Being a large company, Vodafone has the ability to employ highly specialist workers (such as marketing managers) to fulfill the needs of the company. By employing the right people for the right jobs may reduce overall costs, as employing the right people will lead to correct decisions being made without wasting time which will improve the quality of Vodafone services.
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Financial economies made by borrowing money at lower rates of interest than smaller firms.
As Vodafone is one of the market leaders in providing a communication service, it has no real difficulty in raising money. Banks are aware of Vodafone’s position in the market therefore borrowing loans is no cause of stress.
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Commercial economies obtaining considerable benefits in the commercial world.
Vodafone gain benefits such as increased sales via advertising. Increased sales can cover the expenses of advertising which helps Vodafone keep its top position in the market.
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Research and development economies made when developing new and better products.
By dedicating capital to market research and developing new and better services Vodafone can gain a great deal. For example, introducing new mobile tariffs will interest and gain new customers.
External Economies of Scale
These are economies made outside the firm as a result of its location and occur when:
- A local skilled labour force is available.
- Specialist local back-up forms can supply parts or services.
- An area has a good transport network.
- An area has an excellent reputation for producing a particular good. For example, Sheffield is associated with steel.
Internal Diseconomies of Scale
- These occur when the firm has become too large and inefficient. As the firm increases production, eventually average costs begin to rise because:
- The disadvantages of the division of labour take effect
- Management becomes out of touch with the shop floor and some machinery becomes over-manned.
- Decisions are not taken quickly and there is too much form filling.
- Lack of communication in a large firm means than management tasks sometimes get done twice.
- Poor labour relations may develop in large companies.
External Diseconomies of Scale
- These occur when too many firms have located in one area. Unit costs begin to rise because:
- Local labour becomes scarce and firms now have to offer higher wages to attract new workers.
- Land and factories become scarce and rents begin to rise.
- Local roads become congested and so transport costs begin to rise.
How does Vodafone benefit from Economies of Scale?
Vodafone will benefit from trading in Europe in the following ways:
Internal:
- Managerial – Specialists can be employed from all over Europe. Employees from different parts of Europe can come together and share different ideas to improve the quality of service.
- Financial – As the business expands, it has more assets therefore borrowing will be cheaper.
- Technical – Mass production techniques can be used.
External:
The Four Freedoms
The Four Freedoms
It is not only companies that benefit from the European Single Market; there is something for everyone. Today, EU citizens may live and work anywhere in the Union. No one may be discriminated against on the basis of nationality. Pension and health insurance contributions paid in another country are not lost. Mutual recognition of qualifications means that EU citizens may pursue the career they have trained for. Travelling and shopping have also become easier. People may purchase goods for private consumption anywhere in the Union and bring them back to their home countries without having to pay any additional tax.
The European Single Market means the establishment of the four basic freedoms: the free movement of goods, persons, services and capital.
The free movement of goods
Without doubt, the greatest success of the single market programme was the removal of barriers to the free movement of goods. Companies like Vodafone may offer their goods and services anywhere in the European Union without impediment. They benefit from larger markets and can cut production costs. Consumers may purchase goods in another Member State and transport them back to their home countries without having to pay additional taxes or deal with customs formalities. It no longer matters whether you buy your microwave in Paris, Frankfurt or London.
The free movement of goods represented a major challenge. Although customs duties were abolished in 1968, differing national norms and regulations (known as "non-tariff barriers") continued to obstruct the movement of goods. Standard rules on the quality and nature of many products needed to be formulated. Consumer protection was always the prime concern.
The free movement of persons
The free movement of persons means more than just unbounded travel; every EU citizen may live and work anywhere in the Union - on a self-employed basis or as an employee. In principle, Member States recognise professional qualifications from other EU countries, which ensures that people may pursue the career they have trained for. Trainees and students can improve their career possibilities by studying and gaining work experience abroad.
However, it has not yet proved possible to abolish all identity checks at internal frontiers. At some borders spot checks are still carried out on identity papers, reflecting the efforts being made by Member States to combat international organised crime.
Some Member States wished to make more rapid progress with regard to the abolition of identity checks at frontiers and therefore signed an agreement abolishing all identity checks at internal borders. Due to the Schengen agreement, there have since 1995 been no identity checks at borders between Belgium, France, Germany, Luxembourg, the Netherlands, Portugal and Spain. Other EU countries have also signed up to the agreement.
The free movement of capital
There are no obstacles to the free flow of capital within the EU. Exchange controls payment restrictions and limits on the import or export of foreign currencies all belong to another era.
European citizens and companies have free access to financial services in all Member States. There are now common provisions to combat tax evasion and money laundering.
The free movement of services
Architects, experts, banks, insurance companies, software companies and advertising companies can all offer their services anywhere within the internal frontiers of the EU. When a German living in Germany takes out an insurance policy with a British company, a French person opens an account at a Spanish bank or a Greek is advised by an Italian architect, they are all benefiting from the free movement of services. Everyone should have the chance to examine the range of services on offer throughout Europe and choose what suits them best.
Banks that are authorised to do business in one EU Member State may offer their services throughout the EU. They are subject to supervision only in their home country. This increases the variety of financial services available and, in some cases, makes them cheaper. Since the middle of 1994 there has also been a single market for insurance. Insurers can sell their policies throughout the EU and are supervised by the authorities in their home country. This stimulates competition and enables consumers to shop around for lower premiums. There are special rules governing life assurance, vehicle insurance and insurance against loss or damage.
Business Life Cycle
What causes business cycles has been one of the hottest and longest running theoretical debates in political economy. There is a fair amount of agreement on what at least some of the factors are that are associated with the alternation of economic booms and busts, but different schools of thought differ considerably in the relative weight and the causal priority they assign to these various factors. Some schools of thought emphasize uneven government economic policies as the principal cause of business cycles, while others see government economic policies as the key influences working to even out business cycles allegedly brought on by inherent features of the market economy.
Throughout the business cycle businesses will suffer from a range of benefits and pressures. These can have a major impact upon the operation of firms, and the awareness of these impacts can often dictate business policy.
The business cycle consists of four parts:
- Boom
- Recession
- Slump
- Recovery
Boom
A boom occurs when national output is rising strongly at a rate faster than the trend rate of growth (or long-term growth rate) of about 2.5% per year. In boom conditions, output and employment are both expanding and the level of aggregate demand for goods and services is very high. Typically, Vodafone would use this opportunity of a boom to raise their output and also widen their profit margins.
Characteristics of an economic boom:
- Strong and rising level of aggregate demand - often driven by fast growth of consumption
- Rising employment and real wages
- High demand for imported goods & services
- Government tax revenues will be rising quickly
- Company profits and investment increase
- Increased utilization rate of existing resources
- Danger of demand-pull and cost-push inflation if the economy overheats
Recession
A slowdown occurs when the rate of growth decelerates - but national output is still rising. If the economy continues to grow (although at a slower rate) without falling into outright recession, this is known as a soft-landing.
The Bank of England has been trying to engineer a soft-landing for Britain on at least two occasions since it was given independence in the setting of interest rates in May 1997. Interest rates rose from 6% to 7.5% between the summer of 1997 and the spring of 1998; and the Bank raised interest rates again during the latter half of 1999 in a bid to reduce the rate of growth of demand.
Slump
A slump means a fall in the level of real national output (i.e. a period when the rate of economic growth is negative). National output declines, leading to a contraction in employment, incomes and profits. At this point, Vodafone will cut back on production and services. It will layoff employees and invest less.
The last slump in Britain lasted from the summer of 1990 through to the autumn of 1992. When real GDP reaches a low point at the end of the recession, the economy has reached the trough - economic recovery is approaching.
