The Entry Of Vodafone Into Foreign Markets Marketing Essay

Vodafone was founded in 1982 through the joint venture of a UK electrics firm Racal Electronics Ltd (80%) and a US communications company Millicom (15%) and the Hambros Technology Trust (5%). In December 1986, Racal Electronics bought out Millicom and Hambros from Vodafone for GB£110 million. In 1988, the company was renamed Racal Telecom. (History of Vodafone) Through fears of the company being hammered on the stock markets and a want to enhance the business resulted in a floatation of 20% of the company. (Vodafone Group PLC) This floatation valued Racal Telecom at GB£1.7 billion. (History of Vodafone)

However this changed in 1991 when Vodafone Group Ltd. floated as an independent company. Vodafone acquired more licenses and interest overseas in countries such as Australia, Greece and Germany. Competition also entered the market that year. The company was called Mercury, a joint venture between Cable & Wireless and a telephone company called US West. However, they concentrated on two different sectors of the market – Vodafone concentrated on the corporate sector and Mercury on the private sector. Within a year competition increased with the entry of a network called Orange, established by Hutchison Microtel. By 1994, however, Vodafone had more than one million subscribers and was considered one of the largest cellular networks in the company. (Vodafone Group PLC)

In 1997 Chris Gent, who had formerly sat with the Vodafone board of directors, became CEO of the company. In 1999 Vodafone continued to expand. After the completion of the purchase of AirTouch Communications Inc., it changed its name to Vodafone AirTouch plc. The acquisition of Mannesmann also started around this time. (History of Vodafone) We shall discuss this in more detail later.

However, in July 2000, Vodafone returned to its former name of Vodafone Group Plc. The company reached five million customers in the UK. In recent years, the success of Vodafone has increased through joint ventures and acquisitions. In 2001 Vodafone took over Eircell which was part of Eircom in Ireland. This company was called Vodafone Ireland. A year later Vodafone acquired a large mobile company in Japan called J-Phone. As with Mannesmann, we shall go into more detail on this later. (History of Vodafone)

Global Strategy

Industries conduct global strategies to gain competitive advantage. For a company to carry out a successful global strategy, the managers within the company must understand the nature of global industries and the dynamics of global competition. (Global Strategic Management) As part of the participation strategy, the company has to take into account their objectives for market entry and the different modes for entry to foreign markets. They must then see which mode is the most suitable approach for them to take in different circumstances. These modes can be exporting, licensing, strategic alliances or foreign direct investment (FDI). (Foreign Market Entry Modes) The market entry mode decision is examined by how each alternative mode falls on the risk and control trade-off. (Arnold, 2003)

Being innovative and agile is part of Vodafone’s main strategies. Vodafone was the first mover to bring new technologies and buy 3G licenses in the UK and has made successful accurate forecasts to which the company has greatly taken advantage of. (The Strategic Management Practices of Vodafone and its Significant Impact to their Business Progress, 2009) Vodafone’s former CEO, Chris Gent, turned the company from a leading operator in the UK to a mobile giant leaving a “global footprint” through his expansion strategy. In 1998 Gent turned the company into a global company. As we already mentioned, in 1999 he bought many telecom companies around the world with the objective to turn it into a global wireless company and began with the acquisition with AirTouch Communications Inc. After this merger, Vodafone AirTouch (VA) entered a strategic alliance with Bell Atlantic Corporation. In the E.U, a regulatory framework was put in place where telecommunication operators were to be licensed. (Vodafone in Trouble, 2006) As part of their global strategy, the two entry modes were, at the time, strategic alliance and licensing.

At present, Vodafone’s strategy is to seek new markets away from saturated developed countries which still have untapped potential to provide increasing profits in the telecom sector. Their strategy is evidential in their plan to take-over Hutchison Essar in India. (The Vodafone Test- Brownfield vs Greenfield Investment, 2009)

Syed Tariq Anwar suggests that there are three reasons as to why Vodafone have been successful in its ‘massive global acquisitions and expansion in the global markets’:

Vodafone took advantage of opportunities regarding the 1990s wireless and the Web.

