Vodafone: A Brief Overview - Case Study Example

International Business Table of Contents Table of Contents 2 Introduction 3 Vodafone: A Brief Overview 4 Rationale for the Country Chosen 5 External Environment Analysis: Brazil 5 PEST Analysis 6 Competitor Analysis 7 SWOT Analysis 8 Foreign Entry Modes 10 Competitive Advantage: Foreign Direct Investment 12 Risks 12 Minimization of the Risk 13 Summary 13 References 15 Introduction With the emergence of inter-reliant global economy, human beings are witnessing faster transportation, communication, and economical flow. All such aspects are creating new marketing opportunities as well as challenges for the companies. Therefore in this situation, companies are left with stark and straightforward choices; they should either react strongly to the challenges in order to grab the opportunities provided by the new marketing environment or accept the consequences for not being able to deal properly with the challenges (McCubbrey, 2011). With increasing competition within the domestic market and intense pressure from the international market, companies, only with domestic operation are actually finding it difficult to survive in the market place. Moreover, due to globalization and opening up of the world economy, companies are considering international expansion as a way of survival, increasing revenue and embracing diverse client base (Onkvisit and Shaw, 2004). Based on the requirement the report will be divided into various subsections. The first half of the report will present a brief overview of the chosen company. Once the company is chosen the next task will be to identify the country where the company will be expanding. Thereafter factors such as the external business environment of the chosen country, internal analysis of chosen company, possible entry modes and also the risk associated with this mode will be evaluated. In addition, the study will also emphasize how the identified risks can be minimized. Now to accomplish the study, the chosen company for international expansion is Vodafone. Hence, before getting further deep into the study, a brief overview of Vodafone is provided. Vodafone: A Brief Overview Vodafone Group Plc. is an UK based company, involved in providing telecommunication services. Vodafone was founded in the year 1991 and is currently headquartered at London, United Kingdom. However the company also has its registered office at Newbury, Berkshire, United Kingdom. The company is considered as the second largest telecommunication company in terms of total revenue and number of subscribers just after China Mobile. Currently, Vodafone caters to around 407 million customers around the world. With these achievements and favourable factors, the company is ranked as the 7th most valuable brand. The company has its presence in more than 80 countries of the world. In addition, Vodafone Global Enterprise division provides IT and telecommunication services to 65 countries of the world. It is listed in the London Stock Exchange and is traded with the ticker symbol VOD.BA. The secondary listing of the company is in NASDAQ. The bestselling products of the company are mobile and fixed line telephony, internet services, mobile handsets (Magic Box) and also digital television. The products of the company are sold through Vodafone owned stores, franchised stores and distributors (Yahoo Finance, 2012). The net revenue of the company for the financial year 2011-2012 was £46.417 billion and the company made a staggering profit of £6.957 billion (Vodafone, 2013). The company provides employment opportunities to 86,373 people. In the context of international expansion, the company is very much enthusiastic, and it reflects in their worldwide operation. Figure 1 - Countries Where Vodafone Operates However, there are still many countries where the company does not operates. One of the potential areas can be South America. The company can explore the opportunities in South America by offering them superior quality telecommunication services. Rationale for the Country Chosen The chosen location is South America and according to several reports, Brazil has the most vibrant economy in South America. Moreover, Brazil is the fifth largest country of the world and has a total population of 195 million. With large population size and vibrant economy, it is expected that Vodafone will be able highly benefitted. Apart from that, another rationale for choosing Brazil for the expansion is that, the company did not explored this part of the world in that much, as it did in Europe and Asia. External Environment Analysis: Brazil Now to get a better understanding of the country, it is important to carry out in-depth analysis of the external business environment. In order to analyse it PEST framework will be utilized. Apart from the business conditions, it is also important to know the competitor standings. Hence, a competitor analysis will also be carried out. PEST Analysis PEST analysis is a strategic management tool, by which the external business environment of a country can be examined. It assesses the political, economical, technological and social factor of a country. Now, in this regards, the study will evaluate these factors in the context of Brazil. Political Factor: - Political factors of a country play a major role in deciding the fate of telecom industry. The licence pertaining to telecom services are generally controlled by the Government. In addition, spectrum access is also limited. Moreover due to health issues associated with telecom products, the government of a country can impose certain regulations. It is evident that Brazil has a high political stability and well defined government policies. The country also encourages foreign investments (Veiga, 2004). In the recent past there were hardly any issues came up that reflected poor business condition. Hence from the findings it can be sated that Brazil can offer favourable business conditions to Vodafone. Economical Factor: - Brazil is one of the fastest developing countries of the world. The current GDP of Brazil is $2.294 trillion and the per capita income is $11,800. These figures clearly depicts that the country is financially stable. If reports are to be believed, the economy of Brazil is expected to touch the GDP of $3.17 trillion by the year 2017 (ResearchandMarkets, 2012). The country witnessed a GDP growth of 3.5 % in the year 2011. However, the biggest problem is the uneven distribution of income. 