An economic slump is a prolonged and deep recession leading to a significant fall in output and average living standards.
Characteristics of an economic slump:
- Declining aggregate demand for UK output
- Contracting employment / rising unemployment
- Sharp fall in business confidence & profits and a decrease in capital investment spending
- De-stocking and heavy price discounting
- Reduced inflationary pressure and falling demand for imports
- Increased government borrowing Lower interest rates from central bank
Recovery
A recovery occurs when real national output picks up from the trough reached at the low point of the recession. The pace of recovery depends in part on how quickly aggregate demand starts to rise after the economic downturn and, the extent to which producers raise output and rebuild their stock levels in anticipation of a rise in demand.
The last slump in the UK ended in the autumn of 1992. A much lower exchange rate following sterling's departure from the exchange rate mechanism, plus a sharp fall in interest rates provided a big stimulus to demand. National output grew by more than 3% in 1993 and over 4% in 1994 - a forceful rebound from the effects of the 1990-92 slump.
Figure 1 below shows the four stages of the business cycle.
Figure 1
Recovery
Boom/Peak
GDP
Slump
Recession
Time
Where countries are in the business cycle will depend on their GDP. Gross Domestic Product (GDP) is a measure of National Income. It is the total value of all goods and services produced over a given time period (usually a year) excluding net property income from abroad. It can be measured either as the total of income, expenditure or output. The chart below illustrates the GDP of some of the EU members:
Figure 2
As shown in figure 2 above, the GDP for all four members of the EU was greatest in 2001. All the countries have seen a drop in their GDP. The government in such conditions should intervene to level out the cycle by employing various methods of aggregate demand management - the manipulation of interest rates, taxation and public spending levels. So during a downturn the government should raise interest rates, pump money into the economy by raising public spending, and cut back taxes to boost total demand and hence economic growth. During a boom period, the reverse tactics should be employed to take out the heat.
What happens to a country when GDP falls?
Often the fall of GDP can lead to a negative affect. Figure 3 below shows what a fall in GDP can lead to:
Figure 3
Trading with a country in such conditions will not prove to be beneficial for Vodafone. Demand for the services will fall. This is because if people are unemployed they are less likely to spend money on luxuries. As Vodafone’s services are not a necessity like for example food, Vodafone would find themselves struggling to keep customers. It is therefore necessary for Vodafone to dedicate resources to market research in order to keep ahead of such problems. As can be seen in figure 2, France’s GDP has been falling consistently since 2000. Between 2001 and 2003 it has fallen by 1.9. This may be an indication that France is going down in recession.
To overcome any losses Vodafone may occur while trading with a country in recession, Vodafone could expand or concentrate in other countries in which they could make profit. With the help of market research Vodafone can keep track of which countries it can benefit from most. Figure 4 gives a breakdown of mobile phone users in EU countries.
Figure 4
Such information would be useful in determining what countries to concentrate on.
Mobile phones are found to be more popular among the younger generation. Research carried out on countries in the EU suggests the same. Figure 5 shows the difference in the age of mobile phone users:
Figure 5
Finland, Sweden and Austria have the highest penetration of mobile phones among the over 55s, while Italy shows the greatest age divide: 77% of under 30s have mobile phones compared with only 25% of the over 55s who possess mobile phones.
How big is the EU market for Vodafone?
A large amount of Vodafone’s profits are obtained from Europe, therefore the EU market is very important to Vodafone. Figure 6 below shows the number of mobile phone users in Europe.
Figure 6
As can be seen in the chart above, the number of mobile phone users in Europe reached 200 million in the year 2000. The number of users is estimated to reach 300 million by 2004. The European mobile services were estimated to be worth 86 billion US dollars in the year 2000 and are expected to rise to 115 billion US dollars by 2004.
This goes to show that the EU market is very big for Vodafone and that a great amount of profit can be made by trading with countries in the EU.
Vodafone obtain over 60% of their profits from Europe on the whole. Not trading with the EU would mean losing out on a lot of customers. This would lead to Vodafone losing their market leader status as competitors could easily take advantage.
An alternative way of seeing how big the EU market is for Vodafone is by looking at the population, GDP and standards of living in each country. This not only gives an indication of the size of each country, but by looking at the standards of living shows Vodafone which countries are more likely to be able to afford such services.
Below is a breakdown of EU state members showing their population, GDP and standards of living.
Austria
Population 8,132,000 (2001)
GDP €26.052,4 (2001) per capita.
Standard of living Austria belongs to one of the richest countries within the EU. According to the World Competitiveness Yearbook, 1999, Austria's standard of living is one of the highest in the world, with a score of 9.59 on a scale of 10. According to latest statistics Vienna is in the top 5 cities in the world for the best quality of life.
Belgium
Population 10.2 million (2001)
GDP US$24,414 (1999) per capita.
Standard of living Belgium enjoys a high standard of living.
Denmark
Population 5.3 million (2001)
GDP US$28,300 (2000) per capita
Standard of living The standard of living in Denmark is high. The 5th highest in Europe. Denmark is an affluent market with money to spend on quality goods and services.
France
Population 59.5 million (2002)
GDP €24,000 (2001) per capita
Standard of living The standard of living in France is high.
Finland
Population 5.2 million (1 January 2002)
GDP US$ 23,493 (in 2000) per capita
Standard of living Finland enjoys a high standard of living, roughly on a par with that of the other Nordic countries. High wages are matched by similarly high personal taxation, which exerts downward pressure on consumption. Over 60% of the population own their own homes.
Finns are sophisticated consumers with an eye for quality and design. In this respect Finland is typical of any highly developed industrial country.
Hotel prices are generally comparable to central London; a good business hotel costs approximately £70-90 per night.
Germany
Population 82 million
GDP euro 2.06 billion in 2001
Standard of living The standard of living in Germany is high
Greece
Population 11.0 million (2000)
GDP $10,000 (1999) per capita
Standard of living The cost of living in Greece is lower than in the UK. However standards of living are moderate.
Ireland
Population 3.7 Million. 2001
GDP US$101.7 billion.
Standard of living The standard of living in Ireland is high.
Italy
Population 57.7 million (1999)
GDP £12,600 (1999) per capita
Standard of living Economic progress in Italy since 1945 has been remarkable. The standard of living is high particularly in several provinces in the industrial North where the standard purchasing power is amongst the highest in Europe. However several areas in the South where unemployment is high are amongst Europe's poorest
Luxembourg
Population 441,300. (2001)
GDP US$ 34,200 (2000) per capita
Standard of living The standard of living in Luxembourg is the highest in the world.
Netherlands
Population 16.1 million (2002)
GDP US$411 billion in 2001
Standard of living Living standards have improved a great deal in recent years.
Portugal
Population 10,015,100 (2000)
GDP $10,042 (2002) per head. (76% of the EU average)
Standard of living The standard of living in Portugal is still relatively low in comparison with some of it's fellow EU members although recently Portugal has begun to make real progress in this area.
The minimum wage (monthly) is 67,000 escudos (approximately £205). The average monthly wage is 105,000 escudos (approximately £330).
Spain
Population 39.8 million
GDP (in UK£): 375 billion
Standard of living Standard of living is improving.
Sweden
Population 8, 909, 128 (31 December 2001)
GDP US$24,400 (2000) per capita
Standard of living There are relatively small differences between socio-economic groups in Sweden and the great majority of Swedes are skilled industrial workers of white-collar employees in the private and public sectors. Compared with other countries, Sweden has a high proportion of employees in the public sector. Wage differentials are, in general, smaller than in most other OECD countries
With so many potential customers, not trading with the EU would seem foolish. This information allows Vodafone to select countries they could gain most from. In this case, Luxembourg and Denmark which both have high standards of living would be a more appropriate choice than Portugal as higher standards of living would mean that people are more likely to be able to afford Vodafone’s services.