Vodafone looked for ‘niche-oriented markets where a limited number of wireless operators were willing to invest’

Vodafone concentrated on market growth by making the right business and consumer products

(Anwar, 2003)

We will now look at case studies where Vodafone entered foreign markets in which one was a success (Germany) and the other was a failure (Japan). We are going to analyse and compare the two cases. From this we will give a critique on these regions and come up with our recommendations and thoughts on these specific regions.

Mannesmann, Germany

Although Vodafone set up successful companies in many countries worldwide, one of the most successful markets that we looked at was the German market.

In February 2000 Mannesmann and Vodafone Air Touch entered into what, at that time, the Irish Times described as the ‘world’s biggest merger’ or by Schwarz (2000) as an “international record”. It was a deal worth about $185 billion (€187 billion). The new company consists of Vodafone having a 50.5% share and Mannesmann a 49.5% share. This hostile takeover made way for huge access into the European market for Vodafone. (Mannesmann accepts merger with Vodafone, 2000)

Vodafone successfully entered the German market through this hostile takeover and financed it by using its own shares and through an effort to win over the German resistance.

As there was a political protest against this take-over, Vodafone and Mannesmann spent an estimated $1 billion on advertisement and consultation fees during the take-over. Choosing this strategy showed that Klaus Esser (the Mannesmann boss) and Chris Gent (the Vodafone boss) realised their role as political pioneers and their need to overcome the German resistance. These advertisements, accompanied by promises by Gent that no job losses would occur, won over those who were initially against the take-over. (Schwarz, 2000)

Vodafone’s success continued after their successful entry to the German market. Despite the economic downturn in the current financial crisis, Vodafone Germany remains one of the most successful companies in its market. In the fiscal year 2008/2009 the total profit was €3.7 billion and there was only a slight decline in service sale revenues from the previous year. This was due to the regulation of mobile telecommunications rates. (Vodafone Germany: successful transformation into an integrated communication services provider – fit for the future with a stable business model, 2009)

Vodafone Germany (now called Vodafone AG & Co. KG) has therefore certainly been a success from the moment the hostile take-over took place to present.

Japan

Japan is one of the most active markets in the world and one of the world’s leading mobile telephone markets, not only in terms of size but also in terms of innovation and its ability to be early with the introduction of advanced technologies. Japan’s market is characterised by relatively low levels of penetration compared to Europe. It is a high growth market. (Emerald, 2004)

As the Japanese market is one of the most advanced markets, it was an attractive option for Vodafone. “It is characterised by relatively low levels of penetration compared to Europe and has only three national operators competing.” (Emerald, 2004) Vodafone, like many other western European organisations, identified Japan as a potential market a long time ago but took its time in entering the foreign market. Although Japan is a very attractive market, it is also quite a difficult market for foreign organisations to enter successfully. “The Japanese market is notorious for its resistance to the power of foreign investors and has always been perceived as a hard market to penetrate. Consumers tend to choose domestic brands over foreign products.”(Emerald, 2002) [2] This is a great example of the “backstage culture” where only insiders of the culture understand other aspects of the culture and are not willing to share with outsiders. (Terpstra & David, 1991:10) Only the Japanese people thoroughly understand the Japanese culture making it very difficult for a foreign company to enter.

Vodafone wanted to enter the Japanese market as a “strong presence in the high growth Japanese wireless market was essential to Vodafone’s global strategy.” (Dodourova, 2003) In 2000, Japan was expected to be the first country in the world to introduce a 3G network. Vodafone saw the Japanese market as a way to increase their global market share by entering another foreign market and also as a way of learning how to increase and perfect its efforts in the wireless Web in Europe. Vodafone felt that they could learn a lot from the advanced telecommunications market in Japan. “Presence in Japan would offer Vodafone the opportunity to observe the development of 3G services in Japan and enhance its own wireless Internet expertise through sharing of content and application skills, data marketing expertise, and use of partnerships with manufacturers and application developers.” (Dodourova, 2003)

