UK-Based Vodafone Group - Essay Example

UK based Vodafone group plc is the largest mobile telecommunication company in the world by turnover and has a market value of 86 billion (Nov 2006) It's portfolio of global services is available in 59 countries. Equity interests in 27 countries and partner networks in 33 countries.(www.wikipedia.org)Following it's success in Europe, Vodafone forayed into Japan by making one of the biggest investment, a $13.8 billion acquisition of mobile operator J-phone.(business week online, march 2006).However in the recent years the British giant had been losing ground in Japan. Japan is one of the most dynamic, competitive and mature cellular markets in the world, which is also nearing saturation. On 17 March 2006, the company announced an agreement to sell all its interests to Softbank for 8.9 billion-therefore Vodafone is now Softbank Mobile. In this essay, I have attempted to examine the Japanese cellular market and have tried to analyze Vodafone's performance in that market. Industry insight-the Japanese cellular market. Japan is the most competitive and developed market for cellular accessories and services. According to the '2006 Telecom, Mobile and Broadband market overview', Asia has been ranked as the largest regional internet market.(www.researchandmarkets.com).It is noteworthy that among the Asian nations, Japan is the regional as well as the global telecommunications leader. Empirical evidence asserts that internet penetration in the nation is high and it boasts of one of the most sophisticated broadband infrastructures in the world. Furthermore, it has been established that the mobile device is the most common and preferred medium for internet access.DoCoMo, the Japanese cellular giant is at the cutting edge and far ahead of America in offering total interoperability inside Japan. Another feature of this market is that the mobile content industry is very promising. Mobile phone content includes ringtones, standby displays, movies, games,weather reports and news. In the global scenario, Japan occupies a strategic position in the mobile content market, even though Europe is a developed market by all standards. The telecom landscape in Japan is dominated by NTT's DoCoMo and KDDI.Other operators include Vodafone and Tu-Ka.Some companies are working towards entering the 3G market, this is likely to intensify competiton.According to Japan's Telecommunications Carriers Association, the number of mobile phone subscribers reached 100.22 million as of 31st January 2007.(www.itfacts.biz).Therefore, Japan is at the forefront of the development of a ubiquitous network society. Besides this, the opportunities for 3G services are abundant. The key providers for this service are KDDI with 19.8 million 3G subscribers trailed by DoCoMo with a 17.6 million-subscriber base. Vodafone claimed 4.8% of the 3G market as of 2005 end. Vodafone's strategic management performance: Business week online (March 2006) had reported, 'Vodafone may beat a hasty retreat from Japan. Five disappointing years after plunging into the Japanese market with a $13.8 billion acquisition of mobile operator J-phone, Vodafone is in takeover talks with Softbank, the Tokyo based internet, broadband and telecom service provider.' The article further points out that, 'over the last few years the British giant has been losing ground. Its market share hovers around 16.7%.Vodafone's troubles in Japan were mostly self-inflicted. It had slashed the budget for network upgrades, delayed the rollout of 3G handsets and tried to make do with global handsets of other markets rather than customizing its lineup for the finicky tech savvy Japanese consumers' Therefore the biggest cellular corporation in the world was struggling in the Japanese market. Following is an examination of some of the managerial policies, which could have hindered its success in Japan. Underperformance of the company could also be because of cultural conflicts. David Jones, CEO of the company tried to introduce the European working standards. Clashes between members affected the company's performance.(Parker 2005) The Japanese consumers are tech savvy and tend to be more specific with their gadget requirements than their European or Asian counterparts. Vodafone failed to please the Japanese consumer with the devices it offered. The phones were relatively bulky. Instead of customizing the devices for the Japanese customer, the same models were rolled out for 3G that were globally used. The customers were lured away by the rivals, as DoCoMo and KDDI offered sleek devices. The quality of the services offered was inferior compared to those offered by the competitors. Inadequate cellular network, especially new 3G stations, problems including delays in receiving text messages had affected the reliability and quality of services offered. In terms of tariff plans offered, the rivals enjoyed an advantage. Vodafone's tariff plans were relatively expensive. Therefore Vodafone had a prepaid customer churn rate of 23% and a contact churn rate of 35%(Coventry 2005) Vodafone had started losing it's customers to its competitors. In January 2005, it lost 58,700 customers. (www.wikipedia.org) PEST ANALYSIS. A company's performance and decisions are also determined by the environment in which it functions. It is imperative to be aware of the external variables so that the business strategies can be suitably formulated. A PEST analysis is an analysis of the external macro environment that affects all the companies operating in the industry. Some of the components of a PEST analysis are- political stability, legal framework, taxation policies, type of economic system and government intervention in addition to technological developments and the rate of technological diffusion. Political environment. The economic history of Japan suggests that its economic development is predominantly a result of private entrepreneurship; however, the Government has directly contributed to the economic miracle. In the present scenario, the Government policies are favorable for the business environment. The services sector (including banking,telecommunications,insurance,retailing)account for nearly three-fourth of the total economic output).The Japanese Ministry of International Affairs and Telecommunications had issued a draft regulation enabling the government to prioritize new entrants in the mobile market while allocating frequency spectrum for 3G services. Liberal taxation and licensing policies (for the issuances of 3G and i-mode licenses affect business favorably. Economic environment. The Japanese economy is the third largest in terms of purchasing power parity and second largest in terms of market exchange rate. Though the economy's performance was sluggish in the 90's it is recovering progressively. Socio-cultural factors Socio cultural factors pertain to the values, mores and customs of a given society. They help in ascertaining consumers preferences and behaviour.Mobile service providers in Japan have largely targeted the youth (proportion of teenagers using mobile