5 % of the population owns around 85 % of the country’s wealth. The country is also characterized by high tax structures (Foreign & Commonwealth Office, 2011). Hence, from the findings it can be stated that the country has a moderate financial stability and may offer good chances of success to Vodafone. Social Factor: - Brazil is characterized by a diverse society. The major religion of the country is Roman Catholic (73.6 %), followed by Pentecostal and others 15.4% and 11% respectively. The official language of Brazil is Portuguese. However, other popular languages such as English, Spanish, Italian and German are also widely used. The biggest challenge of the society is the high crime rate, which is affecting the growth and progress of the country (Central Intelligence Agency, 2013). Mobile phones and internet surfing have become necessity for the people of Brazil. Thus, Vodafone has high chances of success in the markets of Brazil. Technological Factor: - The technological infrastructure of a country is extremely crucial for a new entrant. Moreover, for a telecom company the importance of technology is even more. In this context, Brazil does not have the strongest communication and technical infrastructure, but has the potential to support telecom service platforms. As of 2011, the country had 244,358,000 mobile subscribers and is ranked at the 5th position. Therefore in terms of technology also, it is expected that Vodafone will not face much difficulties in developing the telecom infrastructure. Competitor Analysis A company cannot operate in Vacuum and therefore has to deal with a number of competitors. Similarly, in Brazil Vodafone will have to face strong competition from the existing telecom service providers. In Brazil the total number of mobile subscribers is 244,358,000 and is still growing at a rapid pace. There are large numbers of telecom service providers in Brazil. Some of thehighest grosser are Brasil Telecom S.A, Net Serviços de Comuniçao, Vivo Participacoes S.A., Telecomunicaçoes de Sao Paulo S.A, Claro, TIM Participaçoes and OI among others. Apart from them, there are also several small telecom service providers in Brazil. As of the 2nd quarter of 2011, Vivo Participacoes S.A., was the market leader with 64, 049, 000 subscribers and 29.5 % market share. Claro was the next big player with a market share of 25.6 %. Figure 2 (Source: Dove, 2011) Based on the findings, the following is the market share chart of the telecom companies in Brazil. SWOT Analysis Now, after the analysis of external business environment of Brazil, it is now important to carry out the internal analysis of Vodafone. In order to perform an in-depth internal situational analysis, the study will employ SWOT analysis. SWOT analysis is basically a strategic management tool, by which the internal strengths & weaknesses and external threats and opportunities are uncovered. The SWOT analysis of Vodafone is presented below: - Strengths World’s leading telecom service provider and has huge brand name. Offers both communication and data services. Vodafone also offers a wide range of products and services to the customers. Present in almost every corner of the world. Weaknesses The company has to deal with several legal proceedings and legal regulations. Different law in different countries destabilizes Vodafone’s operating strategy. High Telecom expense and taxes. Opportunities The company has the opportunity to enter into the land line phone market. The company also has the opportunity to enter foreign unexplored markets such as South America and parts of North America. The company also holds the opportunity to launch new telecom products and services such as 4G internet and trendy mobile phones. Threats The biggest threat for Vodafone is the intense rivalry in the telecom industry throughout the world. The company is also losing its market share at some of the countries, thereby loosing revenues. Stringent telecom rules are also a cause of concern for the company. Foreign Entry Modes Nowadays, international expansion has become a crucial area for a company to get success in the long run. Companies around the world are considering global expansion as a way to increase their revenue streams. In order to enter a foreign country, a company has to choose a suitable mode of entry. In general, there are several available international entry modes such as exporting, foreign direct investment, licensing and joint ventures among others. Now before recommending a particular entry mode to Vodafone, it is imperative to analyse their pros and cons. Exporting - Exporting is a mode of foreign trade, where the products and services are directly to the customer of other country. The biggest advantage of exporting is that the investment is very low. Moreover in this method, the seller do not needs to physically present at the target country. Hence the risk of foreign market greatly reduces. However, in the context of Vodafone, being a telecom service provider, exporting will not be viable option as there will be hardly any control of the company over the operation (Nelson, 1999). Licensing – Licensing is a way of foreign market entry, where the parent company allows another company of the target country to use their intangible assets such as trademark, patent, logo and production techniques. The biggest advantage of using licensing technique is less investment and higher revenues (Pride and Ferrell, 2011). In this context also Vodafone will not be able to directly control its the operation; hence this mode is also not suitable for Vodafone to enter the Brazilian market. Joint Ventures – Joint Venture is another way of foreign market entry, where the parent organization functions jointly with another organization of the host