Vodafone: Case Study

Table of Contents

2.0 Vodafone’s Capabilities and Core Competencies in 2005. 4

5.0 Vodafone’s International Strategy. 16

1.0Introduction

Each asset both real and financial has some aspects of value. The main issue relating to the successive investment and management of such assets is the knowledge of not only the value, but the cause of that value. Vodafone communications group, which is famous in both developing and existing markets, is the focus of this paper. In particular, the paper assesses the company’s performance and capabilities during 2005. We also analyze the groups’ management strategy that made them to succeed and enhance the company’s value at this time.

Vodafone Group is a multinational corporation involved in mobile telephony that is based on Britain. It is the second largest mobile telecommunications organization in the world after China Mobile, as measured by its returns and subscribers. Presently, the company owns and manages networks in more than 26 states across the world. It has also collaborated with similar entities in more than 40 other nations. The company is primarily listed in London Stock Exchange and is a constituent of FTSE 100 Index . It has also a secondary listing in on NASDAQ.

Vodafone, out of many is a case that is concerned on the growth of Vodafone Corporation from its inception back in 1980 to becoming a leader in UK and global service industry. It was by 2006 the leading global competitor and had penetrated more than 26 countries. Some of the barriers, which the company encountered while entering the foreign markets, includes, high costs of infrastructure, national and international regulations. Consequently, Vodafone decided during its early phases to gain the mover benefits by expanding its worldwide presence through such aspects as joint ventures, organizational alliances, and establishing subsidiary companies in other nations mostly through acquisitions. When the company experienced a high rate of growth and development, the management in conjunction with investors saw the necessity of reappraising and consolidating its worldwide strategy.

2.0 Vodafone’s Capabilities and Core Competencies in 2005

Some of the Companies competencies in 2005 are that they had a ready international market as depicted by France, China, India, USA and other nations. It was also the predominant firm in Britain. In addition to these are the effective business strategies that were designed by the business management. Other competencies resulted from the acquisition of other mobile operators such as Oskar in the Czech Republic and MobiFon in Romania, and China Mobile which was very much significant in the expansion of the corporation’s market. In essence, its market at that time was not only large but also aware some. Taking an example of China Market, there were more than 150 million customers for Vodafone’s chief partner in the country, China Mobile. Out of this, Vodafone had only 3.27 stakes on that. This was strategic since though China was a very significant market, China Mobile was the fastest growing organization globally at that time. The company was connecting more than 3 million customers each month. Moreover, it held more than 70% of the market share in China alone.

The company was managing more than 67, 000 employees in its various departments worldwide. This means that it had an effective human resource management system to be able to handle such a huge number of employees as per that particular time. It is apparent that the company could not ignore the capabilities or lack of it, which its employees harbored. This is more particular in the sense that economic conditions of that time were not favorable either to growth in mobile service business. High company performance is ultimately related to how employees relate their work. Effective management of employees according to the value chain framework is the source of a firm’s competitive advantage. Employees would offer a sure competitive advantage especially to organizations that are progressive and savvy in their operations.

The management of Vodafone had understood that China Mobile could not become Vodafone China. This was due to the quasi-political situation and investment options experienced in Chinese market. Their investment in China mobile was also strategic because they wanted to learn from what other successful mobile entities were doing and have regular knowledge on the development in the mobile service industry. The company also designed effective exist strategies in all the foreign markets they ventured such that in case they failed to succeed, they could pull out without any hindrance. On the other hand, if particular market happened to do well, the company increased the investment in a gradual manner. In 2005, the company had a market foothold in some of the largest markets in the world.

It has been acknowledge that acquisitions and mergers may results into firms making substantial amount of profits especially to acquired firms. In essence, mergers and acquisitions create an economic value for the acquiring organization. This is due to the fact that the assets transferred from the acquired firms are put in the hands of the management team that handles them more efficiently and effectively. It is probable that it is these acquisitions and mergers, which generated greater value for Vodafone through retention of core resources which they generated and integrated into their business prospects. Other benefits that were derived from acquisitions included reduction of fixed costs through removal of duplicate operations and departments, thus lowering the company cost in relation to the similar revenue stream. This therefore, increased the revenue returns. We can also not forget the increment of the market share derived from acquisitions and mergers. Many of the companies acquired by Vodafone in different countries were actually its main rivals and could provide major competition if there were no acquisition. Acquisitions were therefore, the major channels that Vodafone employed to reduce competition in international markets. The transfer of resources from the different firms acquired by Vodafone boosted its asset base. This in turn created value through overcoming information asymmetry and combing its resources and those of the acquired firms.

