The mobile telecommunication industry is in continuous growth. The rate of growth is accelerating than ever before. The desire by customers to have better products is an intangible asset at the disposal of Vodafone Group.
In order to expand its market share, Vodafone is moving in tandem with changing technology through the development of new services. The innovative services being developed by Vodafone surpasses customers’ imaginations. That is why the company has continued to appeal to many consumers for a long time.
Vodafone UK is poised to benefit from such technological developments. Being an international telecommunication company, Vodafone benefits fro the goodness of running business over a range of different markets. As a result of this, it is able to benefit from cost cutting through partnership with individual suppliers globally.
In addition to growing globally, Vodafone puts a lot of emphasis on business ethics. The company underscores the benefits of engaging in ethically acceptable activities as a tool of corporate strategy. This is a move aimed at building and maintenance of reputable brand.
Since its inception in the year 1984, Vodafone has grown rapidly. The company is dealing with more than 152 million people in form of staff, shareholders and customers. Therefore, its success is largely dependent on satisfaction attained by these stakeholders. The multinational company believes strongly on articulate responsibility to society.
Analysis of Vodafone and Its Business Environment
As postulated by Johnson, the environment of a company can be examined is sequential layers. The layer which encompasses wide scope and general in nature is known as macro-environment.it entails broad spectrum factors which affect in a greater or lesser magnitude all organizations in an economy.
Inside the aforementioned layer is refereed to as industry or rather sector. This represents all organizations operating independently but producing similar products and services (Johnson, G S & Whittington, and R 2005).
The industry is further subdivided in to various companies with different attributes and challenging one another on different bases. In the same manner, consumer’s expectations are different, they have diverse requirements. Therefore, immediately after the company’s environment consists of markets and competitors.
Figure 1: Layers of the business environment
Analysis of Macro Environment
The analysis of Vodafone Group corporate strategy is going to be approached in three different avenues of analysis namely: PEST, SWOT and Five Forces
PESTLE analysis is a blue print which is applied to examine the external macro environment where an organization operates. PESTLE is an acronym standing for factors which affect business. These factors are: Economic, Political, Technological, Social, Legal and Environmental. These factors are very vital in creation of value for any company’s corporate strategy. Nevertheless, their scopes are beyond the control of the company in question. They are usually classified as either opportunities or threats depending n the impact the have on the company’s value. If the impacts generate positive results then it is considered as an opportunity otherwise it is a threat. The company value of Vodafone is influenced by several external factors summarized as PESTLE and described below.
Political Factors
Just like any other business, Vodafone is expected to adhere to rules and regulations controlling the day to day running of business activities. It is obliged to protect and uphold the sovereign laws of the land in which they are operating. The regulations of this nature take the form of specialized laws customized to suit both trade and telecommunication industry. Such laws regulate the sector and ensure fair competition among the layers.
Nearly all of European Union Member states have adopted and are currently implementing the European Union Regulatory Framework for the Communication Sector. This framework was adopted in the year 2002 in a bid to enhance competition it information technology related markets. These rules were also made to improve the operations in an independent market while ensuring that basic user interests which would not be availed by market forces are protected (Thompson, A & Strickland, J 2002).
The effects of European Union Framework on Vodafone UK were noteworthy. When the European Union member states started enacting the laws tailor-made to implementation of the framework, Vodafone was forced to lessen its cell phone termination charges substantially. As an illustration, a reduction by 19%, 10.5% and 23% were witnessed in Italy, Spain and Germany respectively.
For many years now, spectrum liberalization is a paramount issue in cellular phone regulation. It’s simple but though philosophy is that markets are in a better position of determining the most efficient spectrum than regulators. September 2005 saw the publication of a proposal by European Commission which included suggestions to allow spectrum holders more versatility on the application in which it is put. This proposal attempted to limit trading of spectrum within spectrum market and enhancement of harmony among certain bands.
Other political factors which have had influence in Vodafone’s operations are the European Union Roaming Regulation. The regulation sought to relieve consumers of the heavy burden accruing from heavy calling rates. It was formulated to reduce the charges in which customers were paying by 70%. This policy expects mobile operators, where Vodafone is included, to give ‘Euro-tariff’ in which the rates of calling within the European Union is at a maximum of 49 eurocents and charges related to receiving of a maximum of 24 eurocents. This is to mention but a few of the regulations impacting largely on Vodafone’s value.