How Competitive is the Market?
In order to establish how competitive the market is for Vodafone, it is crucial to distinguish the kind of market Vodafone would be in. This can be done by taking a look at figure 7 below.
Figure 7
The Spectrum of Market Structures
Characteristics of Price-Takers
- Many firms exist in this market, with no firm being able to influence the industry price. The size of this market is large with each consumer demanding a small percentage of total demand.
- The perfect competitive industry produces a homogenous or standardised product. The interpretation of homogenous output is that the consumers cannot distinguish between products produced by different firms.
- The perfect competitive market has perfect information, so all firms are fully informed about production techniques, and consumers are fully aware of substitution techniques.
- The market contains no barriers to entry and no barriers to exit.
Characteristics of Monopolist Competition
- There are many sellers.
- The products sold are differentiated.
- Market entry (and exit) is easy.
Characteristics of Oligopoly
Oligopolistic industries are nothing if not diverse. Some sell identical products, others differentiated products. Some have three or four firms of nearly equal size, others have one large dominate firm (a clear industry leader) and a handful of smaller firms (that follow the leader). Whatever products they may sell, and however they may be organized, Oligopolistic industries share several behavioral tendencies, including:
- Interdependence
- Rigid prices
- Non-price competition
- Mergers
- Collusion.
In other words, each Oligopolistic firm keeps a close eye on the decisions made by other firms in the industry (interdependence), are reluctant to change prices (rigid prices), but instead try to attract the competitors customers using incentives other than prices (non-price competition), and when they get tired of competing with their competitors they are inclined to cooperate either legally (mergers) or illegally (collusion).
Characteristics of Duopoly
- A special type of oligopoly market structure that contains two large producers or sellers.
- Like other theoretical market structure, duopoly is seldom seen in the real world in its idealized form -- that is, a market with exactly two (more or less equally powerful) firms.
- The duopoly model provides insight into the type of competition encountered by most oligopoly markets, including the tendency to compete, collude and form cartels. (A formal agreement between businesses in the same industry, usually on an international scale, to get market control, raise the market price, and otherwise act like a monopoly)
Characteristics of Price-Makers
- There is only one firm which supplies the entire market and many buyers & consumers. The firm sells a unique product, which has no close substitutes.
- The firm has market power (it can control it's price)
- Entry into the market is restricted, e.g. due to high costs and some special barriers to entry. A social, political or economic impediment that prevent firms from entering a market.
These barriers to entry are:
- High cost to enter a market that can support only one business, e.g. the supply of water and electricity etc.
- A business may have exclusive control of a natural resource. Other producers cannot compete, because they don't have that resource at their disposal. E.g. De Beers controls a large part of all diamond production, and this create a barrier to entry for other firms.
- A business may have copyright or patent right on it's product, thus making it illegal for other producer to duplicate the product.
- A monopoly may be created by the state making it legal.
A well-known and popular trademark could ensure consumer loyalty, e.g. Pepsi.
What market does Vodafone operate in?
Looking at the Spectrum of Market Structures, it would be right to assume that Vodafone operates in an Oligopoly market. Although Vodafone has many smaller competitors in each country, its main competitors are:
Orange
- Recent figures released by all mobile telecommunications operators identified that Orange’s active customer base was higher than any other operator with the company’s total market share exceeding 28%.
- Customers in the UK rose to 11.9 million at the end of June, with a controlled customer base of 35.5 million customers worldwide.
- For the fourth consecutive year in a row, Orange was ranked number one for customer satisfaction in the J.D. Power and Associates UK Mobile Customer Satisfaction Study.
T-mobile
Previously known as One2One, T-Mobile has become one of the worlds leading communication companies.
It currently has over 72 million customers.
It operates in many countries around the world including Austria, Netherlands, and Germany.
How do Vodafone respond to such competition?
With such competitive companies it is quite difficult to keep ahead, however Vodafone keep up with improvements made by competitors of their tariffs. One of Vodafone’s key strategies is advertisement. Not only do they advertise on television and newspapers, but they also have an active, high-profile sponsorship program, supporting large and small organizations throughout the world. Below are some of the highly successful sponsorship deals made by Vodafone.
Ferrari F1
- Vodafone's backing of Ferrari's assault on the Formula One world title started in the 2002 season.
- The three-year sponsorship deal is the largest in Vodafone's history. It involves significant branding on the sidepod, nose and front wing of the Ferraris. The Vodafone brand also appears on the drivers' and pit crew's overalls and helmets.
Manchester United
- In 2000, Vodafone signed a deal to sponsor UK football team Manchester United for four years.
- As part of the £30 million deal, Vodafone has developed a Manchester United Pay as you Talk phone.
- Future plans include personalized, video, audio and multimedia services.
English Cricket
- Vodafone sponsors the England cricket team for all home and away Test matches, one-day internationals and overseas games.
- It also sponsors the England A team, the England women's team and Vodafone challenge matches (held between English county teams and visiting national teams).
- The sponsorship began in 1997 and was extended in December 2000 for another four years.
- Vodafone also sponsors the Kwik Cricket Programme for children - part of its commitment to support the growth of English cricket from playground to Test Match.
Local sponsorship
- Vodafone Group companies around the world sponsor a huge range of local organizations, events and charities.
- This sponsorship is part of Vodafone's commitment to grow responsibly and play an active role in local communities.
What has been the impact of EU treaties upon UK businesses and Vodafone?
The Treaty of Rome
The Treaty of Rome, which gave existence to the European Economic Community (EEC) was signed by the member states on 25th March 1957.
The signatories of the historical agreement were:
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Christian Pineau - France.
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Joseph Luns - Netherlands.
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Paul Henri Spaak - Belgium.
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Joseph Bech - Luxemburg.
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Antonio Segni - Italy.
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Konrad Adenauer - Germany.
The Treaty was ratified by national Parliaments over the following months and came into force on 1 January 1958. A 12 year transitory period for an utter tariff dismantling among the member countries was agreed. This treaty required to implement both internal and external measures.
The internal measures required EEC members to:
- Remove all tariffs and quotas levied against each other. This would enable businesses to each others markets.
- To end all restrictions on services supplied between the six members.
- To remove all non-tariff barriers to trade between EEC members. This would control cartels and restrictions on competition by dominant firms.
- Allow freedom of movement for the labour force and capital between member states.
The external measures required under the Treaty of Rome were:
- Introduction of the Common Commercial Policy whereby each country levied a common external tariff against imports from non-member countries.
- The introduction of common policies for agriculture.
This treaty has had a huge impact on the world. It benefited Vodafone and other businesses in the following ways:
- Businesses were able to sell their services across Europe without having to pay any taxes.
- Vodafone employees could be transferred to different countries without encountering any problems.
- Capital could be transferred to countries without having to pay taxes.
At this time, the law of comparative costs was planned. It has been built and expanded as the European Union has been formulated. David Ricardo (1772-1823), in his theory of comparative costs suggested that countries will specialise and trade in goods and services in which they have a comparative advantage. It is easy to see that if countries have an absolute advantage there are advantages to trade. However, what happens if one country has an absolute advantage over its trading partners in the production of a number of goods. Specialisation and trade can still result in there being welfare gains made from trade.
Supranationalism
This is a process of law that is superior to national governments. The institutions of the EU have autonomy from national government and EU law has dominance over national law, while decisions can be taken by a majority vote. Supranationalism inflicts certain limitations on member states.