country. In general, a joint venture business witnesses rapid sales volume in a short span of time. However its disadvantages are delayed return, risk of high investment and overestimation due to dynamic nature of the business environment (Campbell, 2009). Foreign Direct investment – Foreign direct investment (FDI) is a way of doing business in the foreign market, by directly controlling the entire operation. This strategy also involves transfer of technology, employees and also the properties of the company. In addition, the company will also have to develop its own infrastructure in the target country. One of the biggest advantages of FDI is that, the revenue can be increased drastically and company has full control over the operation. However, the initial investment is high (Kapil, 2011). Vodafone has the capacity to invest high amount in order to set up their business. Hence given the favourable market condition for direct investment in Brazil, FDI is the most viable option for the company. Therefore from the findings of the study, it is recommended that the company should consider employing foreign direct investment technique. The next half of the study will now shed light on the circumstances under which the FDI can provide competitive advantage to Vodafone. Competitive Advantage: Foreign Direct Investment By employing FDI, Vodafone will be able to gain advantages in Brazil. There are several favourable circumstances for the company in which they can gain competitive advantage over the competitors. Now the circumstances are favourable business environment in Brazil, political stability, well defined FDI policy, economical stability of Brazil, diverse society. In addition, the internal factors of Vodafone such as strong financial condition, huge brand name and wide range of products and services. FDI can give the following corporate advantage over the others entry modes: - Better Control: - With FDI Vodafone will be able to control the entire operation of the company. High Revenue: - FDI will allow the company to earn more revenue than any other mode, due to unavailability of any partner or middleman in the operation process. Risks Although, FDI will provide several advantages to the company, but there are certain risks which are associated with it. Some of the risks associated with FDI are detailed below: - High Investment: - FDI involves high investment and the company may fail to recover the investments in the given time. In addition, there is also a possibility of low return on investment. Legal Implications: - Since the company will directly operate, all the legal responsibilities will be on Vodafone. Question of Acceptance: - There is a possibility that the people of the target country, will not accept the foreign marketer thereby boycotting their products and services. Minimization of the Risk The three major risks identified in the study are high investments, legal implications and possibility of non-acceptance of the products and services. Now in order to minimize those risks, the company has to carry out certain activities. Vodafone needs to develop a suitable positioning statement, which portrays their interest as well as their closeness with Brazil. In addition, the company also need to invest in promotional activities and depict how Vodafone will be helpful for the people of Brazil. Through this approach the company will be able to gain acceptance from the people. Similarly, to legal implications, the company should carry out in-depth research regarding the rules of telecom business. Finally, to reduce the investment risk the company should develop strategies such as penetration pricing, value for money service to ensure that they reaches the break-even point. Summary The study was about choosing a particular country where, a UK based company is currently not operating. For this purpose, the chosen company was Vodafone and the target country was Brazil. The study revealed that Brazil is one of the fastest growing economies of the world and in terms of mobile usage the country is ranked at the 5th position. However, there are some risks and limitations associated with the company’s entry into Brazil. For example intense competition, probability of low return on investment can be cited as the risks. Nevertheless, the external business environment of Brazil is favourable for doing telecom business and also for providing ample opportunities for a newcomer due to diverse population and strong economy. Hence, it is recommended that the company should enter the Brazilian market by using foreign direct investment strategy to earn more revenue and directly control its operations. References Campbell, D., 2009. International Joint Ventures. AH Alphen Aan Den Rijn: Kluwer Law International. Central Intelligence Agency, 2013. South America: Brazil. [online] Available at: [Accessed 30 January 2013]. Dove, J., 2011. The Biggest Tech Trend in Brazil. [online] Available at: [Accessed 30 January 2013]. Foreign & Commonwealth Office, 2011. Brazil. [online] Available at: [Accessed 30 January 2013]. Kapil, S. 2011. Financial Management. New Jersey: Pearson Education Inc. McCubbrey, D. J., 2010. Defining International Marketing. [online] Available at: [Accessed 30 January 2013]. Nelson, C. A., 1999. Exporting: A Managers Guide to the World Market. Connecticut: Cengage Learning EMEA. Onkvisit, S., and Shaw, J. J., 2004. International Marketing: Analysis and Strategy. 4th ed. London: Routledge. Pride, W. M., and Ferrell, O. C., 2011. Marketing. 16th ed. Connecticut: Cengage Learning. ResearchandMarkets, 2012. Research and Markets: PESTLE Analysis of Brazil 2012-2017: Brazils Economy Anticipated to reach a GDP Of $3.17 Trillion In 2017. [online] Available at: [Accessed 30 January 2013]. Veiga, P. D. M., 2004. Foreign Direct Investment in Brazil: regulation, flows and contribution to development. [pdf] Available at: [Accessed 30 January 2013]. Vodafone, 2013. About Us. [online] Available at: [Accessed 30 January 2013]. Yahoo Finance, 2013. Vodafone Group Public Limited Company (VODH.DE). [online] Available at: [Accessed 30 January 2013]. Read More