Vodafone: Rethinking the International Strategy - Case Study Example

Vodafone: Rethinking the International Strategy Contents Contents 2 Overview 3 External Environment 3 Political: 4 Economic: 4 Social: 4 Technological: 5 Key Strategic Challenges 5 Competitive advantage 6 Major weaknesses and leadership’s strategies 8 Improving the Corporate Image 9 Recommendations 11 12 Reference List 13 Overview Racal electronics Plc, a UK based company in 1984 opened a subsidiary Racal Telecommunication Limited that came to be known as Vodafone from 1991. Previously the company had its headquarters in Berkshire but later relocated to London. In 2002 Vodafone became the largest wireless operator with 93 million subscribers. The geographical spread of the company included all the continents including 29 countries (Vodafone Group, 2014). The drive of becoming the largest mobile communication company had made Vodafone take up a series of acquisitions and it became the primary strategy of the company for global expansion of the business. Despite becoming one of the game changers in the present telecom industry, Vodafone was unable to impress the shareholders when the annual report of the company was presented by Vittorio Coalo. This was mainly because the rise in profits of the company could be largely attributed to the favourable movement of the Euro against the British pound which contributed to the profits. This increased the woes of the stake holders as they became worried about the way in which the company will be able to retain its level of profits. This has led the company rethink about its international strategy to retain the strength of its business empires. This report discusses about the options that can be used by the company to improve its brand image. External Environment The external environment of a company implies the macroeconomic environment the country operates in and includes the following factors namely, social, political, legal and technological (Porter, 1998). Political: Vodafone is subject to the regulations of the political environment which are applicable in the telecommunication industry. The three main political regulations which had significant impact on the activities of Vodafone include the EU Regulatory Framework for the communications sector, Spectrum liberalisation and EU Roaming Regulation. The first one had significantly lowered the phone termination rates of Vodafone. The second one increased the competitiveness of the telecommunication industry as the market forces determined the allocation of licences. The third regulation was aimed at reducing the price that was paid by the members for making international calls. This reduced the profit margins of the company (Saplitsa, 2008 ). Economic: The determination of the growth rate of country via GDP growth is broadly accepted as a measure to record the economic performance of the country. Prior to the global economic downturn the economic performance if the major developed countries of the world was very strong. With the onset of economic crisis the GDP growth rates of the countries began to fall and this can impact the business of the company (Saplitsa, 2008). Presently the economy is recovering and the disposable personal income in the United Kingdom increased to 254806 GBP Million in the third quarter of 2013 from 253880 GBP Million in the second quarter of 2013(Trading Economics, 2014). Social: The social factors are changing globally and the standard of living is improving in most of the countries of the world. The population growth rates are slowing down gradually and the standard of living are improving worldwide according to the report of United Nations (Fennis and Stroebe, 2010). These imply that the opportunity for the company will be immense as the use of mobile phones and internet is increasing all over the world including less developed countries. Technological: Technological factors are the backbone of a telecom company. The growth of Vodafone has been largely based on technological factors and it has been constantly trying to provide quality service to its customers through improved technology (The Times Newspaper Limited, 2009). Key Strategic Challenges There are two major challenges that are faced by Vodafone presently. The primary challenge has been the distribution of third generation licences by the government. The company had spent more than a reasonable share on the 3G licenses and has now realized that it had overestimated the commercial potential of it. The increase in the competition in the market is definitely a positive aspect for the consumers but the threats from the rivals looms large for Vodafone. The second challenge came with the bursting of the technology, telecommunication and media stock market boom. The subsequent years had experienced the fall in the stock-price of Vodafone as an aftermath of the TMT crisis. The falling stock prices pose a major threat to the confidence of the investors as they begin to worry about the ways in which the company will retain its profit. Another key challenge that is faced by the company in UK is that the number of new customers available in UK has reduced substantially. The company has to constantly come up with innovative products if it wants to retain its present market share. Perhaps the biggest challenge for the company at present is to weave its empire into a coherent whole simultaneously meeting the technological, regulatory and competitive challenges (case study). Competitive advantage The meteoric rise of Vodafone began somewhat six years ago when the company had begun the transformation from a small UK- based firm to becoming one of the biggest multinational companies of the world. This happened mainly because of the competitive advantage that was enjoyed by the company. The resources and the key competencies of the firm are extremely important in determining the competitive