Position of Vodafone in International Markets

Position of Vodafone in International Markets

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Introduction

The following report will analyse Vodafone and their current position in the international market. This report will cover the competitive strategy of Vodafone and their influence of products and services in relation to the demand of the market.
In today’s current economic state, the likelihood of a company entering into a global market is inevitable. Multinational corporations (MNCs) such as Vodafone are required to standardise their Research & Development activities throughout the world in order to penetrate the market. This is achieved by obtaining new technological opportunities, such as the most up-to-date phones, thus maintaining a competitive driver in the market.

Firstly, the report will introduce the company and give an outline of the current operations, with focus on their current position in the market, and discuss the main competition faced in a global market. Secondly, focus will lie on the external forces and their influences on the company’s operations, along with discussing the strategic opportunities in order to overcome any facing competition. Finally, the report will include recommendations for the future of Vodafone and how they can become a market leader.
Current position and strategy of Vodafone
What kind business is Vodafone?

Vodafone are a multinational cooperation who retail in telecommunication services. They were originally set up in the United Kingdom in 1984, and since then they have expanded globally and have been recognised as ‘the second largest telecommunications company in the world’ with revenue spanning over $46 billion (as of 2012).

Telecommunications gained mainstream attention in the early 90’s; however the initial key market was business men and women, who used their phones whilst being on the move and so allowing them to communicate with their companies with ease. Though in the modern era, telecommunication went through segmentation in the market trends, and now in this day and age it would be difficult to find someone who does not own some form of mobile technology. Many phone providers battle to provide the best service for their customers (Figure 1).



Figure 1: Vodafone’s market share compared to other leading brands. (Ofcom quarterly figures. Q3 2009)







Figure 2: Vodafone’s coverage across the world.
Competitive advantages of Vodafone.

In order to identify Vodafone’s competitive advantage, first it is necessary to analyse the strengths and weaknesses within their current SWOT analysis. (Figure 2)

Strengths Weaknesses
• Diversification of products has increased the potential numbers of new consumers
• A vast global presence and powerful brand image.
• According to a Mintel report released in 2010, Vodafone is recognised as one of the most trusted service, with their excellent signal strength and efficient services (Market Line, 2012, p.

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5)
• Vodafone has a well-defined cost reductions structure for operational costs, owing to a cost cutting initiative, effective outsourcing and managing the acquisition of goods.
• An established presence in mature and emerging markets such as Africa and Asia, which have expanded its market share and revenues • Vodafone current revenue is dependent on the European market, which showed decline due to the financial crisis in Europe (MarketLine, 2012, p. 6)
• Vodafone have limited operations in rural areas
• European market is stronger than the US, so this would imply that there is a smaller profit margin gained from internationalising their services.


Figure 3: The strengths and weaknesses of Vodafone. (Source: Vodafone.co.uk/ marketline.com)

The strengths of Vodafone are providing a highly diversified service with an excellent network infrastructure, whilst providing innovative services including 3G network and Wi-Fi systems. As a telecommunications industry, the first step is to distinguish what exactly are you selling to the customers? For Vodafone, they wish to provide a service, where the customer will choose a monthly tariff to get access to their network, or also known as 'air time', which is defined as a certain amount of minutes, texts or data for this price every month.

Vodafone will then look different tariffs that can be offered for different phones, and also for different customers and their needs. As well as catering for the customer, there is a need to make sure that they are superior to the hyper competitive market they face, as there is a copious amount of companies wanting to provide the best service. Customers are attracted to trust worthy providers, who offer a service where you ‘get what you pay for’. Vodafone would have to fit their prices within the hierarchy of social class, and their objectives are usually set from a middle class, as they have a lager disposable income.

As seen in (figure 1), Vodafone are the second largest company in telecommunications within the global market, though their services are more directed towards those with a higher economic growth. Their services are recognised for outstanding satisfaction and affordable range, but also aid in allowing the increase of their overall profit margin. As time moves forward Vodafone are still as competitive as they have ever been, and exceed their revenue expectations by a slight amount calculated in their yearly gross profit margins.






