agreed upon or deliberated on before the actual expansion takes place. In the diagram above, box  refers to resource endowments. The resources available to the firm itself or within its operating network limit a firm's activities. In the diagram above, box  refers to the geographical selection of markets. Mobile companies may focus on a single country, region (focused strategy), or focus on any geographical region where an opportunity arises (spread strategy). Box  shows the market entry strategies while box  shows network building, operations and consolidation or exit.
The process characteristics of the framework
The first characteristic of a process is that something must trigger or start the process. This is the motive to expand internationally. The second characteristic is that processes take time. There is a time delay between the cause of a process (motive to expand) and the effect or conclusion of that process (performance). Processes require some energy or momentum to keep them going. In the international expansion process this means that resources are required at each stage of the process. Processes are dynamic as well directional. Processes entail movement between stages or parts and this movement is in a certain direction. In the diagram, the bold arrows show the general direction of the international expansion process. From the motive, through to performance in the foreign market, the conceptual framework depicts the critical success factors of international expansion in Africa arranged as a process.
Received 18 February 2009
Reviewed 19 March 2009
Revised 20 March 2009
Accepted 20 March 2009
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Maxwell Chanakira can be contacted at: firstname.lastname@example.org
Tshwane University of Technology, South Africa
Table 1. Characteristics of the sample Enterprise Age Employees Countries Customers Market Cap in Africa (in Africa) (US$) bn Celtel 20 8,000 15 18.9 m 13.4 MTN 15 14,000 16 36.2 m 19.5 Vodacom 15 5,459 5 30.2 m 15.6 Orascom 22 8,000 4 23.1 m 14.5 Millicom 20 4,500 7 6.5 m 9.5 Econet 19 3,500 5 5.5 m 2.5 Source: Company Reports, Media Releases (2008) Table 2. Data section for proposition 1.1 Number of Sample Hypothesized Sample size (n) successes (X) Proportion (p) proportion (P0) 100 97 0.97 0.667 Table 3. Test section for proposition 1.1 Alternative Exact (Binomial) Normal Approximation using (P0) Hypothesis Decision Decision Prob level (5%) Z-Value Prob Level (5%) P>P0 0.0000 Reject H0 6.3281 0.0000 Reject H0 Table 4. Data section for proposition 1.2 Number of Sample Hypothesized Sample size (n) successes (X) Proportion proportion (P0) 99 92 0.9293 0.667 Table 5. Test section for proposition 1.2 Alternative Hypothesis Exact (Binomial) Normal Approximation using (P0) Decision Decision Prob level (5%) Z-Value Prob Level (5%) P>P0 0.0000 Reject H0 5.4361 0.0000 Reject H0 Table 6. Data section for proposition 2 Number of Sample Hypothesised Sample size (n) successes (X) Proportion (P) proportion (P0) 100 49 0.4900 0.6667 Table 7. Test section for proposition 2 Alternative Hypothesis Exact (Binomial) Normal Approximation using (P0) Decision Decision Prob level (5%) Z-Value Prob Level (5%) P>P0 0.9999 Accept H0 -3.6424 0.9999 Reject H0 Table 8. Data section for proposition 4 Sample size (n) Number of Sample Hypothesised successes (X) Proportion proportion (P0) 99 71 0.7172 0.6667 Table 9. Test section for proposition 4 Alternative Hypothesis Exact (Binomial) Normal Approximation using (P0) Decision Decision Prob level (5%) Z-Value Prob Level (5%) P>P0 0.1691 Accept H0 0.9587 0.1688 Accept H0 Table 10. Data section for proposition 4.1 Number of Sample Hypothesised Sample size (n) successes (X) Proportion (P) Proportion (P0) 98 65 0.6633 0.6667 Table 11. Test section for proposition 4.1 Alternative Hypothesis Exact (Binomial) Normal Approximation using (P0) Decision Decision Prob level (5%) Z-Value Prob Level (5%) P>P0 0.5756 Accept H0 0.0350 0.4860 Accept H0 Table 12. Data section for proposition 5 Sample size (n) Number of Sample Hypothesised successes (X) Proportion proportion (P0) 100 80 0.8000 0.6667 Table 13. Test section for proposition 5 Alternative Hypothesis Exact (Binomial) Normal Approximation using (P0) Decision Decision Prob level (5%) Z-Value Prob Level (5%) P>P0 0.0024 Reject H0 2.7217 0.0032 Reject H0
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|Publication:||Global Business and Management Research: An International Journal|
|Date:||Jan 1, 2009|
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