The single European Act
It was signed on the 17th February, 1986 and came into effect 1st July of 1987. It constitutes the first substantial modification of the . The aim of the SEA was creating a stronger, more incorporated community. Through this act the following has taken place:
- Environmental policies are increasingly decided by the 12 members.
- People have the freedom to work and live in any member country.
- Trade between member states is no longer restricted, all restrictions have been removed.
- All European currencies (except that of Greece) have entered the Exchange Rate mechanism in an attempt to bring exchange rates into line across Europe.
The single European Act was adopted by 12 member states including:
- Belgium
- Italy
- France
- Germany
- Luxembourg
- Netherlands
- Denmark
- Ireland
- United Kingdom
- Greece
- Spain
- Portugal
By giving people the freedom of working and living anywhere in the member states meant that Vodafone could employ a diverse workforce with new and different ideas.
The Maastricht Treaty
The Maastricht treaty which was negotiated between the members of the in 1992, led to the creation of the . It was the result of separate negotiations on monetary union and on political union.
The main points set out in the Treaty are:
- To promote economic and social progress which is balanced and sustainable by creating an area without internal frontiers.
- By promoting economic and social cohesion.
- Establishing economic and monetary union, ultimately including a single currency;
- To develop a common foreign and security policy, eventually including a common defence policy;
- To strengthen the rights and interests of nationals of member states by introducing a citizenship of the European Union.
- To develop close co-operation on justice and home affairs.
(The treaty will be looked at in more depth in task two)
Treaty of Nice
The treaty of Nice, signed by the heads of member states on February 26 2001, creates a framework for the expansion of the EU. It requires ratification by all member states to take effect. It could lead to businesses transferring production in Europe which would alternatively lead to lower costs in production; as a result imports would be cheaper.
This means that competition with low cost EU businesses will be more difficult to compete with as multinationals like Vodafone would prove to be more effective.
How has the UK benefited from EU membership?
The EU budget for 2001 showed that the UK benefited from EU membership by £750m. The accounts showed that the previous year the UK contributed £2.9bn to EU coffers and received £3.6bn in various subsidies, notably payments for farming and fishing and in the form of structural funds.
British consumers have also benefited from EU membership. They benefit from cheaper prices, higher quality and more choice. There is, for example, easier access to lower priced cards and white goods across the EU.
By joining a market of over 350 million people the UK has become part of the largest single market in the world. The main advantages have been put as:
- The non-discrimination of goods and services as they move between member states.
- The mutual recognition of products from within the single market, regardless of differences in standards.
- The burden of proof now rests with the nation who wants to restrict imports from a fellow member.
- Frontier barriers have been removed.
- Technical barriers have been harmonised.
- Public procurement has been 'opened up' to wider competition within the market.
- Many of the fiscal frontiers have been removed.
- Utilising economies of scale.
Providing the UK can be productive, efficient and competitive (both on price and non-price factors) we have access to a huge and highly paid market. It will increase to 500 million plus in 2004 - though many of those then joining will be less wealthy than the current EU average.
The Benefits of membership
Figure 8
What costs have there been?
Comparative Advantage
This exists when a country produces a good or service at a lower opportunity cost than its trading partners. Some countries have an absolute advantage in the production of many goods in comparison to their trading partners. This means that it is able to produce more of a good or service with the same amount of resources or the same amount of a good or service with fewer resources. The theory of comparative costs argues that, put simply, it is better for a country that is inefficient at producing a good or service to specialise in the production of that good it is least inefficient at, compared with producing other goods.
However, since Vodafone is not a tangible product, it can provide its service from anywhere. Therefore it would be right to assume that the theory of comparative advantage would not be relevant to Vodafone as it does not require any specific raw materials.
Other disadvantages
Although the UK has benefited from EU membership, one would argue that it also has its disadvantages. Here are some of the main disadvantages:
- Under EU rules, EU citizens would have the unlimited right to purchase property in the UK. Allowing unrestricted rights to EU citizens to buy property here can only be objectively negative for the locals in the long-term.
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The Social Policy under the Amsterdam treaty of 1998 forces employers to abide by a series of social measurements some of which include: Vocational training for employees, Health protection and safety in the work place etc. Although this is an advantage for employees it can seen as a disadvantage for employers as it increases costs which may cause them to make reductions elsewhere.
- Increased competition in the UK market from other EU businesses.
- UK increasingly has to take environmental measures that conform to European requirements. These are not always popular with businesses since they are seen to increase operating costs.
- Failure for weaker businesses.
SWOT Analysis.
SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. A SWOT Analysis is an effective way of analysing A company’s potential by identifying the Strengths and Weaknesses, and to examine the Opportunities and Threats which may affect it.
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal factors, while opportunities and weaknesses are external. This can be seen in figure 9 below:
Figure 9
SWOT Analysis for Vodafone
Recommendation on how Vodafone should maximise the opportunities and minimise the threats. Do opportunities outweigh the threats?
As can be seen in the SWOT analysis, Vodafone’s opportunities outweigh the threats as it has more strengths than weaknesses. It is not only in a good position in the UK but also holds a leading position in the EU.
Maximising Opportunities
In order to maximise opportunities, Vodafone must develop strategies from which they can attack each opportunity with appropriate action.
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Expansion – Vodafone has opened branches in 28 different countries and is expected to expand into 6 additional countries by 2008. Vodafone is estimated on average to have over 20,000 customers join worldwide on a daily basis. Expanding the business provides the opportunity of gaining more customers, profits and more importantly, keeping ahead of competition. However, a point to be taken into consideration is that there is a risk of over growth and a loss of control. Often companies concentrate so much on expanding that they lose control over the business. Nevertheless, by employing the right workforce, with correct decisions being made on time, this problem can be over looked.
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Large market – Trading with the EU gives Vodafone access to a larger market. At present it has a population size of 370 million. Statistics show that 65% of this population is between the age of 15–65. This is a huge market to aim at. Vodafone currently trades with 13 of the EU member countries, excluding Finland and Luxembourg. As can be seen in figure 5, Finland has one of the highest percentages of mobile phone users. Vodafone could take the opportunity and expand to Finland.
As Finland is a member of the EU, Vodafone could benefit trading with Finland as it would mean no taxes, barriers and greater profits.
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EU enlargement – In 2004 the EU is expected to expand from 15 countries to 25. (a list of countries that will join in 2004 can be found on page 2). This will increase the consumers from 370 million to over 500 million. EU enlargement has great benefits for Vodafone as it can trade with these countries and avoid having to pay taxes. By expanding into the new EU member countries will gain Vodafone customers which can help keep Vodafone ahead of competition and keep up its market leader position.
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Mergers and takeovers – Vodafone has successfully merged and taken over companies in the past. This allows expansion and growth.
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No trade barriers – The removal of trade barriers have allowed Vodafone greater access to the market without having to pay any kind of taxes or tariffs. Currently the trade barriers have been removed between 15 countries, the EU members. However further barriers will be removed as the EU expands and new countries join. Although the 10 applicant countries have not yet joined, it would seem appropriate for Vodafone to start planning ahead for such opportunities.
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Future sponsoring – Vodafone has sponsored many sporting teams in the past. (refer to page 31 for a list of Vodafone sponsors) This is a great means of advertising, as it makes people aware of Vodafone. In the future they could look at possibly sponsoring tennis players, golf players, gymnastics, boxers etc. By sponsoring a range of sport makes more people aware of Vodafone (if they already are not) this is because not every person that has an interest in golf will have an interest in football therefore by sponsoring a range of different sport may well attract more customers.
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Cheaper labour costs – As Vodafone grows, labour costs for Vodafone will decrease. This is due to economies of scale.
