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vodafone's international strategy

Paper Type: Free Essay Subject: Marketing
Wordcount: 3663 words Published: 1st Jan 2015

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Executive Summary

Wireless marketplace opportunities are shifting east. Vodafone is no longer the

largest wireless network provider in the world; China Mobile has over 100 million

subscribers (China Mobile Limited, 2007) more and, although Vodafone continues to

earn more revenue than China Mobile (Vodafone, 2008), Vodafone is in imminent danger

of not keeping up with the changing dynamics of the marketplace. To this end, we

propose entering a new market: Vietnam.

This report contains a background on Vodafone’s international strategy to date, a

backgrounder on Vietnam, and a discussion of strategic, financial, HR, and marketing

strategies for penetrating the market. The report concludes with blanket recommendations

for ongoing Vodafone strategy in Vietnam.

Vodafone Company Background

Vodafone, which is headquartered in West Berkshire, England, has historically

been focused on two markets, Europe and the United States, in which it sells phones,

network services, mobile entertainment and connectivity add-ons, business solutions, and

other wireless products and services. Vodafone’s tight Atlantic focus is partly due to the

circumstances surrounding the company’s formation. Vodafone was a joint venture

between U.K. electronics company Racal Electronics and U.S. telecommunications

business Millicom in 1983. Shortly after its formation, Vodafone was granted one of the

U.K.’s two wireless phone licenses, and spent the rest of the 1980s and early 1990s

attempting to meet the skyrocketing wireless demand in the U.K. market, and in

emerging European markets such as Greece and Scandinavia. At the end of the 1990s,

Vodafone made aggressive moves into the U.S. market by purchasing AirTouch

Communications in 1999 and cooperating with GTE and Bell Atlantic to set up Verizon

Wireless in 2000 (Hoovers, 2008).

However, Vodafone’s historic presence in Europe and the U.S. is due not only to

its Atlantic background, but also to the fact that the first generation of opportunity in the

wireless market was concentrated in these two geographies. As other geographies began

to participate in the wireless revolution, and as the European market became saturated to

the tune of 90 percent or more (Reardon, 2007), Vodafone established beachheads

abroad. In the Asia-Pacific region, Vodafone bought controlling stakes in some operators

in India, New Zealand, and Australia, and non-controlling stakes in other operators in

China and Fiji. Famously, Vodafone entered (and departed) the Japanese market in 2006

at a loss of billions of pounds. Although the Japanese disaster could easily have been

prevented by Vodafone itself (q.v.), the experience soured Vodafone on the Asia-Pacific

market.

These are the circumstances under which Vodafone is being recommended to

enter into the Vietnamese market.

Country Profile

With a population of over 86 million, Vietnam is one of the smaller Asian-Pacific

countries but a market of formidable size when considered in global terms. Vietnam is

larger than every country in Western Europe, and behind only Russia in all of Europe, in

terms of population. Moreover, the Vietnamese population is remarkably young, with

26.3 percent of the people between 0 and 14 years of age and 75 percent of the population

under the age of 35 (CIA Factbook, 2008). By this standard, the average Vietnamese is

half the age of an average Western European. Given the correlation between youth and

wireless use (Wilska 2003, p. 441), Vietnam’s population is therefore the ideal consumer

base for a wireless services provider, not only at this moment but well into this century

given the vast number of Vietnamese who will be entering adolescence and youth in the

decades to come.

After half a century of bloody and debilitating war with the Chinese, French, and

Americans, Communist Vietnam attained unification and independence in 1975.

However, the country’s leadership did not hew closely to the economic policies of

doctrinaire Communism, choosing in 1986 to adopt a functionally capitalistic approach to

the economy. Vietnam is part of the ASEAN Free Trade Area (AFTA) and has bilateral

trade agreements with many Western countries, including the United States.

Economically, Vietnam is integrated into the global economy, although admittedly not at

the blistering pace of China. According to recent research, foreign-invested companies

“cumulatively accounted for around 27% of the country’s (non-oil) exports, 35% of the

country’s total industrial output…13% of Vietnam’s GDP…[and] 25% of total tax

revenues” (Freeman, 2002). This illustrates the impressive extent to which the

Vietnamese government has primed the economy for foreign companies.

Culturally, Vietnam is no longer the closed-off, rural state it was for much of the

twentieth century. Like other countries in the region, Vietnam has urbanized in a way that

is friendly to consumerism: “the burgeoning urban centers of Vietnam-Hanoi and Ho

Chi Minh City-are demonstrating their commercial role in the opening up of Vietnam

by the increasing use of billboards along the main thoroughfares, advertising Western

consumer goods” (Andrews, Chompusri, & Baldwin 2002, p. 262).