Figure 4: Yearly Revue of Vodafone. Calculated in GDP. Chart Source: DividendMonk.com)












Figure 5: Margin Development with Equity turnover, net profit margin and ROE of Vodafone. Source http://www.advfn.com (vodafone financial documents)

Though Vodafone have steady revenue, the telecommunications market is vastly growing and expanding, which consequently becomes a highly competitive market with extremely high penetration rates, specifically in the European markets. In today’s European market, the extensive technological advances have increased the level of competiveness since mobile technology became the norm for everyday usage. (Eliassen, 2007).

Vodafone implemented a differentiation strategy in order to provide a service for people with a vast amount of needs, including different allowances of minutes, texting and data for a different monthly tariff. This service is provided, along with a choice of phone requested by the customer, suited to their needs. For example, someone who requires a phone purely for calls and texts may take a cheap tariff and a simple phone that will suit them. However, there are many smartphones available for customers who require the use of data for internet browsing, social networking, games, and other multimedia applications, which are provided by software suppliers (i.e. Apple and Android) (IBM, 2013).




Sources of competitive advantage
To achieve an effective competitive advantage, a company must identify their abilities to differentiate themselves from other companies in the market. This must include their ability to satisfy customer expectations and defeat any competition by operating at a lower cost, while still allowing for sufficient profit outcomes.







Figure 6: Sustainable competitive advantage. (Source: Biz development, 2008)
Strategy is defined as a direction or scope over a long period of time (source: Johnson and Scholes). Vodafone’s current strategy is a mix of expanding their geographic capabilities, to entice new consumers, maintain their current consumers and increase their technology capabilities by increasing their availability and network connections. Vodafone also integrate with companies, specifically in the UK organisations such as Phones4u and The Carphone1 Warehouse, who provide the products, but also give the customer a choice of which network provider they wish to choose. This is normally decided by examining which plan fits the needs of the customer’s usage, and helps to create value to their consumers by providing more than just a phone service.



For a standard mobile operator today, the key position is to own the mobile delivery channel as well as develop relationships with customers. It similarly can limit the strategic thinking and innovation. Mobile operators don’t want to end up on the same level as Internet service providers (ISPs), where they may be unable to appropriate the value under the construction of Porter’s value chain (Figure 8). Only a small percentage of ISPs are profitable today, a situation defined by the fact that there are - low barriers to entry, high costs when acquiring customers, low switching costs related to the value chain, competition is based on pricing wars, and in most cases ISP’s have no affiliation with their consumers. To benefit, operators must maintain their current position yet strive for innovation in the kind of products and services that will create value for customers and thus lead to continued revenue growth. (Published in European Management Journal Vol. 24, Issue 2, 2006 P 3)






Figure 8: Porter’s value chain (Michael porter, cf. Lynch 2003)
Intensity of competition

As the technological advances have been a phenomenon in the modern day, it would be hard to find someone who does not own some form of mobile phone to connect with their peers. With the expansion of technology, the level of competition in the market has increased, and has a vital contribution to the strategies that Vodafone use to indentify the levels of rivalry they face. This can be understood by applying Porter’s 5 forces and generic strategies.









Figure 9: Porter’s 5 forces model.
Porters five forces framework is used to evaluate the strengths and weaknesses of each force within the model, and apply them to the level of competiveness. (Kotler and Armstrong, 2010). For Vodafone, the power of buyers is relatively low, due to the complexity of the mobile market, structure and the general service provided. However, the power of suppliers is medium, as Vodafone have several suppliers, though they tend to have a long term relationship. Vodafone’s official supplier are Huawi ((Huawei Official Website, 2012), but due to the demand driven market, there could be a lot of suppliers which may substitute Huawei in the future. Given the economic stability, the risk of new entrants dominating the UK market is relatively low, this is due to the complexity and the high degree of investments required entering the market.
This theory is also supported by the intense competition in UK mobile market, it is clear that the leaders in the market are O2 and Vodafone (Independent, 2012). In the modern day, threat of substitutes is high. This is due to a rapid improvement on the way communication is made. For example, many alternatives are available which are cheaper, including a free video messaging service, or Skype to visually communicate to peers and co-workers. Also Facebook has reached worldwide acclaim and many people prefer to message their friends over this service than send a text because people are more likely to check their Facebook account than their mobile phone. (Lane, 2010, and Tsai, Lo and Chou, 2009). Though Vodafone is one of the mobile leaders in the UK, some mobile companies tend to form alliances to merge their expertise together to create a synergy to dominate the market. For example, T – Mobile and Orange merging to create EE and thus increasing the level of competition could have an impact Vodafone’s profitability. (BBC news). The switching costs are generally low, especially on a Pay as You Go plan, whereas the switching costs are more increased on a Pay Monthly contract. It is further supported by the increased loyalty towards a particular mobile operator when subscribing to a Pay Monthly contract. The exit barriers are usually high, due to the complexity of the mobile industry.