The general environment where Vodafone was operating at that time also contributed to its success. This segment of the environment included the political/legal, demographic, social cultural, economic and global. The company’s core resources in terms of innovations, human resources and knowledge acquisition from other mobile operators also enabled them to go a step ahead of their main rivals. The resources were designed in such a way that other firms could not easily imitate or ape them. Further, the resources were deep rooted in the organization’s history by being focused in one business area, the business market rather than diversification into other business categories which would have loosened the organization’s basic focus and drive through main competencies. In the course of its development, the company focused itself on its primary activity when conditions did not allow for diversification. However, the company opted to diversify itself in an attempt to satisfy their clients. This was another area of its competency. Vodafone’s internal expansion was very much successful. Its technology was established based on the international standards. The international market strategy of this company produced a lower risk since they could pull out of those markets which were not very productive and increase their investment to markets that proved productive.

Vodafone was in 2005 considered the leading mobile phone operator globally. This means that it was more of a monopoly by nature. This a pointer that competition in wireless mobile was not very high as presently witnessed in this industry. The high competition among the firms results into extreme spending on marketing, and advertising. In the end, the leading companies make extreme profits as the new firms find many barriers on the way. The mutual interdependence, homogenous products, few large players and high rate of entry barriers by small firms are some of the characteristics of Monopolistic firms. This is typical of Vodafone at that time.

This aspect made the company to generate a huge amount of revenue as the gross margins. The cash flow accrued from its operations prior to capital expenditure and other costs, its gross profit amounted to £12.3 billion equivalent to US$22.7 billion at the end of the financial year. On the other hand, the free cash flow reached a whooping US$15.7 billion. At this time, Vodafone was the only company that was regularly paying dividends to its investors. The management announced a total of £3 billion repurchase programs.

Other effective strategies, which also made the company succeed included, a well thought investment options, which the management undertook in this time. Vodafone took its time prior to investing or disinvesting in a particular market. For instance, the company reinforced and committed itself in Japan market in 2005 when it added £2.6 billion in its investment. According to the chief executive officer of the company, Arum Sarin, the kind of transactions, which they undertook in Japan that, was in the form of the simplified structure pointed out their commitment to their market in Japan. In addition, it also enabled them to deliver the required changes in improving their positions. This was due to the fact that there was more potential in this Japanese market at this particular time and in future.

The partnership with Arco group of German was also influential in capturing the German market sphere. This served strategically to cannibalize the excess revenues of other emerging competitors in that country such as Deutsche Telekom. The entrance of Vodafone in France market was strategic because at that time, the mobile phone market in France was typically the largest in Europe with many customers requiring mobile services. In addition, there were only two mobile operators in the country, France Telecom’s Orange and Bouygues Telecom. These are the two mobile companies, which had the largest shares in France during 2005. This created an opportunity for Vodafone to reap from this market.

The management of Vodafone bought stakes in VenFin Vodacom Group. Together with Telcom, Vodafone had a 50% share in Vodacom. However, the company bought 15% of Telecom stakes making its stakes to reach 65% from 50%. Towards the end of 2005, Vodafone established a 3 G technology in its France market, New Zealand and Australia. Other acquisition that was meant to expand its market includes Bharti Televentures where it had 10% stake in the company. During this time, Bharti Televentures was the largest mobile phone network in India under the name of Airtel. This boosted Vodafone’s market share in India.

The company ventured into Romanians, where it put 99% of its stake in the local mobile industry. It went on to by the Oskar, the largest mobile operator in Czech Republic. The accruing of profit was very crucial for the organization. These profits were used to enhance the services to their customers while at the same time meeting the costs of its operations. It is noted that the company management did an extensive research and planning to ensure that the business activities generated high returns. The high returns were an indication to shareholder and other investors on the good performance of the firm. These made many investors to be interested in joining the firm. Maximization of profit is an element caused by different constraints of an organization. These constraints may relate to the technology, resources, government regulations, contractual obligations and so on. It is probable that in the attempt of maximizing returns, the management at Vodafone considered not only the short term and long term implications from their decisions but also external barriers that may have limited the capability of the firm in achieving its desired goals.