Vodafone entered the Japanese market in 2001 through acquisitions. They chose to acquire “J-Phones” as they already had a small stake in the firm due to another acquisition they had in the US. Vodafone convinced remaining shareholders that Vodafone would be a responsible shareholder. Subsequently, in December 2001, Vodafone officially acquired “J-Phones.” (Dodourova, 2003)

In Japan, Vodafone’s main competitor is NTT DoCoMo, the fastest growing wireless/mobile phone company in Japan. Vodafone became a major participant in Japan’s rapidly expanding wireless market and the sole telecommunications partner of Japan Telecom in the J-Phone group, the third largest mobile operator in the Japanese market. Vodafone decided to change their target market when they acquired J-Phone. Instead of focusing on the teenage/student market, they decided to focus on professionals and the corporate world. (Foreign Marketing Misses in Japan) As previously mentioned, Vodafone’s main market sector in the UK in 1993 was the corporate sector. (Vodafone Group PLC)

Vodafone did not build up the trust needed. They failed to adapt to local conditions. They failed to build up trust with their new market, Japan. Vodafone decided to use David Beckham in their advertising campaign rather than keeping with the Japanese actress, Norika Fujiwara. This did not work well. (Foreign Marketing Misses in Japan) A key factor to international success is acculturation – when an immigrant (Vodafone) acquires the host country’s (Japan’s) cultural traits. (Palumbo, 2004) As Vodafone did not adapt or adjust to Japan’s culture, they failed to do this and this contributed to the demise of the company.

Vodafone did not focus on what consumers in Japan wanted. They applied the marketing tactics which they used in Europe. This did not work in Japan. (Foreign Marketing Misses in Japan)

Another mistake Vodafone made in Japan was the delayed arrival of 3G handsets in the Japanese market. They were beaten by their competitors NTT DoCoMo because of their timing, design and performance. The delays in rolling out new technology have made Vodafone lose out on business to their rivals, NTT DoCoMo. (Foreign Marketing Misses in Japan)

Vodafone was hugely unsuccessful in Japan. “Despite repeatedly renewing its efforts, including investment of billions of dollars, Vodafone never managed to perform well in the Japanese market.” (Foreign Marketing Misses in Japan) Vodafone sold the J-Phone group to SoftBank in 2006 for nine billion euro. “It was Japan’s largest private equity buy-out.”(InShort, 2006)

Conclusion/Recommendations

It is well-known that Japan is a hard market to enter. We therefore believe that Vodafone did not research the Japanese market well enough. They failed to realise that the Japanese market is very different to the European market. They should have researched the wants and desires of the Japanese consumers. Perhaps if they had done this then they might have been successful in this market.

Although Vodafone used the same market strategy (alliances) to enter Japan and Germany, they were two very different markets and therefore they failed in one and succeeded in another. As already mentioned, Vodafone won over the German consumers through extensive advertising and promises of job stability. (Schwarz, 2000) This completely contrasts with the entry of the Japanese market where Vodafone replaced Norika Fujiwara with David Beckham. (Foreign Marketing Misses in Japan) In doing this Vodafone failed to build up trust or pay attention to the culture of the Japanese people. Because of this, Vodafone showed that they were not trying to be a Japanese company but a foreign company in Japan. This did not appeal to the Japanese people. As already discussed, instead of foreign products, Japanese consumers prefer to choose domestic brands. (Emerald 2002)

Anwar (2003) suggests that one of the factors of Vodafone’s success is its ability to introduce new technology first and to buy 3g licences in the UK. We disagree with this suggestion as it raises the already mentioned issue that Vodafone did not bring 3g to Japan quick enough. NTT DoCoMo introduced 3g into Japan in 2001 leaving Vodafone too late and making Vodafone’s handsets look clunky and outdated. (Foreign Marketing Misses in Japan)

This added to Vodafone’s lack of success in Japan. They should have realised the extent of their competitor’s abilities and paid more attention to the advanced communication technology in Japan.

We believe Vodafone could have been successful in Japan if they had researched the market, the culture and the competitors more. Although we know that the European strategies do not work in Japan, we think that if Vodafone were to do it all over again they would need a strategy to win over the Japanese market, just like how they did in Germany.