Figure 10: Ofcom’s mobile operator’s complaints data (PC Advisor | 23 March 12)
In terms of reliability, data collected from Ofcom showed that Vodafone received the second least complaints from the biggest providers. (Figure 10). Ofcom's data shows that Orange got the most complaints in the last quarter of 2011, overtaking Three. Orange received a mass increase in complaints, from 0.07 in the third quarter to 0.17 in 2011. Ofcom said that the complaints were due to their announcement to increase monthly plan prices. Calculated in the last 15 months, O2 are the mobile operator who have been faced with the least amount of complaints, with their figures estimating at 0.02 complaints per 1,000 customers, which is a notable achievement in terms of customer service and reliability. It is said that "Ofcom publishes complaints data for telecoms providers with a market share of over 4 per cent. The number of complaints is published as a proportion of each provider’s customer base”. This enables consumers to compare providers from the data that is provided, as consumers are more likely to be loyal when the company is reliable and the likelihood of complaints are low. (PC Advisor | 23 March 12)








Figure 11. Comparison of mobile telephone multinational retail revenues, by network. Source, Ofcom.
From (Figure 11) we can compare the success rate of each company. From all the following data presented, it is clear that O2 are the main competition Vodafone face for the position of leading mobile network provider. As O2 recently integrated with Tesco, this gave them more of an advantage and flexibility in the market. O2 also have greater advantage by diversifying their service, to more than just a mobile contract, such as to those who regularly shop at Tesco, as their consumers get the benefit of gaining additional services, such as club card vouchers, or discounts from their ‘Priorities’ app/website.
Integration and diversification

Vodafone UK is one of the 16 Vodafone groups operating worldwide, with a massive 347 retail stores. In an interview with the BBC, the CEO of Britain’s Vodafone Group plc explained his perceptions of the company’s prospects at defeating credit crunch issues affecting businesses in Europe and the US. With help from the CEO, Vodafone wish to successfully reposition the company to explore global forces in the upcoming years. The intention to globalise their services, including expanding to growing economies such as India and China is crucial gaining a larger market, as the US and Western Europe have reached a saturation point for mobile ownership.

This can be characterised as a textbook example of a diversification strategy in terms of market segments (offered products and services) and geographical areas to expand their range to the technological advantages currently being innovated worldwide. To the typical consumer “the mobile is not just a device to make calls or send texts. It's also a satellite navigation system, it's the internet. It is a digital music player and it's a wallet.” (BBC News). Vodafone wish to provide this service and diversity of products to all their customers around the world.
Key Influences on Vodafone’s strategic decisions

Even with the economy declining, the mobile communication industry has gone through rapid change. Driven by new technological advances, such as the introduction of ‘Smart phones’ and the capabilities of exploring the internet through a handheld device, this industry has thrived. The likelihood of this complexity in devices accelerating further in the future it certain, however it is uncertain what opportunities lie for the consumers and the economic growth in both developing and developed markets, even with mobile communication being the norm in the economy for social and work functions.
Though we can gather some of the data required for strategic analysis from Porter’s 5 forces (figure 9), to gain a greater insight into the social and environmental implications for Vodafone it is better to use a PEST analysis, which could help gather additional information vital for the strategic approaches. (Figure 12) (Lancaster et al, 2002).