There is no doubt that consistent profits are very crucial for the expansion and decision-making process in any particular firm. As earlier indicated, before and after investing in a particular market, Vodafone had to assess the costs and the accrued revenues from their investments. As the chief executive officer pointed out, the firm could pull out of the market where there were no meaningful profits. Concerning its exit and entry decisions, Vodafone management could evaluate the market that made higher profits. Apparently, it could exist the market when its operations did not generate a substantial amount of money.

3.0Deployment of Core Competencies

A market structure, which is monopolistic in nature, allows the market franchise, which is offered by the government to such entities. In franchising, an organization is offered to produce particular goods and or services in a given area. In exchange, the government imposes certain regulations in the organization’s operations. The regulations pertains to the pricing, behaviors conduct and other operations policies. This will also allow the government to obtain higher tariffs and taxes since the organization is the sole manipulator in the market. In addition, the government can impose the use of subsidiaries by the consumers to enhance their operations.

With regard to the welfare impact of pure monopoly, it can be argued that a monopolistic market structure was advantageous to Vodafone. The company did not have many competitors in the industry and therefore, was able to control its pricing strategy, therefore, maximizing the profits. Additionally, they were able to regulate their output and services and make it flexible so as to meet different client’s expectations. Since the monopolistic is the principal supplier of products in the market, Vodafone had to face the market demand curve. In other words, the prices determined by the company had to be at per to what the consumers expect. The law of demands dictates that the market demand slopes downwards. This is because consumers expect prices of the product produced by the monopolistic firm to be decreasing. Monopolistic firms determine prices after careful market research and a calculation of marginal revenue as well as cost of production. Vodafone employed the huge profits accumulated from its services and products to invest with new products services so that they can also be of benefit to consumers.

Based on the particular situation at that time, there was an estimation of a long- run competitive advantage for Vodafone. At that time there had not been a major mobile wireless entrant other than Vodafone in this industry. In fact, the company had a market capitalization of US$165.7 billion all over the world. This also means that it had a large customer pool. The partnership with other international companies also worked to its advantage. The extensive market at that time was one of the basic indicators that the company was doing fine against other firms of similar nature. A market value can be defined as the value of the company, which investors put on the whole organization. The stock market value is the indicator of the company’s worth in the perspective of the investors. Having a large market value potential may put an organization at a better competitive position. In 2005, Vodafone had the largest market value around the world. This definitely translates that it was the most valuable organization at that time.

A combination of a large market value and high price of stock can assist an organization to develop in different ways. As noted in the case of Vodafone, they can be used as a source of cheap currency that can be used to acquire other firms. Acquisitions do indeed assist companies to improve the business quickly as it employs the large market share as its big edge. Apparently, a large market potential can be quite beneficial in the case when a firm needed to raise extra money through its stock.

Acquisition of other operators in the industry such as Mannesmann D2 also gave it an edge in this service industry. Acquisition of other similar business entities is one way, which businesses use in order to expand. Acquisitions of other similar firms may lead to a swift growth. They also assist the company in gaining experience, assets, and goodwill of other business entities. With the increment of human resources and inventory, the organizational output may increase and its returns improve. As in the case of China, Vodafone assessed its weaknesses and sought to strengthen its business in the country through China Mobile. In addition to these is the advantage of culture combination, an acquisition assist in combining cultures of various entities from different backgrounds. Much business culture may take a long time to be established. There may be a problem for an organization in adjusting to the prevalent culture in a new business environment.

Vodafone’s pool of human resources is definitely the core of effective workforce management at the firm. This is a different case with many entities operating under the perception that by paying low compensation to workers, they are keeping company expenses down. Many of such organization think that employees are simply happy from the fact that they have their jobs. Still, they think that they are not so conscious concerning their pay. What they ultimately ignore is the fact that poorly paid employees are not contented to stay in the company and be productive and are always looking for an exit option given the slightest opportunity. It would better for organizations to employ few people, which it could be able to sustain and maintain through better pay than having a large number with lower payments.

4.0Vodafone’s Acquisition Strategy

Concerning its pre acquisition strategy, the group’s director on business integration claimed that the period had seen a tremendous change in the telecommunication industry. It was also a period where many firms in this industry sought to join others or invited others to do business with them. As he noted, much of the strategy employed had been mobile centric, employing a combination of market strategies. In its acquisition strategies, Vodafone targeted small players such as Air touch, Mannesmann, and others. The benefits accrued from these acquisitions were numerous. It has been acknowledged that these acquisitions generated cost efficient in terms of economies of scale for the company. In addition, they improved on the company’s revenue through gaining in the market share and also generating the tax gains. As noted elsewhere in the paper, increased value generation, increase in cost efficiency and increase in the market share are some of the advantages of acquisition. This points the reason why Vodafone realized an enormous amount of revenue after these acquisitions and the expansion of its market share at that time. Vodafone typically decided to hunt the small mobile operators in order to generate more value than their competitors in their operations do do. In buying smaller entities, the company management probably expected to generate higher shareholder value than if the two similar but separate entities worked independently.