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Lower interest rates – Consumers are more likely to borrow money if the interest rates are low. This for Vodafone can be an opportunity to raise their profits; as if the consumer has money they are more likely to spend it. Therefore Vodafone must keep a close eye on interest rates and be prepared for the future.
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Advertising – Advertising is one of Vodafone’s strengths. It has become a well known brand name worldwide partly due to its expertise in advertising. It can continue to do so by advertising on television, newspapers, bill boards and various other ways in Europe. It can sponsor sports teams, charities, concerts in the countries it operates in to make people more aware of its presence.
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Concentrate on the needs of customers – One of the ways to keep ahead of competition is by knowing what customers want. Gaining customers is not the real achievement, it is keeping them. In order to know what the customers want, surveys can be done via post or telephone. Alternativly a survey on customer needs can be posted on the Vodafone website. Using the internet as a tool is a quick and easy way of gaining information.
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Devoting resources towards research and development – Once you know what the customers needs are, the services can be improved. New tariffs could be introduced to please the customers.
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Staying up to date with technology – By keeping up to date with new technology allows Vodafone to hold its position of market leader.
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Access to highly skilled people – Having access to highly skilled people allows Vodafone to be flexible when faced with a difficult situation.
Minimising Threats
In order to minimise threats, Vodafone must develop strategies from which they can attack each threat with appropriate action.
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Increased competition – the free trade market has opened doors to increased competition between companies. Not only are Vodafone facing competition from British businesses, but also EU businesses that are setting up in the UK. In order to face this increase in competition Vodafone has to take steps to minimise the threat. These include:
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Dedicating more capital towards advertising and promotion. As discussed previously, it will gain Vodafone recognition and more customers.
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Being price competitive – By introducing new cheaper tariffs that are affordable for teenagers (as they are in the target population) will increase sales and keep Vodafone ahead of competition.
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Concentrating on customer needs – ways in which this can be achieved have been discussed on the previous page.
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Effects of business cycle – although not much can be done to change the effects, Vodafone can however be aware of the coming problem before hand with the help of their research teams. In such cases threats can be minimised by concentrating in countries that profits can be made out of. Information such as that in figure 4 can help determine which countries to target.
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EU laws and regulations - Vodafone has to abide by the laws setup by the EU council. These include: social, political and environmental laws, which all businesses must follow. This incurs additional costs for Vodafone and all other companies. However the main threat here is the future introduction of new laws and its affects on Vodafone. Unfortunately not much can be done to minimise the threats of the EU laws and policies.
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Trade Unions – Trade unions if unhappy with the running of a business can prove to be a great obstruction. Denmark is known to the highest level of trade union membership. Such obstructions can have a harsh affect on Vodafone. However membership of trade unions does not necessarily have to be seen in a negative way. If Vodafone continues to be worker friendly it is unlikely to face problems from the trade unions.
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EU enlargement – Although has its benefits has a downside too, as there will be increased competition which may affect Vodafone. However using their strategies of advertising, price competitiveness etc. will overcome any problems.
Economic and Monetary Union
Economic and Monetary Union is the long-term project for the unification of Europe which began with the of 1992. A major milestone in that is the creation of the "euro", the new single currency for Europe.
In 1991 the 15 members of the European Union, meeting in the Dutch town of Maastricht, agreed to set up a single currency as part of a drive towards Economic and Monetary Union. There were strict criteria for joining. The European Monetary Institute, the forerunner of a European Central Bank, and the European Commission, judged which countries meet the single currency convergence criteria, which were that:
- Government deficit and debts must be no more than 3 per cent and 60 per cent of gross domestic product respectively.
- Inflation rates and long-term interest rates be within 1.5 percentage points and 2 percentage points of the average of the three countries with lowest inflation.
- The currency has stayed within the Exchange Rate Mechanism bands for two years.
Countries had to fulfil these criteria’s in 1997 to qualify as founder members of European Monetary Union on January 1, 1999. Countries also had to have an independent central bank.
The impact of EU Policy
The EU has developed several policies that create an environment in which the free market can operate.
Single Currency
This would mean that EU citizens can spend their domestic currency, the euro, in any of the EMU member states, as they would their old national currency. People can also move their personal assets such bank balances more easily from one part of the EMU to another member state.
For companies this would mean that they can trade more easily across the European Union without the interference of exchange rate fluctuations that can affect trade prices.
- Advantages of the Single Currency for countries who have joined:
- Elimination of foreign exchange transactions costs with other euro-zone countries.
- Elimination of exchange rate uncertainty of the country's currency against the euro, which should improve the quality of information on which consumers and firms base their decisions.
- Greater price transparency when all goods are priced in euros may lead to increased competition in the Single Market.
- Participation in integrated market-based European financial markets as the result of the elimination of currency risk. Leads to more efficient European finance.
- If the ECB keeps inflation in check, the country would be joining a low inflation area, which contributes to economic efficiency and credibility of the central bank. (Since inflation is not currently a problem in the UK, this would not be a current benefit in this case. Also, the Bank of England follows an inflation targeting policy anyway.)
- The disadvantages for countries who have joined:
- The country can no longer conduct monetary policy on its own behalf.
- The country may have to substantially limit its use of expansionary fiscal policy under the Stability and Growth Pact.
- Difficulty of coping with asymmetric shocks.
- Unemployment could increase, at least in the short term if a government comes under pressure to cut public expenditure owing to restrictions relating to the requirement to limit its deficit.
Should the UK join the single currency?
Here are some of many reasons for UK to join the Euro:
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Consumers will get a better deal – By joining the euro, it will end companies’ ability to charge the highest price each national market will bear. US-style competition in one big market will end ‘rip off Britain’ and give consumers year-round bargain basement prices.
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Interest costs will be lower – Interest rates are a little lower in the Euro-zone. If Britain adopted Euro-zone interest rates, homeowners with a £40,000 mortgage would currently save £33 per month.
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Investment and jobs will grow with euro membership – Businesses will invest more because they will face fewer risks from volatile exchange rates.
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The euro will bring better pensions – Pension funds will be able to spread their risks around the wider euro-zone, creating larger portfolios than ever before. This will reduce their risks and increase their returns – hence their pensions.
Although there are many arguments in favour of the UK joining the single currency, a number of economists are against it because they are concerned by the following:
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The inability of the European Central Bank to control interest rates for a group of economies who will probably be at different stages in their economic cycle
- The competitive disadvantages associated with more transparent pricing - one currency will allow customer comparisons to be made
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The costs of conversion to the Euro, which has been estimated at more than £40 billion by some economists. They point to the fact that business will have to bear this considerable burden. e.g. dual-pricing and package changes for different cultures and tastes
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The loss of sovereign control over major economic policies, such as interest rates and tax policy – The ability to manipulate exchange rates will no longer be open to government. So, during a recession or prolonged period of inflation the conventional armoury of policies will be significantly reduced. A political factor which concerns some is that some important decisions will be taken by qualified majority voting and defence and foreign affairs might one day to be subject to such a voting system.
The euro-zone market is a bigger slice of Vodafone’s turnover than the UK market; therefore most of their accounts are in euros. By giving up the sterling and adopting the euro will benefit Vodafone as then all accounts can be done in euros which will save both time and money.
Vodafone can respond to any negative impacts the single currency may have upon them by improved competitiveness. This can be done in a number of ways which have already been discussed.
The Maastricht Treaty
At the time of this treaty, plans for a single currency were being laid. This meant that their would be a fixed exchange rate system, therefore businesses could plan ahead with the deals they wished to make. This treaty helped Vodafone and all other businesses by creating more money for them.