Economic Factors
Economic activity of every country is best estimated using Gross Domestic Product (GDP). This ‘yard stick’ encompasses production activity of local producers and computed as the cumulative sum of all value added emanating from all sectors of an economy. The cyclic movements of the economy portrayed in fluctuating GDP will go a long way in interfering with the activities of different sectors and consequently companies (Damodaran, A 2002). The economic melt down witnessed 2007-2008 affected the operations of Vodafone to some extend. The factors like U.S. economic downturn and unfavorable credit conditions in the international financial markets are some of the features which affected Vodafone’s operations in the recent past. The IMF raised its predictions for consumer price growth in European market, a region where Vodafone has substantial market share.
Social Factors
There have been unprecedented changes in the European Union and other regions demographics. This shift in demographic alignment will eventually affect several areas of society such as job markets, consumption patterns, education and social systems. The life expectancy has gone up while the rates of fertility have gone down. These facts have made the majority of the European Union to be older than earlier days.
The trends from Eurostat project that the European Union is going to have more than 15 million fewer children in 2050 than in 2005. Consequently the proportion of older people is going to rise. The United Nation’s forecasts reveal that the rate at which world population is increasing is likely to slow down in many regions. The ratio of world population inhabiting more developed regions like the European Union, Russian Federation, United States and Japan is predicted that it will decline from 19.6% in 2000 to 13.6% in 2050. These developments are likely to affect the way of doing business in one way or another. Since the majority of population, in what may be classified as emerging nation, is going to be younger people, Vodafone will adjust its marketing strategy and segmentation to match the demographic shift.
Technological Factors
Technological advancements realized through deliberate efforts evident in Research and Developments (R&D) are the key issues behind Information Technology growth. Vodafone business is largely dependent on technology. The entire of its products and services portfolio has a technological background. To remain up beat in the industry, Vodafone is dedicating huge sums of money towards Research and Development. These are deliberates moves aimed at generation of new ideas and technologies. A shift in technology will affect the way operations are managed in the company. Recent shift in the way customer services are handled is a true indication of the technological might surrounding telecommunication industry. The arrival of third generation, 3G cellular phone technology has introduced wider mix of content as well as provision of better services. As a result of this, Vodafone can now provide wider variety of services to its subscribers (TIOB, 2003).
In summary, the revenue of different corporations including Vodafone is bound to increase. Nevertheless, Vodafone underscores the challenges facing these technological advancements. A step further in technology comes with more responsibility due to producer’s liability. The new products and services accruing from innovations must be fools proof so as to ensure that consumer’s safety is guaranteed. This includes the requirement to protect young subscribers from inappropriate contacts like erotic material, gambling and violent games.
Legal Factors
Although they might be treated separately, the legal factors affecting Vodafone are very much related to political factors. Legal issues are mostly about regulations and requirements which must be adhered to by mobile phone operators including Vodafone.
Porter’s Five Forces Model
Figure 2: Porter’s five forces model
This model is a framework which is normally utilized for analyzing both industry and business strategy development. It entails a detailed focus on five forces which influences competitive intensity and thus how attractive the market can be. Attractiveness as used in this context refers to the entire profitability of the industry. According to Porter, these forces are micro-environment. This kind of analysis digs deeper to more action points than general perceptions. Therefore it is a kind of opposite to PESTLE analysis. Porter’s five forces are about the forces which are close to an organization and thus interfere with the ease of serving customers and generation revenue. A shift in every one of these forces will cause disequilibrium which calls for re-assessment of the market place. This analysis will narrow down to attractiveness of the EU telecommunication sector where Vodafone falls (Johnson, G S and Whittington, R 2005).
Threat of New Entrant
Although evidence depicts that most companies cannot identify new competitors easily, the case is different in the mobile phone industry. Since the cellular phone operators must fight for spectrum licenses, they are put in a position of identifying its competitors easily in specific markets. The threat coming from new entrants in the telecommunication industry is little. The new entrants are not likely to come with better production capacity. This is because the technology in telephony can be assumed to be similar and thus new entrants cannot bring better production capacity. However, operators of fixed-line pose a threat to mobile phone operators because they will indeed have additional production capability.