Moreover, after the end of the Vietnam War in 1975, both the Vietnamese

government and people have demonstrated their openness to the values and products of

Americans in particular and Western nations in general, indicating that the country has

never had an existential problem with the West: “It is interesting to note that, because

Vietnam is changing so quickly, some attitudes now resemble those of the West”

(Ashwill and Diep 2005, p. 94).

The Vietnamese economy has grown steadily at a rate of between 7 and 8.5

percent, and the government has repeatedly demonstrated its ability and desire to keep the

country growing at this rate. Vietnam’s growth plan includes integrating more closely

with Western business interests, as a perusal of the privatization plans for the mobile

marketplace (q.v.) will demonstrate.

All of these factors bode well for Vodafone’s success in this market.

Strategic Formulation:

The purpose of entering Vietnam is twofold: to gain an improved foothold in the

Asia-Pacific marketplace, which is providing a booming number of wireless subscribers

to the global market; and to pick up a quick win for Vodafone in a market that will be

easier to penetrate than China. The strategic and tactical lessons learned in Vietnam may

enable Vodafone’s improved success across the entire Asia-Pacific geography, and for a

relatively low cost of entry.

Accordingly, Vodafone will become immediately and intimately involved with

the Vietnamese marketplace, because it is a stellar opportunity:

  • Enormous upside: market penetration is 18.5 percent (Research &

    Markets 2008).

  • Proven market momentum: 800,000 new Vietnamese mobile

    subscribers, or nearly 1 percent of the company’s population, come online

    each month.

  • Relative lack of peer competition: no global wireless services provider

    of Vodafone’s stature is seriously contesting this market.

The advances in Vietnam’s telecommunications marketplace are almost

unimaginable given the recent state of the country: “Vietnam in the early 1990s had a

teledensity of one telephone for every one hundred people in a nation of seventy-two

million” (Curry 1999, p. 58). With Western Europe and the U.S. saturated, and Vietnam

skipping entire generations of technology in order to participate in the wireless world,

Vietnam is truly a frontier of opportunity for Vodafone, and a market that will rapidly

pass the company by should it choose not to enter.

Model of Entry

Vodafone will move aggressively to take advantage of the fast-moving

Vietnamese mobile market. Following the 2007 announcement by the Vietnamese

government (Reuters 2008) that all state-owned businesses outside sensitive industries

such as energy and transportation are candidates for privatization, Vodafone will propose

buying a controlling stake in VMS MobiFone, Vietnam’s state-run mobile services

operator and the largest mobile player in the country. Vodafone will target VMS

MobiFone’s 15 million subscribers with the full Vodafone portfolio of services. Entering

the market via equity means achieving “an extensive degree of involvement in a foreign

market” faster than any other method, which is the stated goal (Johnson & Turner 2003,

p. 114).

The specific justification for entering the market via the acquisition of a

controlling stake in VMS MobiFone is twofold: one, according to Vietnamese law,

Vodafone must work through a local subsidiary or joint venture if it does not want to buy

a controlling stake in a company; and two, instead of entering into the risk and delay of

clearing the legal and cultural hurdles to operating into the country, Vodafone can

directly buy into the expertise of the country’s largest mobile network provider and

leapfrog the stages otherwise required to build a foundation in Vietnam. As a minor but

still noteworthy point, Murray (2005, pp. 217-218) makes the point that the costs of

doing business in Vietnam for first-time participants in the market can be high because of

arcane local laws, confusing salary structures, and other factors that can conspire to trip

up the newcomer. Vietnamese companies, especially state-run companies, have a much

higher probability of negotiating lower office space and workforce costs.

Finally, to enter into a joint partnership of contracted duration, or what the

Vietnamese government calls a business cooperation contract (BCC), is to incur long

waiting times: “the likely commencement of service is some time away fur to the timeconsuming

nature of the BCC scheme” (World Bank 2000, p. 41).

There is low risk for Vodafone in the acquisition of a stake in MobiFone because

MobiFone has been actively seeking a privatization partner since 2007. There is

precedent for such a deal. In 2006, Viettel, the mobile provider then wholly-owned by the

Vietnamese military, was partly privatized, and another provider, Vinaphone, is also a

candidate for privatization. Thus, the Vietnamese public sector has experience in

privatizing mobile providers, and is now eager to put MobiFone on the block. Since

nearly a year has gone by without a serious suitor for MobiFone, Vodafone can expect to

appear as a white knight to the Vietnamese government and perhaps obtain a lower price

than might have been offered in 2007.

