International Business Assignment - 1 Vodafone: Inorganic Growth

Submitted by- Syndicate 4

Anubhav Mishra (11020541084) Sudhir Bairwa (11020541128) Tushar Jagtap (11020541136) Priti Vaidya (11020541137) Sameer Gavali (11020541119)

Vodafone
History Vodafone was born in United Kingdom, was then known as Racal Telecom Limited. Racal Electronics, under the guidance of Gerald Whent won the license for private sector UK cellular network in 1982. The company was based in Newbury with less than 50 employees. It was the first cellular network of UK and was highly successful. By the end of 1985, the company had added over 19000 subscribers to its account. Further, the company was known as the largest telecom service provider in the world. After the phenomenal rise of the company, it was demerged from Racal Electronics Group. It was then renamed as Vodafone which stood for VOice DAta FONE. In order to cater to the varied needs of the target market segment, Vodafone came up with different business propositions. In order to develop and market the voicemail services Vodafone Recall was created. In the similar fashion, Vodapage was created to cater to the paging service industry. In the early 1991, Vodafone was awarded the British Standard Award for Quality. Until 1992, Vodafone had enjoyed duopoly in the telecom sector in UK with Cellnet. In order to promote development in the sector, regulators did not impose any price controls. As a result, Vodafone generated high operating profits. Later, with increase in competition, Vodafone moved out of UK in 1990s. Vodafone in 2000, invested in wireless internet through GPRS since it thought it would be the next revolution in the world. Vodafone invested $17 billion on licenses for radio spectrum and tried to build an efficient 3G network. Acquisition: Growth Strategy The growth strategy adopted by Vodafone to generate a global footprint was none other than Mergers and Acquisitions. By 1993, it had expanded its interests beyond UK in countries like Australia, Greece, Hong Kong, Malta and Scandinavia. Vodafone also bought stakes in countries like Africa, Uganda, Germany and Fiji. Vodafones aim was to increase its presence in other countries. US was a large market that Vodafone wanted to capture. Hence, the Worlds largest takeover was made between San Francisco based AirTouch Communications and Vodafone. Vodafone paid a huge sum of $66.5 billion. The company was of the opinion that the deal was worth the sum paid since US was a lucrative market. After the deal, there was a substantial rise of about 8.5 million in the subscriber base of the companys portfolio. The company was renamed as Vodafone AirTouch which in a few months became the worlds largest cellular phone company with combined sales of over $10 billion. In 1999, Vodafone signed an

agreement with Bell Atlantic (now known as Verizon) and the two telecom giants of US joined hands. They were marketed under single brand, Verizon Wireless. Vodafone was not always successful in all its endeavors. The company was betrayed in one case when it tried to make an aggressive takeover for the German group, Mannesmann. The two companies had plans to merge and integrate their business activities when Mannesmann suddenly announced its plan to acquire Orange PLC. Mannesmann became a tough competitor for Vodafone in its home land. But Vodafone was so looking forward for its shares in the other company that it decided to trade 43.7 Vodafone AirTouch shares for one Mannesmann share. The rate was later revised to 53.7 when Mannesmann management changed its strategy and decided to go for a friendly takeover. Vodafone had an excellent opportunity to encash. The company was able to provide services to its international roamers where it had a competitive edge over other service providers. After the acquisitions, Vodafone decided to divest from all the non-core activities it was earlier engaged with. Vodafone bought stake in Japan telecom because of the extensive use of 3G in Japan. In India, Vodafone acquired a 67% stake in Hutchison Essar for $10.7 billion in 2007. The company was rebranded as 'Vodafone Essar'. Vodafone because of its ability of acquisition left its rivals behind and became a large global player. PEST Analysis PEST analysis throws light on some key issues related to entities in the business world. It deals with the political, economical, social and technological aspects of strategic management. On analyzing Vodafone in India, some key issues came forward. Political Vodafone entered India in 2007 by its merger with Hutch. The company has now been accused of using malpractices for gaining additional spectrum rights for 2G from the government in 2007. The Mumbai office of the company has been raided and a case has been filed against the company. Vodafone has entered into a 3G roaming pact with Bharti Airtel and Idea Cellular. Since the service providers have not been successful in acquiring pan India licenses, they have signed a pact among themselves to share the available spectrum. But this being a violation of the governments law, has posed a threat to the application of the pact. As a counter response to the government, the company has threatened to return the 3G spectrum allocated to it.