advantage of a firm. This includes formulating and implementing strategies by recognizing the unique feature of each firm (Cuplan, 2002). The tangible resources include the physical and the financial assets and the intangible assets include factors like technology, reputation, culture and human resources. Vodafone is one of the companies that have strategically used its core resources in the expansion strategy to build a competitive advantage. The company has constantly updated itself according to the changing demands of the global markets. The strength of the company comes from the wide geographic reach of the company and the timely mergers and acquisitions. The acquisition of Airtouch of USA, Mannesmann in Germany and Japan Telecom were the three big acquisitions that had cemented the position of Vodafone as a leading multinational in the telecom industry. Vodafone could takeover these firms on time because of the huge financial asset base of the company and the managerial expertise. The superior technology used by the company also contributed to its superior performance compared to its competitors. MNE’s mode of entry and internationalization issues has been one of the most discussed topics in the academic literature. Since 1970’s the contribution of researchers like Buckley, Casson, Rugman and others have contributed widely to this area (Buckley and Casson, 1998). According to established convention, the first mover advantage by any firm in a new country always generates higher profits. This is because the first-mover firm can capture greater market share in the initial stages and enjoy economies of scale and learning curve benefits (Bartlett and Ghosal, 2000). Vodafone has largely been one of the companies that have enjoyed the first-mover advantage by taking into consideration the location-specific and firm-specific advantages in setting up new units (Anwar, 2003). From the mergers and acquisition done by the company three observations can be made that has provided the firm with its competitive advantage: Firstly, the company had hugely capitalized on the wireless and web related opportunities of 1990’s. Secondly, the company explored the niche-oriented markets of the countries where only a few investors were willing to invest. Thirdly, the innovation and creativity of the company has been successful in launching new products which has constantly generated fresh demand for the new products launched by the company. The factors which have always proved to provide added advantage for the company and kept it ahead of its competitor can be summarized below: Being the first mover in the technological aspect and buying 3G licences. The capitalization on the growth of the internet industry. Accurate forecasts of the company regarding the wireless industry. The de-regulatory environment of the telecom industry has also proved to be enhancing the growth of the company. In terms of human resource, the management team of the company has been loyal and has stayed with the company for a long time and contributed in increasing its operational efficiency. Major weaknesses and leadership’s strategies One of the major weaknesses of the company has been that it has been unable to increase its popularity in the American markets and Asia. The company has also been facing stiff competition from Japans multinational company DoCoMo. The company has to make its presence felt in the Latin American and Asian countries where it is still not one of the major players. The crisis of 1997 acted as an impediment to the growth of the economy. Till 2002 the m-commerce of the company was not properly developed and this also acted to slow down the growth of the company (McDonald and Burton, 2002). The incompatible wireless standards in USA have also made it difficult for the company to realize the full potential of its growth. In recent context it has been seen that the company is not enjoying economies of scale in the world market as it had expected to. It has also been observed that the power battle between the hardware suppliers and service providers like Google and Apple is leading to commodization of the global wireless industry. This poses a major threat to the global strategies of Vodafone. The global leadership strategies followed by Vodafone in addressing the problems faced by it can be divided into five groups namely; values communication, International team development, Strategic vision, Building organisational capability and Commercial drive (Bolden, et al., 2003). Vodafone has consistently followed a customer oriented growth strategy and has constantly been hearing the problems of its customers so that it can understand their problems and act accordingly (Hitt, Ireland and Hoskisson, 2008). The company has put in a lot of effort to improve its HR Department and has launched the Global Leadership Programme to improve the performance of the company (Vodafone Group Plc, 2012). The business organizational capability of the company was improved by customization of the business models that the company has followed to suit the demand and the expectation needs of the various countries in which it operates (Janczak, 2005). Two of the unresolved issues remain for the company that needs to be solved immediately. First, the minority of share holding in Verizon Wireless and second the unresolved issues of control in France’s SFR (Hitt, Ireland and Hoskisson, 2008). These two issues remain as a problem for the company because it does not fit in the single brand of its “One Vodafone” strategy. Improving the Corporate Image In order to improve its image Vodafone had launched its “One Vodafone” project in 2004 to improve its unity in its wide geographical network. Under this project the corporate structure of the company underwent changes to strengthen the performance of the company. The key points are: Six geographically defined business units report