The Social Chapter which is also a part of this treaty gives certain rights to employees which have an impact on Vodafone. These include:
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Equality of men and women – Vodafone have to assure equal treatment for men and women. They must develop opportunities for equality for both men and women in access to employment, remuneration, working conditions, social protection, education, vocation training and career development. Measures should also be developed enabling men and women to reconcile their occupational and family obligations.
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Movement between countries – Every worker of the European Union has the right to freedom of movement throughout the member states, subject to restrictions justified on grounds of public order, public safety or public health. This could have a positive impact on Vodafone as it gives them to employ workers from a range of different countries and backgrounds which alternatively could bring in ‘fresh new ideas’ which would be useful in keeping an edge over competitors.
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Trade Union membership – Workers have access to trade union membership. This allows them to take industrial action against Vodafone if they fail to take employees needs into consideration. This could have a huge impact on Vodafone, as if industrial action is taken against them, not only will they lose money but also their reputation could well be in ruins. It is therefore essential for Vodafone to keep their workers satisfied.
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Payment for employment – This involves entitling employees to the minimum wage which varies in each country. Therefore if Vodafone were taking advantage of their employees, this treaty would no longer allow them to.
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Training – this allows employees to learn and be educated in their field of work. They benefit from training as it gives them a chance to develop skills. For Vodafone and all other companies, this will be very costly. However employee’s development of skills will be useful in the running of the business.
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Improvement of living and working conditions – The completion of the internal market must lead to an improvement in the living and working conditions of workers in the European Union. This process must result from an approximation of these conditions while the improvement is being maintained, as regards in particular the duration and organisation of working time and forms of employment other than open-ended contracts, such as fixed-term contracts, part-time working, temporary work and seasonal work.
The improvement must cover, where necessary, the development of certain aspects of employment regulations such as procedures for collective redundancies and those regarding bankruptcies.
Every worker of the European Union has a right to a weekly rest period and to annual paid leave, the duration of which must be progressively harmonized in accordance with national practices.
The conditions of employment of every worker of the European Union are stipulated in laws, a collective agreement or a contract of employment, according to arrangements applying in each country.
Improving living and working standards means that the workplace must be of a sufficient quality and must be safe for employees to work in. By doing so gives the employees motivation to work hard and help Vodafone to succeed.
Social Policy
In its early years social policy was considered more as an addition to economic policy and it remained broadly speaking an accompanying policy (European Parliament, 1996). The focus of the attention in the Council remained absolutely on economic concerns and on the rights of mobile workers. Later on, awareness on social issues was raised. Up to now the European Union has established minimum standards for health and safety at work and for equal treatment between men and women. In 1995 the European Social Fund spent more than ECU 5.6 billion on trying to help people back into work, on training, counselling and other measures to boost employment (European Communities 1995-1999). Although progress has been made, the social policy of the European Union has been, nevertheless, marked by diverging national interests and values of the member states. The Social Policy looks at many key areas including:
- Employment policy
- Working life policy, including labour standards, the modernisation of work and the development of social dialogue
- Social protection
- Social inclusion
- Equality between men and women
- Equal opportunities and anti-discrimination
- Living standards
A part of the social policy is the social charter. There has been much EU law regarding social protection but in recent years, one of the most influential pieces of legislation was the Social Charter (the Charter of Fundamental Social Rights). This was adopted by 11 member states on 9 December 1989, at the Strasbourg Summit, and later by the UK in 1998.
The Charter establishes the major principles on which the European labour law model is based and, more generally, the role of work in society. It includes the following headings:
- Freedom of movement
- Employment and remuneration
- Improvement of living and working conditions
- Social protection
- Freedom of association and collective bargaining
- Vocational training
- Equal treatment for men and women
- Information, consultation and participation of workers
- Health protection and safety at the workplace
- Protection of children and adolescents
- Elderly persons
- Disabled person
Impact of the Social Policy on Vodafone
Negative Impact:
- Vodafone, like all other businesses are forced by law to give employees certain rights which cost them extra money.
Positive Impacts:
- Although training employees will incur great costs upon Vodafone, on the positive side it will ensure employees know how to use the system. If the employee is not trained to use the equipment, and incorrect transactions are made, this will still cost Vodafone money. Therefore providing training can be seen as beneficial for Vodafone.
- Heath and the safety is less expensive than other elements of this policy. If heath and safety rules are carried out appropriately this could keep safe the lives of their employees. However, if heath and safety measures are not carried out appropriately this could lead to workers taking time off to recover, or in the worse case scenario, Vodafone could be taken to court for compensation.
Competition Policy
In economic terms, competition is associated with the promotion of efficiency lower prices, streamlined and productive organisation and technology developments. The European Unions competition policy is designed to make sure that the internal market is not distorted. It is concerned with promoting free markets and healthy competition within a firm regulatory regime. The EU is interested in a number of areas, but specifically in:
- Restricting state aid to indigenous firms.
- Breaking down state-owned monopolies.
- Preventing collusion, including price fixing, cartels and other collaborative anti-competitive practices.
- Controlling the size to which firms grow through merger and acquisition.
- Freeing up competition relating to public procurement.
Such legislation can lead to both losers and winners. The winners are those who tend to respond with improved competitiveness, while on the other hand, the losers are those who are inefficient in some way or another and fail to compete effectively.
Competition policy is essential to the success of the single market. By ensuring a level playing field for business, effective EU competition policy serves to generate wealth and employment, and also to protect the interests of consumers. It also promotes economic efficiency by fostering innovation. The Competition Policy Subcommittee aims to provide constructive input to the EU institutions for the development of efficient and balanced EU competition policies that reflect the needs of both business and consumers.
Impact of Competition Policy on Vodafone
Negative impacts:
- The growth of Vodafone is controlled, therefore they may not be able to expand and grow as much as they’d wish to.
- This policy increases competition for Vodafone. In order to keep their position they have to become even more competitive, this could be very costly.
Positive impact:
- Although becoming more competitive involves increased costs, it is at the same time very beneficial for Vodafone as it allows them to become more efficient. The best way for Vodafone to respond to this policy is by ensuring competitiveness.
Workplace Issues.
The EU policy relating to the workplace is contained in the series of documents translated into the Social Chapter of the Maastricht treaty. These rights include:
- Fair remuneration for employment
- Freedom of movement
- Improvement in living and working conditions
- Social protection
- Freedom of association
- Vocational training
- Equal treatment
- For treatment for the disabled
- Appropriate protection in the workplace
- Information, consultation and participation of the workforce
The impact of some of these rights on Vodafone have been discussed on page aaa.
Impact of Workplace issues on Vodafone
Negative impact:
- The implementation of these rights could involve extra cost to Vodafone.
Positive impacts:
- The implementation of these rights could improve Vodafone’s competitiveness as their workforce becomes more skilled through training.
- Workers become motivated through fair treatment and involvement at work.
Operational changes involved with trading in the EU
In order to keep up with the changing environment, Vodafone will need to make significant changes to their day-to-day running of their business. The following are changes it will have to make:
- All the extra taxes that were previously added automatically by the system will have to be eliminated as they no longer exist.
- The tills and all other forms of payment must accept Euros.
- The currency on the system will have to be incorporated into one for all the countries who use Euro as their new currency. By doing so will allow transactions to be made faster thus leading to ease from moving from one country to another, as there is not need to do conversions.
- Employees can move to different locations with ease, as there is less differentiation.
- Potential employees may be given an advantage if they are multi-lingual. This is because, although currencies have been given up to become one, languages still vary from country to country. Mis-interpretation could prove to be fatal, therefore to avoid such problems Vodafone will need to employ people that are multi-lingual.