Bargaining Power of Buyers
The recent developments in the telecommunication services sector have been due to explosion in subscriber base in developing countries. However, this sudden rise in the number of consumers is not limited to emerging economies alone. To illustrate this, the mobile subscriber base saw a record of 26% increase between the year 2002 and 2006. By 2007, the total number of mobile subscribers had exceeded three billion.
In the saturated markets, the demands of consumers continued to increase. The customers wanted access to more features at a lower cost. As a result of this, mobile operators have been pushed to the corner of cutting costs which trickles down to consumers in form of reduction in prices. Buyers are getting more sophisticated than before. They have embraced the use of numerous services offered by Vodafone and other mobile operators. These products include but not limited to data availability, MMS, 3G and broadband. Prepaid subscribers make up for 63% of all the active users. However, converting them in to contract subscriptions has not been easy.
Bargaining Power of Suppliers
The main suppliers to the mobile telephony sector are cellular phones manufacturers. Such manufacturers are Ericsson, Motorola and Nokia. Since the consumers are more interested with mobile manufacturing brands than service providers, the bargaining power of suppliers is high.
Threat of New Substitute Products or Services
The substitute product in mobile phone industry is majorly fixed-line phone. This is possible if convergence is neglected. The price of these substitute products is higher and inferior in performance and quality as compared to mobile phone products. The cost of switching is considerably low. However, mobile phone is still advantaged because there is a higher possibility of fixed-line switching to mobile than otherwise.
Intensity of Rivalry among Firms in the Industry
The European telecommunication market is characterized by stiff competition because it is not only saturated but also strictly regulated. The situation is eased in the emerging market where penetration is easier for Vodafone (Barney, J 1991).
Apart from the conventional competition, tariff rates have been determined in a large extend by the coming of alternative cellular business model called ‘Mobile Virtual Network Operator’. This is a company which provides similar mobile services as Vodafone but does not have any allocation of frequency. This company is financially dependent on its host. Regulatory framework has been favorable for such developments which are a true indication of looming competition.
Summary of Porter’s Five Forces Model
For an industry to be declared attractive, it must a robust competitive threats arising from alternative products, heavy rivalry among competitors, and low entry barriers, buyer and supplier with strong bargaining power. As depicted in the analysis above, mobile phone industry has low threats of substitutes and high entry restrictions. However, these attractive features cannot reach a trade off with risks arising from the intensity of rivalry and firm bargaining position of buyers and suppliers.
SWOT Analysis
SWOT analysis is an analytical tool used in examination of business strategy. It can as well be used to study other aspects of life. SWOT analysis entails a detailed review of both internal and external factors affecting a business. The internal factors are strengths and weaknesses while external factors are threats and opportunities (McGee, J, Thomas, H, & Wilson, D. 2005). The SWOT analysis of Vodafone is summarized in the table below:
Figure 3: Vodafone SWOT analysis
Strengths
The major strength of Vodafone is its broad image. The company has cut itself a reputable niche in telecommunication industry not only in Europe but also in other parts of the world. This image has been amplified by the presence of the company in most parts of the world
Weaknesses
During the expansion process, Vodafone has lost full grip of its operations. By entering in to franchise with local operators, the company was no longer in a position controlling its operations. This has been through the growth in form of acquisition.
Opportunities
Although saturation is being witnessed in some regions, the increase in demand for more products and rise in user’s sophistication present a prime opportunity for Vodafone.
Technological advancements are another outstanding opportunity available for the Vodafone Group. 3G for example is huge opportunity in which the company must rise up to its subsequent challenges so as to tap from it. Another opportunity available for this organization is creation of mergers and alliances with other players in the sector.
Threats
Vodafone is facing a major threat in form of competition. Secondly, the European market is becoming saturated. This means that subscriber base growth is going to decline. Finally, the emergence of cheaper brands paints a dark cloud on Vodafone’s future.
Conclusion and Recommendation
The three tools of analysis used above have various merits and demerits. However, out of the three methods, SWOT analysis is the best one because it captures both internal and external factors.
Based on the above analyses, Vodafone should continue to advance its current strategy of expansion. However, the company may consider going it alone in some market so as to safeguard its broad image. It is further recommended that a quantifiable method of analyzing business strategy should be developed so as to allow easy execution of recommendations.
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