Economical Vodafone group entered India by merging with Hutchinson Essar, which costed the company about $10.5 billion. Vodafone paid Rs.11617.86 million (the second highest amount in the auctions) for spectrum in 10 circles. Vodafone Group in March 2011 bought out its partner Essar from its Indian mobile phone business. It paid $5.46 billion to take Essar out of its 33% stake in the Indian subsidiary. It left Vodafone owning 74% of the Indian business. Vodafone had outstanding bills of BSNL to its account. There was a delay in the payment of interconnectivity charges to be paid to BSNL in October 2011. Vodafone had received prior notice and time regarding the dues. Failing to pay the dues in time, BSNL had cut services to and from the company.

Social Vodafone fulfils its corporate social responsibility mainly in three key areas: responsibility of customers; reuse and recycling of mobile phones; and climate change. Empowering Customers: the focus has been on the elderly and the disabled. These people have a wish for mobile technology but may not always find generic models adequate from usability and design sense; Hence, Vodafone came up with Vodafone Simply. The Green Agenda: The aim of this activity is to reduce the carbon emissions by 30% in 2010.

Technological Vodafone Essar in India provides 2.75G services based on 900 MHz and 1800 MHz digital GSM technology. It provides both prepaid and postpaid services. It has recently started providing 3G services in India. Vodafone Essar outsources it telecom infrastructure business to Ortus Infratel. Vodafone is feared to lose its GPRS/ Prepaid Blackberry Subscribers due to its negligence and false or wrongful prepaid balance reduction act due to a recent software upgrade or bug in their IT system. Without any Data Usage, Vodafones new system deducted 10p to Rs.1. in about 5 to 20 times a day. Along with this, the call centre for complaints refused the consumers claim for wrongful deduction.

SWOT ANALYSIS

STRENGTHS Diversified Geographical Portfolio Most Trusted Service Brand Presence in emerging markets Good network infrastructure Second largest operator in the world High Brand Equity Global Expertise OPPORTUNITIES Emerging markets Growing need for data businesses VAS as a means to increase ARPU Growing enterprise solution market

WEAKNESSES Not so strong in the US 80% operation only in Europe Poor network coverage in rural areas High customer churn High number of mergers & acquisitions Huge stake in non performing companies THREATS Cut throat competition Price wars MNP Euro zone debt crisis

Vodafone due to its extensive mergers & acquisitions is a diversified brand with operations in almost all the developed and developing nations of the world. The brand has gained a lot of trust over years. It is the second largest operator in the world. The company has gained a global expertise in telecom which it can use very efficiently and effectively in any new market. The other side of the coin is not so bright. The brand is well established in Europe but in the US, which is a very huge potential market for Vodafone it is still struggling. In India, the network coverage is poor. 3G experience is not as it was promised. Vodafone has paid heavily to buy stake in companies which are under performing for quite a time now. There is a huge untapped rural market in emerging nations. More people are using Value Added Services which gives an opportunity to Vodafone to encash. The opportunities are surrounded by risks. There is cut throat competition all over the world. This gives rise to malpractices in the industry posing a threat to the company. Price war is one of the ultimate reasons for falling ARPUs. Mobile Number Portability allows subscribers to change service providers with fewer efforts. Euro zone crisis and the global slowdown have impacted Vodafone badly because the company gets its major revenues from Europe.

ANSOFF MATRIX Existing Product Existing Market Market Penetration Expanding networks Tailored tariffs and pricing solutions Enhancing Customer Care Increase retail presence Accelerating the adoption of affordable data Market Development Mergers & acquisitions New Product Product Development Branded low cost handsets Customized web browser Vodafone WebBox Vodafone USB Dongle Mobile applications

New Market

Diversification m-Pesa mWomen mHealth solutions Farmers club

Market Penetration In order to penetrate in the existing market, Vodafone improved its network coverage, customer care and came up with its better pricing facilities. For improving the relation with the customers, Vodafone opened up retail stores in cities to provide better products and services. Product Development Vodafone came up with new handsets meant for people above the age of 35, which were easy to use and affordable. To increase its visibility, Vodafone launched a customized web browser. In order to provide data services, Vodafone Web Box and Dongles were introduced. Market Development Vodafone has global presence with its network in 30 countries and partner network in over 40 additional countries. It has followed the strategy of M&A for growth. Diversification Vodafone has entered related diversification. Vodafone M-Pesa provides access to banking and money transfer services via mobile. Customers can send money safely, affordably and faster than existing alternative methods. Mobile technology offers significant opportunities to improve the accessibility, efficiency and effectiveness of