Political
- The EU Roaming Regulation plan to decrease the level of charges made by mobile phone usages abroad by 70% (Preissl et al, 2009)
- Increasing level of consumer rights enforced by the European union
- Any government activity is considered a political factor
Economical
- Growth of GDP
- Level of inflation rates in the market
- The global financial crisis (credit crunch)
- General external economic changes
Social
- Changing work patterns
- Consumers reliant in communication technology
- Aging population
Technological
- The nature of the telecommunications industry
- Technological innovation in the market
- Alternative communication methods (Skype, Facebook, Msn. Etc.)
Figure 12: PEST analysis for Vodafone. Soruce: Preissl, B, Curwen, P & Haucap, J, 2009, Telecommunication Markets: Drivers and Impediments, Springer
Strategic reactions of Vodafone to a changing environment: Global vs. Local approach

By Vodafone expanding their services outside of the UK, to reach worldwide acclaim, this has given them the opportunity to provide service to a diverse number of cultures, but view the world as a single market. Vodafone, as a market, use suitability targets in order to approach the global enterprise. This however is faced with increase pressure to satisfy the global challenges, from developed to non-developed countries, as well as seeking the benefits whilst reducing costs, reaching new markets and gaining a real competitive edge within the economies of scale. (Source: Vodafone enterprise).


Vodafone are already recognised for their sponsorships of worldwide brands, for example their sponsorship with Formula 1 and specifically Ferrari. Although in 2013, it was announced that Vodafone were quitting sponsorship, and their departure has led to great pressure for McLaren as without Vodafone, they cannot afford to slip further behind as they try to lure another major sponsor to the team. Any deal is likely to be performance-related, and they have shown a decrease in winning in the past years. (Via. The Guardian). Vodafone were also known for sponsoring the massive English team Manchester United; however they have since been replaced.
Recommendations for the future strategy of Vodafone

Opportunities Threats
- A partnership between O2 and Vodafone may influence the enhancement of the certain services (i.e. 4G services). This, in turn, would merge two market leaders into becoming a bigger organisation. (synergy) (BBC News, 2012).

- Further aggressive expansion to the untapped market. (Core strategy of Vodafone, Strategic Direction, 2002).

- Constant increase in popularity of smartphones and tablets may also increase the revenue of Vodafone (KPMG, 2012). Additionally, there is an opportunity to develop new services which would align with the technological advances - Inability to satisfy the consumer needs within the market. This is more associated with those of a lower disposable income (I.e. Students) which therefore could decrease the market potential

- Though as seen in (figure 9) the mobile communications industry has low threat of new entrants, however this could change with future strategic partnerships accruing.

- In UK, Vodafone have an inability to meet consumer needs on the basis of service quality and price ratio. (mainly to students)

Figure 13: Opportunity and Threats of Vodafone. Source: Kotler, 2009 and Vodafone UK



Diversification is essential; however this could be a difficult stage of the strategy. By broadening operations in both developed and emerging markets, there can be risk that follows. Vodafone keep a close watch on their investments, and the Board reviews these investments regularly and they will remain focused upon the most efficient way of maintaining maximum shareholder value. (Vodafone.com).
Recommendations
- Continue to perform gradual acquisitions throughout the world and accessing the growing emerging country markets, such as in China or India.
- Keep up with market trends, i.e. technology innovations.
- Diversify products and services along with these trends.
- Buy rights to developing technology.
- Gain greater market share in the US and the UK.












Figure 14: Total mobile communications market: strategic recommendations. Source: Frost & Sullivan





Works Cited

http://www.theguardian.com/sport/2013/mar/14/vodafone-f1-exit-mclaren-pressure
http://www.pwc.co.uk/economic-services/issues/uk-economic-industry-predictions-technology-media-and-telecommunications.jhtml
http://www.pwc.co.uk/economic-services/economics-telecommunications.jhtml
http://enterprise.vodafone.com/why-global-enterprise/global-expertise/sustainability/
http://www.vodafone.co.uk/cs/groups/configfiles/documents/contentdocuments/cr_report_2005_06.pdf
http://news.bbc.co.uk/1/hi/business/7341286.stm
http://connectedresearch.wordpress.com/2010/03/02/mobile-market-share-the-state-of-competition/
http://www.mamunahmed.com/07/vodafone-roaming-offer-strategy-becoming-market-leader/
http://www.advfn.com/exchanges/NASDAQ/VOD/financials
ohttp://www.pcadvisor.co.uk/news/broadband/3346662/talktalk-orange-top-ofcom-complaints-list/
http://www-935.ibm.com/services/us/gbs/bus/html/gbs-telcos-socialnetworking.html

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