Before entering new markets, the management at Vodafone opted to acquire local entities in the various states in an attempt to make their presence felt in the new market. This is the reason why it acquired entities in China, France, India and many parts of Europe. This strategy was also beneficial as the company was still unveiling new technology and services. In addition to these benefits is the shielding of the company from bad economic times. If a particular firm found it difficult to operate in a particular market environment and does not have the capabilities of going through the tough times, it may opt for an acquisition of the existing firms in that environment. On the other hand, if an organization with large market share opts to acquire the weak one, then the result would be a more competitive and cost effective organization. Apparently, the joint company accumulates expanded market shares and therefore, a larger market potential.

The use of shares instead of hard cash in its acquisitions was also a significant factor for its success. This in particular is the reason why the companies came out of the telecomm predicament and continue on its development despite similar entities finding a hard time to come out. It should be noted that most of the company’s competitors such as France telecom, Deutsche Telekom, MM02, KPN, and so on were still preoccupied on how to come out of recession. When the shares could no long accommodate the acquisitions and the company was prompted to use hard cash if it had to go with the acquisitions, the company slowed down the acquisition projects and put their focus on internal development for two years. This was because it did not want to compromise its good credit ratings under all circumstances, because it would jeopardize its performance.

Its successful acquisition strategy was also based on the concept that the company did not concentrate in one line of the business, rather, other than the phone business, it also went into the area of fixed line operations as realized in the acquisition of Mannesmann, and Japan Telecomm. This led to its diversification of services and products. Diversification is beneficial since it can maximize opportunity and minimize risks. Vodafone’s Diversification strategy was very influential to its development and success. Diversification was also influential in expanding the growth opportunities through expanding the business operations while at the same time leveraging administrative roles as well as the core facilities.

Prior to its diversification, Vodafone had been solely concentrating on mobile telephony. In most cases, it began to look for potential buyers for other businesses. According to the company’s director on business integration, the company had been mostly focused itself in mobile telephony in 1990s. Even in 2005, the company still put its focus in mobile telephony and this is the time when it saw the need to diversify.

Concerning its acquisition strategy, the company used first of all to identify the leading or second leading player in the national markets. Apparently, it was careful not to associate itself with a mobile operator that was related to the monopoly of the particular state. This is the reason why it did not enter into contact with mobile firms such as T- mobible, which was a department of Deutsche Telekom, Orange. It is probable that Vodafone did not want to be associated with the bureaucracy of those organizations, putting their focus on the entrepreneurially minded entities such as Mannesmann’s D2. In Vodafone’s perspective, Mannesmann’s D2 was a very good company that could challenge other competitors in the local market.

When the company retreated on its plans to acquire US operator, AT and T mobile wireless, it made a sensation story in the local media. Cingular Wireless had offered a total of $41 billion for the acquisition and it is the reason why Vodafone retreated. Not that the company did not have such kind of money and could have even afforded even a higher bid, however, the management had calculated that anything that could go beyond $38 billion could not be of value to the business. It is the offer of Vodafone, which made its rival Cingular to raise its bid from $30 billion to $41 billion, this means that it was not financially prepared and it could take many years before it actually came to terms with the meager.

In this respect, the company always looked forward for cheaper means of making its presence felt in the world economies with a big growth potential. The management, led by the company’s director of business integration were well aware that pursuing growth at all costs were not of interest to the company’s shareholders. It is true that growth in terms of expansion, earnings and revenue is among the priorities considered by many firms, however, such growth priorities may not always be to the best interest to shareholders. Organizations may be tempted to invest large big money in other companies, which may be immature or even risky in an attempt to grow fast. Before any acquisition venture, it is crucial that the management and shareholders should ensure that their ambitions are not only sustainable but realistic too.

In essence, first growth may appear a good thing to organizations but what these firms do not understand is that growing too fast may put them into trouble. These is due to the sense that they may not be able to maintain the pace of such growth, employ and train qualified staff, or fill expected orders. The rush to improve returns may put companies in difficult situations in their business endeavors. Fast startups may hold money for many years before they actually generate the profits anticipated. If the company’s expenditure on growth becomes higher than its revenue, then it may be forced to look for more capital elsewhere. If such capital may not be availed, it may breed trouble to both the shareholders and the company itself. This is what the management saw before undertaking the acquisition strategies.