health services from reduced administration costs to text message systems to prevent missed appointments, remind patients to take medication or ask clinic staff to check medical supplies. Vodafone mWomen aims to bring 150 million more mobile connections to women in emerging markets over the next three years to support and empower them in their endeavors. The Vodafone Farmers Club provides customers with weather alerts and local market price information. Applications: Business Planning: Vodafones sustainability agenda is being driven from the top of the company. Its strategy is to continue to develop a firm foundation of corporate responsibility by engaging with stakeholders to understand the material issues we must address, and responding appropriately. They need to maintain and improve our robust framework of policies and management systems which are essential to mitigate risks particularly in their newer emerging markets where management of sustainability issues is less mature. As the global population grows and sustainability challenges intensify, they are also accelerating the development of products and services that can make a positive contribution to sustainable development. They aim to identify and focus on the areas where our interventions can address sustainability challenges most effectively at the same time as offering an attractive commercial return for their shareholders. Their research has demonstrated the impact that simply providing people with access to telecommunications can make on social and economic development. Vodafone can make an even bigger contribution to development and to environmental sustainability by enabling a low-carbon society through bespoke products and services that meet specific needs in local markets. Recognising these opportunities, they have set up dedicated business functions focused on health solutions, low carbon enabling machine-to-machine services, and mobile money transfer services. Strategy: Vodafones main strategy was establishing its network through acquisition. Here are some of the main strategies adopted by Vodafone : Cost Reduction. Revenue Simulation. Deliver total communication needs to the Customer. Deliver strong growth in emerging markets

Strategic Objectives: Be recognised as a communications company making one of the most significant contributions to achieving the Millennium Development Goals by March 2015 Offer an option facilitating hearing impaired, visually impaired and elderly customers access to telecommunications services in every market by March 2011 Be recognised as a green brand in at least 75% of the developed markets where we operate by March 2012 Contribute to building capacity to manage electronic waste in three emerging markets by March 2012 Provide 10 million carbon-reducing M2M connections by March 2013 Reduce CO2 emissions by 50% against the 2006/07 baseline by March 2020 Develop joint CO2 reduction strategies with suppliers accounting for 50% of procurement spend by March 2012 Ensure that suppliers accounting for 50% of procurement spend have adopted the GeSI common industry approach by March 2012.

Competitive Analysis: During their competitor analysis, they determined what would drive Vodafone's competitors, as shown by their future objectives, what their competitor's are doing and can do, as evidenced by their current strategies, what the competitor's believe about the industry, as shown by their assumptions, and what the capabilities of competitors are, as shown by their strengths and weaknesses. 1.) Future objectives (a) How do our goals compare with our competitor's goals? Vodafone, unlike its competitors, focused exclusively on the mobile telephony market. Vodafone believed that fixed-line operations would be a distraction from being a pure wireless operator. This exclusive focus allowed Vodafone to offer sale and rental of mobile phone handsets, transmission of both mobile voice and data, and support a wide range of products and a variety of payment systems. Vodafone, unlike its competitors, had a focus strategy. (b) Where will emphasis be placed in the future? Chris Gent, CEO of Vodafone suggested that voice, data, and the Internet would all move to wireless because of its convenience, and placed additional rational for their exclusive focus on wireless because its return on investment was higher than operating fixed-line networks. Vodafone will continue to operate as a pure wireless company in the future. (c) What is the attitude toward risk? Vodafone has an aggressive mobile telephony strategy as evidenced by being the first digital service provider for mobile telephony. Additionally, they were heavily investing in international expansion through acquisitions and

