Vodafone's Indonesian Expansion - Essay Example

Table of Contents Page 1 Abstract 3 2 Introduction 4 3 Indonesia – a general background 4 4 Strategic Planning 5 4.1 SWOT Analysis 6 4.1 Five Force Analysis 7 4.3 PEST Analysis 8 5 Conclusions 9 6 Bibliography 10 1. Abstract Vodafone’s entry into the Indonesian mobile market has been prepared in a strategic report for the management. The country’s socio-political-economic background has been analysed with the help of strategic tools like SWOT, Five Force and PEST. The general consensus is in favour of the venture but caution is advised in proceeding on two front’s viz. regulatory authority and security of company assets due to some extent of anti-west feelings. 2 Introduction Vodafone is the largest mobile phone operator in the world with the widest coverage. In terms of numbers of subscribers it is a close second to China Telecom. While its main base is Europe where it dominates in every country, it has spread its wings to all continents. In Australia it controls nearly 18% of the market. It has also chosen Australia as a hub to expand into the Asia Pacific market. Vodafone Australia operates a GSM digital mobile network that covers 93 per cent of the Australian population and its mobile penetration in Australia itself is over 90% and due to its saturation (Vodafone). It is looking towards several Asian countries for expanding its mobile footprint. The management has asked for a strategic report on its plans to move into the Indonesian market and this report is specific to this plan. 3 Indonesia – a general background Indonesia is the worlds 16th largest country consists of over 17000 island out of which only about 6000 are inhabited. It has a predominantly Muslim population and is divided into 33 provinces. It is governed by a democratic government lead by an elected President who appoints his own cabinet who need not be members of the Indonesian Peoples Consultative Assembly (MPR), which is the law making body. The MPR consists of two houses the People’s Representative Council (DPR) and the Regional Representative Council (DPD). The DPR is the law making body. The republic of Indonesia largely functions like the government of US with the President holding all executive powers. The 33 provinces have the right to make their own laws within the constitution and since 2001 have been granted greater autonomy in their affairs. Five of them have special rights for such enacting their own independent laws. They are Aceh, Jakarta, Yogyakarta, Papua, and West Papua. Aceh province has promulgated the Islamic Shariah Law. Jakarta is the capital and the five largest cities are Jakarta, Surabaya, Bandung, Medan and Semarang. Indonesia’s GDP for 2007 is UD$ 408 Billion and the estimated per capita income is UD$ 1,812. It has a large service sector comprising about 45% of the economy. The industrial sector is a close second at about 45%. The rest is agricultural. Employment is however highest in the agricultural sector at about 44% of the total 95 million working population. The total population is about 206 million. The services sector employs 36% and the industries employ only about 19% population. Among the major industries are petroleum and natural gas, textiles, apparel and mining. The main agricultural products are palm oil, rice, tea, coffee, and rubber. The biggest trading partners is Japan which imports almost 23% of Indonesia’s exports followed by US at about 14%, China and Singapore at about 9%each. It has a trade surplus in exports. Its main export is crude oil and minerals and imports are machinery, chemical fuel, and foodstuff. 4 Strategic Planning “Strategic management is an ongoing process that assesses the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.” (Lamb, 1984:ix) New Management Strategies need to be adopted to meet these challenges in order to convert opportunities into profitable business. In order to make these assessments the following analytical modes will assist in formulating guidelines for the management. 4.1 SWOT Analysis SWOT is a very simple but effective method of analysing the current status of a business that gives the management a clear depiction of its position in the market place. SWOT stands for Strengths, Weaknesses, Opportunities and Threats (Dibbs, Sally.& Simkins, Lyndon.1996). Based on information available earlier, the SWOT analysis of Travelodge appears as follows. Strengths 1 Its parent company is a worldwide player in its field 2 It has a wide range of products and services to offer 3 It is forefront in customer services 4 It has a great brand name 5 It is always careful to follow local regulatory norms Weaknesses 1 Late entrant makes for stiff competition 2 Australia seen as not-so-friendly country due to political alignments Opportunities 1 It can use its Brand awareness to expand easily 2 Improve Customer relations by stressing image as an International rather than an Australian Company 3 Offer innovative products like IPTV 4 Younger population is more pro-west than the older generation Threats 1 Political manoeuvring at local and international level A study of the SWOT highlights the fact that Vodafone really faces only one major threat and that is to its properties in Indonesia. The political scenario is not very favourable for Australian companies due to the current wave of anti-Australian feelings, especially in some provinces. Any event can lead to mob fury and what will happen after the event is left to imagination. There is a great opportunity as the country is vast but the company needs to move with caution. The company should also target the younger generation who are eager to adopt western ways. Segmentation is very important and will indeed prove profitable. 