Impact of Cultural Differences
Culture is about the way people behave as a result of their background and group association. It has an impact not only on the types of goods services people buy, but also on the way they do business with partners and suppliers and the way they respond to various management techniques.
Ronan and Shenkar suggested that there are 5 main clusters of EU countries:
Employment Law
- Unlike the flat rate given by the UK benefit system, many other EU member states pay social security benefits in relation to previous salary.
- The majority of EU member states have minimum wage.
- Many classify workers, commonly as blue or white collar workers. This can often make a difference to working conditions, generally to the benefit of white collar workers.
Trade Unions
Trade unions are organisations that represent people at work. Their purpose is to protect and improve people's pay and conditions of employment. They also campaign for laws and policies which will benefit working people.
Trade unions exist because an individual worker has very little power to influence decisions that are made about his or her job. By joining together with other workers, there is more chance of having a voice and influence.
As can be seen in figure 10 below, the level of trade union membership varies greatly within Europe. The highest level of membership can be found in the Nordic cluster of the EU countries.
Figure 10
The role of the unions differs from one country to the other, varying from approximating to a professional organisation in Denmark, to being an active partner in shaping government policy in Belgium, to having little influence in Spain.
Trade unions have an important role in:
- Improving communication between employees and managers so that employees can understand and be committed to the organisation's objectives
- Negotiating improvements to pay and working conditions so that people feel more satisfaction at work and stay longer in their jobs
- Encouraging companies to invest in training and development so that employees have the skills necessary for improved products and services and lifelong employment
- Acting as a positive force for change - by winning employees' support to the introduction of new technologies and work organisation
Companies such as Vodafone who recognise and give importance to trade unions are those who will succeed.
The importance of culture
As a prospective employee in another EU country, it is essential to be cultural differences and similarities in the following circumstances:
- Applying for a job
- Assessing promotion prospects
- Day-to-day work
As a business:
- Arranging business meetings
- Planning advertisement and promotion
- Deciding on best distribution methods
- Deciding whether to change a products name
- The product itself may need to be adjusted
- Deciding whether to emphasis the country of origin
- When setting up a foreign production facility and employing local people
Business Etiquette
Business etiquette is important when exporting, and with employees if you are opening an additional business facility in a new country when you would need to be aware of the following:
- The attitude to time keeping
- The level of formality including expected dress, use of first names, relationships with subordinates, and the extent to which you need to confirm arrangements in writing
- Brand loyalty may be strong. This would make it fairly difficult to introduce a new product. This could possibly mean that there is a wariness of foreign products.
Business Information
Although the removal of trade barriers makes trading in the EU easier for Vodafone, cultural barriers still exist. The day-to-day running of companies in the UK will be different to the way they are run in other countries. The following business information would enable Vodafone to prepare themselves to adjust to the different cultures in different countries:
Austria
- Austrians are quite formal in their business dealings.
- A working knowledge of German will be very advantageous.
- Office hours: 0800-1230 and 1330-1730 Monday to Friday.
Belgium
- Suits should always be worn and business is conducted on a formal basis.
- Punctuality is highly valued
- Business cards are commonly exchanged.
- Transactions are usually made in French or English.
- Office hours: 0830-1730 Monday to Friday.
Denmark
- English is widely used for all aspects of business.
- Local business people expect visitors to be punctual and the approach to business is often direct and straightforward.
- Office hours: 0800/0900-1600/1700 Monday to Friday.
Finland
- Business people are expected to dress smartly.
- Most Finnish business people speak English and/or German.
- Punctuality is essential for business and social occasions.
- Calling cards are common.
- Office hours: 0800-1615 Monday to Friday.
France
- Business people should wear conservative clothes.
- Prior appointments are expected and the use of calling cards is usual.
- While a knowledge of French is a distinct advantage in business dealings, it is considered impolite to start a conversation in French and then have to revert to English.
- Business meetings tend to be formal and business decisions are taken only after lengthy discussion, with many facts and figures to back up sales presentation.
- Business entertaining is usually in restaurants.
- Office hours: Generally 0900-1200 and 1400-1800 Monday to Friday.
Germany
- Business people are expected to dress smartly.
- English is spoken by many local business people, but it is an advantage to have a working knowledge of German.
- Appointments should be made well in advance, particularly in the summer.
- Appointments may be suggested slightly earlier in the day than is often the custom in the UK.
- Once made, appointment times should be strictly adhered to.
- Some firms may close early Friday afternoon.
- Always use titles such as Herr Doktor or Frau Doktor when addressing business contacts. Punctuality is essential for business visits.
- Office hours: 0800-1600 Monday to Friday.
Greece
- Formal suits are expected.
- French, German and English are often spoken as well as Greek.
Ireland
- Business people should wear formal clothes for meetings.
- Local business people are very friendly and an informal business approach is most successful.
- It is advisable to make prior appointments and to allow enough time to complete business matters.
Italy
- A knowledge of Italian is a distinct advantage.
- Prior appointments are essential.
- Business persons are expected to dress smartly
- Office hours: 0900-1700 Monday to Friday.
Luxembourg
- Business persons are expected to wear suits.
- It is advisable to make prior appointments and business cards are often used.
- Office hours: Generally 0830-1200 and 1400-1800 Monday to Friday.
Netherlands
- Appointments are necessary and visiting cards are exchanged.
- The Dutch expect a certain standard of dress for business occasions.
The majority of Dutch business people speak extremely good English, and promotional literature can be disseminated in English.
- Office hours: 0830-1700 Monday to Friday.
Portugal
- Business people are expected to dress smartly and formal attire is expected in some dining rooms and for important social functions.
- English is widely spoken in business circles.
- Visiting cards are generally only exchanged by more senior members of a company.
- Office hours: 0900-1300 and 1500-1900 Monday to Friday.
Spain
- Business people are generally expected to dress smartly.
- Although English is widely spoken, an interest in Spanish and an effort on the part of the visitor to speak even a few words will be appreciated.
- Business cards are exchanged frequently as a matter of courtesy and appointments should be made.
- Office hours: Tend to vary considerably. Business people are advised to check before making calls.
Sweden
- Business people are expected to dress smartly.
- English is widely spoken in business circles.
- Punctuality is important for business and social occasions.
- Business cards are commonly used.
- Office hours: Flexible working hours are a widespread practice, with lunch between 1200-1300.
UK
- Business people are generally expected to dress smartly (suits are the norm).
- Appointments should be made and the exchange of business cards is customary.
- A knowledge of English is essential.
- Office hours: 0900/0930-1700/1730 Monday to Friday.
Cultural differences between countries
The way people carry out business with partners and suppliers will often depend on the national culture. Hofstede analysed countries (excluding Luxembourg) based on levels of individualism and masculinity. He created the following groups:
Countries such as the UK, where personal freedom, assertiveness and materialism are important are more likely to have a business culture involving entrepreneurship, competition and a strong profit motive.
Such information would be useful, as it would allow UK businesses to decide whether they wish to choose partners in a country that does business in similar ways or a country that does business in a different way.
As Vodafone trades with 13 of the EU member states, it can adapt to the various business methods of each country. For example, in Spain and Portugal where care and concern is given priority, more effort could be made when dealing with customer complaints and ensuring workers needs are satisfied. This would motivate the workers to give back as much as they gain, and alternatively this would lead to more efficiency and profit.
Cultural Regions
Some countries are more similar than others, and within countries there can exist wide cultural differences. This is especially true of the larger European countries.
In the area of marketing, language is also very important. The EU law requires that product labels should be in a language that the consumer can understand. The table below shows language proficiency across some of the EU member states.