directly to the CEO. Incorporation of a new multinational corporate unit to serve the global corporate customers. Setting up of two new strategies to oversee the execution of the strategy set up by the main board. One of the chief agendas behind the “One Vodafone” project was not only to seamlessly integrate the technology in its wide scale of operation but also the local culture and process. The company had realized that though standardization of business model is important for the growth of an organization yet it is important to customize the process according to the country in which the company operates. The pressing problems of the company in USA, France and Japan had forced the company to rethink its corporate strategies in order to improve its image. To cope with the difficult market situations in these markets the company incorporated the following changes: Firstly, it had slowed down its growth in the emerging markets. Secondly, the company focused on the improvement of its corporate global customers to improve its image in the corporate sector. Finally, the company capitalized on the growth of mobile internet applications. The adaptation to the needs of the local market will become increasingly important for the company to improve its brand image. Recently the company has announced the following strategies to improve its corporate image: Firstly, the company is trying to improve its in-house service provision of businesses which will improve its operational efficiency and overhead cost savings. Secondly, the company will reorganize its six service providers to a group of three who will look after the needs of separate corporate segments. Thirdly, the company is also trying to improve its distribution strategies to improve its level of profit in the coming years. The new distribution strategy will have three new business units that will concentrate on three different segments of customers namely Vodafone Retail, Vodafone Connect and Vodafone Corporate (PR Newswire, 2013). These actions can be considered as extremely crucial for improving the corporate image of the company. In today’s world the customers are becoming extremely demanding as has been seen. The presence of other multinationals like Google and Apple are hugely threatening the market supremacy of Vodafone as wireless services are hugely commodized. The only way by which the company can retain its position in the market is by maintaining the loyalty of customers. As the markets are maturing so it is important to serve the existing customers in a better manner to ensure the growth of the company. Recommendations Analyzing the present situation of the company there are few recommendations that can work for the company: Firstly, the takeover of Verizon so that it is left with no other option but to accept the Vodafone standards can be a good move for solving its American Crisis. Secondly, the situation in France remains tough for the company as the talks with Vivendi to sell SFR to Vodafone remains unsettled. The only way for the company is to either exit from the present deal or enter into a new deal with another operator. This can provide the company with the majority of share holding in the market. Thirdly, in order to establish a strong foothold in Japan the company must be able to out compete the technological knowhow of Japanese telecommunication. This can be possible by entering into a Joint Venture with a local partner. Once the company gains a strong understanding of the local markets it can create its separate identity. Fourthly, the company can enter into exclusive contracts with companies like Apple to supply mobile communications to its handsets. That can improve the prospects for the company in the face of fierce competition. Reference List Anwar, S. T., 2003. Vodafone and the Wireless Industry. Journal of Business and International Marketing, 18(3). pp. 270-278. Bartlett, C. A. and Ghosal, S., 2000. Going Global: Lessions from late movers. Harvard Business Review, 79(2). pp. 132-135. Bolden, R., Gosling, J., Marturano, A. and Dennison, P., 2003. A review of leadership theory and competency frameworks. [pdf] Centre For Leadership Studies. Available at: < http://www2.fcsh.unl.pt/docentes/luisrodrigues/textos/Lideran%C3%A7a.pdf> [Accessed 25 January 2014]. 5 Buckley, P. J. and Casson, M. C., 1998. Analyzing the Foreign Market Entry Strategies: Extending the Internationalization Approach. Journal of International Business Studies, 29(3). pp. 539-545. Cuplan, R., 2002. Global Business Alliances: Theory and practice. New York: Greenwood Publishing Group. 4 Fennis, B. M. and Stroebe, W., 2010. The psychology of advertising. Florida: Taylor & Francis. Hitt, M., Ireland, R. D. and Hoskisson, R., 2008. Strategic management: Competitiveness and globalization, concepts. Connecticut: Cengage Learning. 6 Janczak, S., 2005. The Strategic Decision-Making Process in Organizations. Problems and Perspectives in Management, 3 (2005), pp. 58-70. McDonald, F. and Burton, F., 2002. International business. Connecticut: Cengage Learning EMEA. mite need Porter, M. E., 1998. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Simon and Schuster. PR Newswire, 2013. New Corporate Identity And Uk Distribution Strategy For Vodafone Group. [online] Available at: [Accessed 25 January 2014]. 7 Saplitsa, I., 2008. Business Analysis and Valuation of Vodafone Group. [pdf] NHH. Available at: [Accessed 25 January 2014]. 1 The Times Newspaper Limited, 2009. Using technology to improve economies. MBA Publishing Ltd. Available at: [Accessed 25 January 2014]. Trading Economics, 2014. United Kingdom Households Disposable Income. [online] Available at: < http://www.tradingeconomics.com/united-kingdom/disposable-personal-income> 3 [Accessed 25 January 2014]. Vodafone Group Plc, 2012. Creating a more valuable Vodafone. Vodafone Group Plc. 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