4.2 Force Five Analysis Another method of finding the competitiveness of Vodafone is by using the Five Force Analysis devised by Porter, often called the Porter’s five force analysis. This will help the management to devise appropriate marketing strategy to take care of vital issues. Porter divides the competitive environment into five forces of ‘powers’, these are Power of buyers, Power of suppliers, Threat of new entrants, Threat of substitutes, Intensity of rivalry between existing firms. (Porter, M. E.) In this case targeting the younger urban population will be fruitful. The non-urban population is more traditionalists and is prone to anti-Australian feelings which will be detrimental to growth in times of trouble. As long as Vodafone is in compliance with the regulatory authorities it has little to fear. It can face the competition with the new range of innovative products that it can offer to the market. Being a late entrant has its advantages in the sense that it enters a comparatively mature market that is appreciative and hungry for better products and services. 4.3 PEST Analysis PEST stands for Political, Economical, Social and Technological influences that affect a business. These are all external factors that are beyond the control of management but deeply affect its business strategies. Vodafone is not really troubled by PEST factors as at this point in time. Indonesia is a vast country of over 17000 islands divided into 33 provinces. It has a growing economy and is also a member of the economically vibrant ASEAN community with huge trade and commerce. Although Indonesia is ruled by a President and follows a largely US type of political system of a loose federation with central control, it still is troubled by some powerful provinces like Aceh. Five of its provinces enjoy special powers including having their own local and regional law. Here lies the fragmentation that can sometimes run deep and wide. For example Aceh has adopted the Islamic shariah law that can run contrary to the law of the land and can create obstacles in normal life. Vodafone has to be able to circumvent the situations when they turn nasty for other reasons. Indonesia is on a very sound economic footing being a prominent member of the ASEAN group of countries. It is rich in resources and has a growing industrial base. It is also inviting international joint ventures and collaborations and that forms a very good foundation for communication facilities in which Vodafone expansion fits in very well. The country is also going for liberalization of the economy under its present political rulers and barring a few hiccups, the process is smooth and fast paced. The local population is large and expanding at a good rate and will need industrialization for its absorption. The birth rate is high but not alarming like India or China. Employment opportunities are not enough and there is further scope of economic expansion and enough labour force available to support it. On the Social front the country is predominantly Muslim with a large minority of Chinese and Indians. It is also a cultural melting post where Indian culture dominates. This is good for Vodafone as it moderates the outlook and makes it more tolerant. However this is so in the towns and urban areas. Rural areas are prone to be more traditionalists. Still there is no cause for alarm. Technology has been well embraced by the Indonesians, both the government and the general population are eager to upgrade themselves and align with world standards. This is a great opportunity which the company can cash in and there is eagerness to accept and adopt new technology and its features in all industry sectors. On the whole the Pest analysis is favourable for Vodafone. 5 Conclusions Strategic Management is the process of the management that gives direction to the company about its objectives and the details of how these are intended to be achieved. There are four characteristics of Strategic Management. “Consistency: The strategy must not present mutually inconsistent goals and policies. Consonance: The strategy must represent an adaptive response to the environment and the critical changes occurring within it. Advantage: The strategy must provide for the creation and/or maintenance of a competitive advantage in the selected area of activity Feasibility: The strategy must neither overtax valuable resources nor create unresolvable sub problems”. (Rumelt) The success of the company lies in first appropriately designing the corporate strategy and then suitably implementing it. The tools available to the management in arriving at these decisions are through the use of SWOT, Five Forces and the PEST analysis. These offer the company a comprehensive insight of its own capabilities and the external factors that are likely to affect its decisions. For achieving best results the management needs to deliberate these analyses and conclude what is best for it. In the present analysis it has been seen that the management can confidently move into the Indonesian market but it must carefully consider the points highlighted in this report. 6 Bibliography Dibbs, Sally.& Simkins, Lyndon. The Market Segmentation Workbook,Thomson (London) 1996 Lamb, Robert, Boyden Competitive strategic management, Englewood Cliffs, NJ: Prentice-Hall, 1984 Porter, M.E. (1985) "Competitive Advantage", The Free Press, New York, 1985. Rumelt, Richard.Evaluating Business Strategy., in Readings in the Strategy Process, Ed. Henry Mintzberg, Prentice Hall, (New Jersey: 1998) Gary Hamel and C.K. Prahalad, .The Core Competence of the Corporation. Harvard Business Review, May-June, 1990. Vodafone available at: http://www.vodafone.com.au/UniversalFooter/AboutVodafoneAustralia/Company Information/CompanyOverview/index.htm Read More