Key:
- B – Belgium
- D – Denmark
- F – France
- G – Germany
- Ir – Ireland
- It – Italy
- N – Netherlands
- S – Spain
- UK – United Kingdom
Those countries speaking the less well known tongues, such as Dutch and Danish, will be the countries that will tend to have English as their second language. Since the fall of Communism in East Europe there has been a sudden increase in the demand for English.
However, UK companies cannot assume that everybody will understand and welcome advertising in English. Even more sensitive will be the business negotiations which take place before a product can be launched into a new market. The rule here, most defiantly would be to sell in the buyer’s language.
Structure of the working day
The structure of the working day varies across Europe. The UK, Ireland and Portugal remain an hour behind the rest of Europe. This can restrict potential contact time between businesses since many Europeans start work early. This therefore means that important calls must be made before 3 p.m. if there is to be a reasonable chance of action.
Actual total working hours vary widely as the table below shows, with the Portuguese working 14% more than the Danes, and the Austrians getting more paid holidays than the British and Portuguese.
What is culture?
Culture can be seen as a system of values and social norms which are shared among a society or a group of people. Humans are not born with culture; it is something we learn as we become aware of our surroundings and social groups. It is shared, communicated and transmitted by members of a social set, and it defines boundaries between different groups. There are various aspects of culture, many of which are interrelated, for example, traits of social organisation may well be reflected in business organisations in a particular culture.
Language
Language is one of the defining characteristics of a nation and is a key element in the cultural mix. Both spoken and unspoken means of communication provides a medium through which people can communicate with one another, and social norms can be transmitted and maintained.
In a business sense, language is essential as it provides a means of firm-to-firm or company-to-customer-communication. No businesses can be successful without communicating with the customers, as they would not be able to meet the needs of the customers.
For businesses looking to expand internationally, it is essential they ensure that the translation of a word or phrase has the desired meaning and does not communicate something unintended. Literal translation and weak grasps of local language can lead to many marketing blunders.
Silent Language
Aspects or the extent of silent language is central to the communication process which consists of verbal and non verbal elements.
The language of space – this involves the personal surroundings and the between people during a conversation. A person’s sense of ‘appropriate distance’ is learnt, and therefore varies from one society to another.
The language of time – this includes response times for a written communication, punctuality at business meetings, the time it takes to make a decision, formal schedules and deadlines. In countries like Germany, lateness is often considered unacceptable, while in other countries there is a high tolerance level for lateness. Attitudes towards clock-watching at a meeting is found acceptable in places like the UK, but considered an insult in places like Spain or Greece.
Religion
Understanding the dominant religion of a particular country can provide business managers with a better insight into people’s behaviour and cultural attitudes. Businesses must also bear in mind that increasingly the EU is becoming a society of many faiths. Therefore all religions must be respected and taken into consideration. Marketing and promotion of a product or service must be done keeping in mind all religions and ensuring no one is offended.
Culture
Culture may be viewed as inherited values, attitudes, social conventions and mores of a nation. In most cases, culture is transmitted through the family; however education, media and peer influences are increasingly modifying culture.
Nevertheless cultural differences contribute to the diversity of the people who live in Europe. Cultural differences can create barriers which may well have significant implications for European businesses. If they are to succeed in other than their domestic markets, it is necessary for them to take these differences into account. Among examples of cultural differences are:
The business organisation – In Germany, businesses are rigid in their approach and expect everything to be done though proper bureaucratic channels with full technical detail provided. In contrast, British films involved in collaborative ventures, or who have opened subsidiary companies in Germany, are more casual and relaxed enabling them to be more flexible when sudden response is needed to market change.
Class – In the UK, France and Italy, class is a major factor in determining social attitudes in the business environment. In contrast, in less class-divisive societies such as Denmark and Sweden, attitudes may be quite different. People such as senior manager secretaries are regarded as important people in the organisation, while in the UK, France and Italy this would not so be to the same extent.
Business attitudes to delivery dates – these are also seen as important. European businesses operating in Germany soon find that when they promise a delivery date for a new product, consumers expect it in the shop on that day, and not several days or weeks later. Firms who fail to do so have found themselves bombarded with telephone calls, letters and faxes soon after. In contrast, attitudes in Spain and Greece are more relaxed in this respect.
How should Vodafone adapt to different markets?
Vodafone need to develop certain strategies in order to succeed in one of the world’s largest markets, the EU. Vodafone can do this by creating different marketing strategies for the 5 clusters of EU countries. Vodafone can and has adapted its service to meet the needs of customers in the different EU countries in the following ways:
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Operators – Although in recent years there has been an increase in the demand of English, and in many countries across Europe people are familiar with it, Vodafone has to adapt each countries language that it operates in. Therefore Vodafone employs operators from each country it operates in for the ease of customers. If Vodafone was to have operators speak to people in all countries in English, they would find themselves facing many problems, as if customers find it difficult to communicate with them, the needs of customers will not be conveyed, and therefore not met. This would lead to people not wanting to use Vodafone services, which would be a great loss to Vodafone.
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Service name – Vodafone operates under different names in some of the countries across Europe. Companies often find themselves changing the product of service names in different countries. For example ‘Opal Fruit’ were changed to ‘Starbust’ and ‘Jiff’ was changed to ‘Siff’ as people in certain countries had difficulty pronouncing it. Vodafone operates under names including: Proximus in Belgium, TDC Mobil in Denmark, and SRF in France.
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Trade Unions – In countries such as Denmark, Finland and Sweden where there is a high level of trade union membership, Vodafone gives importance and works alongside these unions. By doing so keeps employees motivated to work hard.
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Placing more emphasis on meeting customer and employee needs – In countries such as Portugal and Spain where ‘group loyalty’, ‘care’ and ‘concern’ are given priority, Vodafone must ensure it adapts itself to that particular culture. By showing customers and employee care and concern will win their loyalty. This would prove to be beneficial to Vodafone as if customers and employees become loyal to their company they are less likely to look elsewhere. Customer needs can be met by carrying out regular surveys to see what customers are looking for and improving services. Providing employees with benefits such as bonuses can keep them motivated.
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Aggressive competition- In countries such as Italy, Belgium and Ireland where like in the UK personal freedom, assertiveness and materialism are important are more likely to have a business culture involving competition and a strong profit motive. In such countries Vodafone must compete aggressively, as most probably the majority of businesses share the same culture.
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Marketing and promotion of the service – When promoting the service in different countries, it has to be done in languages according to the country of operation. Vodafone also has to ensure that while promoting the service it does not offend anyone, as the EU consists of many cultures and religions. What one group of people may find humorous, another may find insulting. Also when promoting the service in a foreign language, if the marketing team has a weak grasp of the language a translator ought to be used to avoid marketing blunders. The correct promotion of Vodafone service will lead to increased awareness and possibly increased sales. This would keep Vodafone ahead of competition and maintain its market leader position.
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Discipline – When trading with partners in countries such as Germany where discipline is vital, Vodafone have to adapt to this environment. In order to avoid conflict, steps must be taken to ensure punctuality and general discipline. Discipline costs no extra money, but would make them more efficient.
What common features need to be kept?
Vodafone provides a communication service, and no matter where you go in the world, such services will always be needed. Although certain changes need to be made to adapt to the different cultures, the basic feature of providing a communication service will remain. Certain tariffs, such as Pay as you Go should be kept as they are popular world wide. As well as this, Vodafone need to ensure it remains efficient, competitive, and maintains its market leader position.
Bibliography
Title Author Publisher
European Business Harris Macmillan
International Business Dawes S Thornes
European Business Mercado Prentice Hall
The European Mosaic Gowland Pearson
Internet websites