alliances. Through their continued focus on wireless, Vodafone wanted to be the technological leader of the industry through the development of the first digital mobile wireless network in Europe and the development of new methods to send voice and data over the network. These examples show that Vodafone was not afraid of risk. 2.) Current Strategy (a) How are we currently competing? Vodafone faced its competitors through the use of a focused strategy. This strategy allowed Vodafone to produce services that service the entire mobile telephony segment. (b) Does this strategy support changes in the competitive structure? Vodafones strategy actively targeted all mobile telephone users in and around their market areas. Their strategy of producing services to the entire telephony segment had been maintained and updated with the changing technology in the mobile world. In order to maintain a sustainable competitive advantage Vodafone would have to continuously update their services with the ever changing technology that exists in the mobile market. The mobile market had many different competitors each with their own competitive advantages, and specialties and each within their own market. In order to break out of their current market and expand into new markets they would have to take on the big fish in the smaller ponds, and constantly provide better service through improved technology and higher quality. The costs of imitation to these new technologies by the smaller companies will make it hard for them to imitate the service structure that Vodafone provides. The high quality of service will make it non-substitutable and become the new standard of what mobile customers expect from their service providers. Vodafones competitive strategy worked in their competitive structure but will need to be constantly updated to stay at the front of the technology curve and not fall behind to its competitors, who would also be attempting to constantly improve on their current services and technologies. Vodafone's exclusive mobile focus should be extended into a first-mover strategy. Marketing: Marketing strategy is a key part of overall corporate strategy, which is concerned with developing plans for finding out what customers want and then efficiently meeting their requirements. Vodafones strategy is customer focused and product led; the company is continually developing new products and services which utilize the latest technological advances. To keep its leading edge, Vodafone is continually looking to add value to the services it provides and to the packages it offers to customers. ZooZoo, the new brand ambassador of Vodafone, has created furors in the advertising industry. Vodafone has given birth to the Zoozoo: a special character created specifically to convey a value added service (VAS) offering in each of the newly released commercials. Vodafone has come with creative advertising campaign for its various plans. This strategy has captured the imagination of millions. The strategy is a buzz that lives up to the brand image of great creative's and clever marketing. In the first 10 days of IPL (Indian premier league) it has reached a cumulative of 89 million people. This is a wonderful

strategy adopted by Vodafone. This has helped the company to raise not only its profits through sales but has also tremendously increased its brand value. Zoozoos have become so popular that Vodafone has succeeded in its effort of viral or buzz marketing. Their add campaign has gained so much popularity all over the world. Zoozoos have been successful in giving Vodafone a makeover and establishing maximum brand presence. The charm of the Zoozoo was itself a great self-marketing strategy and they were instant success among masses. Within few days, Zoozooz created a huge audience for them, giving a boost to the Vodafone brand. Zoozoos dominating social networking sites. Created Strong Association. Wallpapers, ringtones, videos, contests. pictures, stories etc of Zoozoos. Videos had 3million hits in 3 weeks. Most watched video. Most watched brand in breaks. Vodafone becomes INDIAs 3rd biggest tele-com company after airtel and Reliance, within a very short period. Product Development: They drive innovation through new technologies and enhancements to existing capabilities. This year R&D expenditure amounted to 287 million. Services: Services to meet all their customers needs Voice They are one of the largest carriers of mobile voice traffic in the world providing domestic, international and roaming voice services to more than 370 million customers. Messaging Their networks sent and received over 292 billion text, picture, music and video messages this year. Data More than 75 million customers buy their mobile data services which allow access to the internet, email and applications on their phones, tablets, laptops and netbooks. Fixed line Over six million customers use their fixed broadband services in 13 markets to meet their total communications needs. In addition, through Gateway, they provide wholesale carrier services to more than 40 African countries. Other service revenue This includes business managed services, such as secure remote network access, and revenue from mobile virtual network operators generated from selling access to our network at the wholesale level.

Mobile services are a key driver of economic development in emerging markets by increasing access to communications and mobile-enabled services. Vodafone continued to market Vodafone-branded competitively priced handsets, selling 1.7 million devices during the year in their emerging markets. The uptake of Vodafone M-Pesa, which brings financial services to people without bank accounts, continued to grow, making an increasing contribution to economic development in communities that lack conventional banking services. It now has over 20 million customers globally (11 million in 2010), who transferred around US$500 million a month during the year (up from US$300 million a month in the previous financial year). They launched Vodafone MPesa in South Africa, Qatar and Fiji during the year, bringing the total to six markets, and began pilots in India with ICICI Bank and HDFC Bank. The Vodafone WebBox was launched in South Africa in February 2011 and other markets will follow in the 2012 financial year. The Vodafone DSL Router, now available in 11 markets, up from six markets the previous year, combines mobile and fixed broadband services. This means customers can connect immediately after purchase via the USB broadband modem and then later with fixed broadband when this has been provisioned. During the year vodafone have enriched this product in their largest fixed markets (Germany, Italy and Spain) through the integration of digital living network alliance (DLNA) capabilities which facilitates the sharing of digital media between different electronic devices. For example, a DLNA compliant TV can operate with a DLNA compliant PC to play music or videos, or display photos. Vodafone have been offering triple play services (fixed broadband, voice and TV) in Portugal since 2009. This year they increased their presence in the home TV market by launching services in Italy, Spain and Germany. Vodafone offer a range of total communications applications as well as services for enterprise and consumer customers. For example Vodafone Always Best Connected software enables customers to stay connected to the internet on the best available connection wherever they are by automatically managing the switching between connection types including mobile broadband, Wi-Fi and LAN. Vodafone PC Backup is an online back-up and restore service that enables users to remotely store data securely and automatically via their internet connection. Machine-to-machine (M2M) M2M connections allow devices to communicate with one another via built-in mobile SIM cards. This allows vodafone to offer services such as fleet tracking and asset management, remote monitoring of, for example, vending machines, cash machines and building management, as well as security and surveillance. Vodafone are now serving around 5.3 million M2M connections around the world. Further information is contained in Focus on key areas of growth potential: Enterprise and Sustainable business. Third party billing Vodafone work with third party content and service providers to simplify their customers experience when they purchase applications and content by letting customers charge these services direct to their mobile account (charge to bill). Vodafone provide a single