5.0 Vodafone’s International Strategy

Vodafone’s international strategy can be said to be global. This is because it can be felt in many countries not only in UK, or Europe but in many parts of the world. The company is felt in China, India, France and America. This presence in various parts of the world enables its clients to use the services in many parts of the world. The company has also established strategic alliances even in those countries, which it may not be felt physically in order to ensure that all their customers are, not deprived their core services. The company’s global image and popularity has been influential in building its brand around the world. Vodafone’s world strategy is further depicted by the signing of various roaming agreements with international mobile companies such as Telecom, Finland, Air touch communications and others. These roaming agreements made it easy for the company’s customers to use their phones even on other networks while still billed by the Vodafone. This ensured that all Vodafone’s customers in all parts of the world were connected with the company.

According to the group’s director of business integration, all operations of the company are meant to broaden the company’s desire of establish mobile connections for individuals, groups, businesses and communities all over the world. This is further backed by the company’s vision of being a world leader in mobile communications. The company’s commitment lies in its value which states that all which the company does is driven by its passion for its clients, the people and the world around them. The company was at that time being felt in more than 26 nations and partnership with other entities in more than 14 countries. To add the significance of its global presence was its massive number of its global customers, 151.8 million registered clients and another 398.5 million venture clients. This ultimately put the company in a global position. Another factor that raised the company to a global position was its market timeless and favorable cost. Further, the company employs different business systems ranging from network services, marketing strategies, sales, billing and customer care. The company also collaborates with other operators in achieving a global recognition.

According to the company’s management, the company was in a moment of integration and that is the reason why it was interested in acquisition in different parts of the world. The business integration was not only based on technology, but human resources and customers. This was a significant part in branding of the company in the global perspective. In spite of this restructuring program, the company still saw the need of encouraging local initiatives while pursuing global strategies.

6.0 Conclusion

Each asset both real and financial has value. The main issue relating to the successive investment and management of such assets is the knowledge of not only the value, but the cause of that value. Vodafone communications, which is famous in both developing and existing markets, was the focus of this paper. In particular, the paper assessed the company’s performance and capabilities during 2005. We also analyzed the groups’ management strategy that made them to succeed and enhance the company’s value at this particular time.

The company’s strategic alliances and acquisitions are another factor which propelled it to another level. These were meant to expand the business and offer customized services to their clients. The telecommunication market is still potential for Vodafone owing to the increased population and sophisticated consumers. If Vodafone continues with its careful market strategies and segmentation, then this will be the source of its great opportunity. Other strategies that are poised to increase the company’s performance in terms of revenue includes but not limited to designing of simple and more cheaper phones, simplifying the pricing for different customers and coming up with sophisticated technologies especially for younger population. The increasing market is also another opportunity for Vodafone to diversify its services from mobile services to fixed line operations so as to enjoy the benefits of its high investment in technologies.

Other effective strategies for the company that made them to succeed included a well thought investment options which the management undertook in this time. Vodafone took its time prior to investing or disinvesting in a particular market. For instance, the company reinforced and committed itself in Japan market in 2005 when it added £2.6 billion in its investment. According to the chief executive officer of the company, Arun Sarin, the kind of transactions, which they undertook in Japan that, was in the form of the simplified structure pointed out their commitment to their market in Japan. In addition, it also enabled them to deliver the required changes in improving their positions.

As noted in the case study, the high number of buyers for the company ultimately marked the growth of this mobile firm. In summary, the strengths and opportunities of the company would be summarized as the strong leadership and management position, the strength of its global brand, high level of geographical reach, market expansions , technological growth as in 3G systems , acquisitions alliances and collaborations with other business entities. The brand recognition and image is noted as strength of the company. During 2005, Vodafone was already being felt globally. Another aspect of its success also lied on its effective marketing and careful planned operations strategies. Vodafone’s presence in global perspective has greatly enhanced its image.

Reference

Banzhaf, J., and Ashok, S (2009). Case 22: Vodafone: Out of Many, One from

Ireland, In Duane, R; Hoskisson, R E. & Hitt, M.A. Hitt., The management of strategy: concepts & cases.pp.263-279, Mason, Ohio: South-Western Cengage

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