services add).However the over forty segment is relatively untapped, thus offers potential. Technological factors. An average Japanese consumer is more tech savvy than his European or Asian counterpart. Consumers prefer multi feature devices and varied content and services at affordable prices. It is the leading market for 3G CDMA ahead of South Korea and United States. Nearly 75% of the mobile subscribers will be 3G enabled by the end of March 2007. (www.analytica1st.com) PC and fixed line penetration in the country is low, which explains the extensive use of mobile internet.80% of the mobile internet market is concentrated in Japan.KDDI is the biggest provider of 3G services followed by DoCoMo,Vodafone has a very small share of the service market. Resources and competences. PEST analysis highlights the existing opportunities and threats for Vodafone's strategic development.Sucessful corporate performance also depends upon the company's strategic capability, which in turn is determined by the resources available to the company and its strengths and competencies. The following is an analysis of Vodafone's strategic capability. Resource Audit: This section underlines the various resources that were available to the company, intrinsic strength of the resource base, nature of the resources and the degree of their uniqueness, ie; the extent to which they were difficult to duplicate. Physical Resources Within the Japanese telecommunication industry, Vodafone ranked highest in terms of available physical resources. Human Resources The company experienced troubles under CEO, David Jones in terms of work culture disparities. It roped in Shiro Tsuda, senior executive DoCoMo, which ignited controversies. In Japan, this is considered unethical, as corporate loyalty and long-term job commitments are highly valued. (Parker 2005).However under the leadership of Shiro Tsuda cultural conflicts had been ironed out. Diversity of Services Vodafone was third largest mobile service provider in Japan, providing a range of services to customers including 3G services. However, this competency did not differentiate it from its competitors as both DoCoMo and KDDI offer various services Acquisition Capability Vodafone Group is known to acquire foreign companies which enable it's entry into new markets easily. The company acquired J-phone to penetrate into the Japanese market. Further, it tied up with Japan Telecom to foray into the market for wireless services. Consequently, it enjoyed several benefits of corporate bonding with J-phone and Japan Telecom. SWOT analysis SWOT analysis is a planning tool used to evaluate the strengths, weaknesses, opportunities and threats for a venture. It involves and examination of the internal and external marketing environment of the organization. Strengths Global Brand Strength. Vodafone is the British cellular giant with a strong presence in global markets while it continues to foray into emerging markets. Vodafone as a global brand builds upon the strengths of its operating company's brands, which also enables the company to embark on high profile marketing campaigns. It can also cash in on its global brand image. Strong Corporate Bonding Vodafone's entry strategy was the acquisition of J-phone and it subsequently collaborated with Japan Telecom for extending wireless services. Because of such high profile acquisitions and collaborations, it possessed a lot of leverage. Wide Customer base Vodafone's subscriber base accounted for 16.7% of the total market share. It is the third largest service provider after DoCoMo and KDDI.DoCoMo dominates the telecom landscape while KDDI has the greatest share in the 3G services segment. Weakness Liabilities The company's indebtedness had an adverse affect on the stakeholders of the company. For instance, debt had impaired the company's ability to make investments and obtain additional financing for working capital, capital expenditures; acquisitions etc.It also increased the company's vulnerability to interest rate fluctuations. Cultural Conflicts. The company's underperformance can also be attributed to the work culture disparities.Mangerial policies should be Japan centric. David Jones, CEO Vodafone, tried to practice the European centric policies, which resulted in clashes among the members and diminished the efficiency of the company. Customer Churn Rate Customer churn rate posed a serious difficulty for Vodafone. It had a prepaid churn rate of 23% and a contract churn rate of 35%(Coventry 2005).High customer churn rates translated into higher costs, lower revenues. Lack of diversification Vodafone was heavily reliant on date service revenue growth. The penetrating rate for Vodafone became stagnant, it even started losing it's customers to competitors. In January 2005, Vodafone lost 58,700 customers. Industry experts had speculated that since the market is reaching saturation the company cannot expect to increase revenue within the existing business sphere. Opportunities. Extensive Mobile Internet usage PC and fixed line penetration in Japan is low, mostly people prefer to access internet through their mobile devices.80% of the mobile internet market is concentrated in Japan. Therefore, opportunities galore for mobile internet service providers. Favorable government policies The Japanese telecommunication industry makes a significant contribution to the GDP.The Government is encouraging towards the mobile companies to explore new segments and introduce innovative services. The government has introduced liberal policies for the issuance of i-mode and 3G licences.Though it was already a 3G-service provider, this was a favorable condition to offer i-mode services. However, it's 3G market share was modest 4.8%Furthermore, the government follows a liberal taxation policy for encouraging existing a new players in the market to increase competition. Threats DoCoMo and KDDI DoCoMo and KDDI collectively dominate the telecom landscape in Japan.DoCoMo is the market leader.KDDI offers advanced 3G services with blanket coverage, installation of 3G stations and multi feature sleek devices. Whereas Vodafone was struggling in the 3G service segment. Customers were lured away by the better quality services and attractive plans offered by the rivals. New Entrants in the market. The Japanese government has launched initiatives to create more competition in the telecom market, which is currently dominated by three players. The economy has opened up with multi sectoral deregulation and active promotion of foreign direct investment. Fluctuations in the exchange rates Fluctuating foreign exchange rates and interest rates could have adversely affect Vodafone's earnings. References www.itfacts.biz www.wikipedia.org/wiki/vodafone_japan www.analytica1st.com www.businessweek.com www.researchandmarkets.com Parker (2005) 'Vodafone Japan shift leadership; as UK head succeeds him; beating 'Language barrier"-Wall Street Journal, Feb8, pgA 10. Telecomworldwire (2005), 'Wholesale mobile services to be offered by Vodafone Japan'-Telecomworldwire, Coventry, July12. Read More