technical interface to these providers to reach all their European customers and they plan to expand this reach to other parts of the world over the 2012 financial year. Financial services Vodafone M-Pesa is now live in six markets. Further information is contained in Focus on key areas of growth potential: Emerging markets . Near field communication (NFC) NFC allows communication between devices when they are touched together or brought within a few centimetres of each other. They aim to make mobile phones the preferred device for most personal transactions including payments, tickets, coupons, identification and the provision of information. They have been developing mobile NFC standards since 2006, have conducted trials in several markets and are now developing services and partnerships in preparation for commercial launch in key markets. Mobile advertising Vodafone have an established mobile advertising business in 18 countries with a wide range of capabilities. The fast adoption of smartphone devices is promoting mobile as an alternative channel to reach consumers and they are collaborating with other mobile network operators to make the most of the potential of mobile advertising. Porters 5 Forces Analysis:

1. Threat of New Entrants Low: Since Vodafone is a well established and well known company so its very difficult for any new entrant to compete with Vodafone. Because the mobile phone operators must compete for spectrum licenses, they can easily identify their competitors in the individual markets. The threat of new entrants bringing additional production capacity should be downplayed in this industry, because technology should assumed to be similar and thus new entrants do not necessarily bring additional production capacity, nor does their entry hold consumer cost down. The fixed-line operators do however present a risk to mobile phone operators, because they will certainly provide extra production capacity and lower the consumer costs as a result of this competition. 2. Industry Rivalry: It is high

3.) Buyers Power: Buying Power is high because: Lack of differentiation among service providers Cut throat competition Low switching Costs Number Portability will have negative impacts Businesses and consumers There was very little differentiation among mobile phone operators, and the switching costs are low. Accordingly, the industry firms battle for higher quality, greater levels of service, and lower prices than their competitors, and the consumers benefit. Mobile phone customers purchase the entire portion of the mobile phone operator's industry output. The sales of the mobile phone service account for the entire amount of the seller's annual revenues. The mobile phone customers could switch to another mobile phone operator at little, if any, cost. The mobile phone industry's products are undifferentiated and standardized. The buyers do not pose a credible threat of backward integration because of the high capital requirements. 4.) Suppliers Powers-High: Mobile phone manufacturers are the primary supplier to the mobile phone operator market. These manufacturers were dominated by Ericsson, Nokia, and Motorola with 61 percent of the market. Because the mobile phone manufacturing brands were more important to consumers than the mobile

phone operators themselves, bargaining power of suppliers was high. Industry firms are not a significant customer for the supplier group because the suppliers operate in far more international locations and markets than the mobile phone operators. Suppliers goods are critical to buyers' marketplace success. Mobile phone manufacturers could integrate forward into the industry. These suppliers were credible, having substantial resource and provide a highly differentiated product. 5.) Threat Of Substitutes-Low: Substitute products for the mobile phone industry could be considered fixed-line phone products if convergence is not considered to exist. This substitute products price is not lower, and its quality and performance capabilities are negligible compared to mobile phone products. Switching costs are low but the advantage goes to the mobile phone industry because there is a greater chance of switching to mobile phones from fixed-line phones than the other way around.

RECOMMENDATIONS: Tapping rural markets Preparing for the introduction of 4G Increase GPRS subscriber base-marketing, cross-selling etc Diversifying in Broadband services, DTH, voice over internet protocol(voip) Provide services to allot IMEI number to unregistered mobile phones Concentrate more on value added services Launch location based services

REFERENCES: http://www.cybozone.com/vcu/Vodafone_Air_Touch_The_Acquisition_of_Mannesmann.pdf www.mumfosh.com/...files/Global%20Wireless%20Industry.pdf www.vodafone.com www.wikipedia.org