In the late 1990s, American Rice entered into a joint venture with Vietnamese

company Vinafood and encountered a stream of business problems, some of which

emerged from the ambiguity of the cooperative situation, and the way in which it was

exploited by Vietnamese suppliers and misunderstood by the Vietnamese public. [For an

extended discussion of the arcane dynamics of this situation, consult Latham 1998, p. 65]

This event increases Vodafone’s risk sensitivity to any joint venture possibility,

and mitigates for the company to buy a controlling stake in its own move into Vietnam.

We are mindful of the following quote from a Vietnamese manager: “‘When faced with

managers who won’t listen, we stop taking initiative. Soon we stop offering essential

advice. Often the expatriate begins to fail, but doesn’t even know it’” (Ashwill & Diep

2005, p. 94).

Financial Strategy

As a global company with a large market capitalization and cash resources,

Vodafone has typically paid billions of pounds in order to acquire controlling or noncontrolling

stakes in foreign wireless service providers. By the standard of Vodafone’s

past acquisitions, some of which are the largest M&A deals in the history of business,

acquiring a stake in MobiFone will not test Vodafone’s resources so as to require any sort

of creative financing or leveraging. There is consensus on the validity of this approach in

the academic literature: “when firms have large resources, the consequences of

commitment are small. Thus, big firms or firms with surplus resources can be expected to

take larger internationalization steps” (Luo 1999, p. 50).

That said, Vodafone does have another option if it chooses not to pay cash up

front for MobiFone. Kim and Kim (2006, p. 347) explain that a multinational can

structure a deal so as to offer a direct loan to its foreign subsidiary as a way of delaying a

direct equity investment. This is an unlikely option for Vodafone, and one for which there

is no obvious precedent in Vodafone’s history, but it is nonetheless available as a

financial option.

HR Strategy

There are only two broad options for HR strategy in a multinational context:

“integration (centralization) and differentiation (localization)” (Briscoe and Schuler,

2004, p. 61). Vodafone’s global strategy is somewhat confused in this regard, as

operations in some countries (such as Turkey) have favored localization, whereas

operations in other countries (such as Japan) have favored globalization.

In Vietnam, the HR strategy will favor localization. At its highest level, HR

strategy will treat subsidiary managers as the key to a successful transition. Research

demonstrates the pivotal role of the subsidiary manager in the success of a

multinational’s localized strategy. In the HR realm, Vodafone is aware that subsidiary

managers are demotivated by “perceptions of misfit, lack of procedural justice, weak

execution, loss of personal control and cultural misunderstanding” (Birnik 2007).

Managers encounter these problems when they are forcibly integrated into a foreign

business logic; however, as Vodafone will follow a localized strategy predicated on

giving MobiFine maximum control of its existing operations, we hope to sidestep these

particular cross-border HR issues. Vodafone understands that MobiFine has already

established an HR strategy, and we do not intend to tamper with it without reason.

MobiFine’s managers will naturally have to work alongside Vodafone employees

from outside Vietnam, but HR policy will sensitive our expatriates to the fact that

Vodafone is maintaining the integrity of the local chain of authority and respecting the

local culture. This is especially important because “the culture of foreign organizations

seems an alien to Vietnamese staff as Vietnamese culture does to the newly arrived

expatriate” (Ashwill & Diep 2005, p. 94).

Myloni, Harzing, and Mirza (2007, p. 2057) explain that four factors-a

deliberate transfer of HR practices from a corporation’s headquarters to its subsidiary, an

“international competitive strategy, informal control, and the presence of expatriates-all

succeed in grafting headquarters’ culture on to the subsidiary. We will avoid each of

these approaches because:

HR practice transfer: the acquisition of the controlling stake is being structured

as a Turkey-type deal rather than a Japan-type deal for Vodafone. Accordingly, corporate

HR will be removed from the strategy loop right at the beginning of the deal and

informed that their role is tactical (to support the new employees) rather than strategic (to

impose the Vodafone culture on the new employees).

International competitive strategy: admittedly, one of the purposes of our

expansion into the Vietnamese market is to better position Vodafone for competition in

the Chinese market. However, this does not mean that Vietnam is a corporate experiment.

Rather, we wish to learn directly from our Vietnamese colleagues at MobiFine and apply

this valuable knowledge to the entire region.

Informal control: In the late 1990s, American Rice attempted to change or

challenge existing business processes in the Vietnamese rice industry and lost, as the

company was unable to deal with the corruption and cut-throat nature of the status quo in

Vietnam. This was a direct result of a control problem – i.e., American Rice attempted to

govern an ungovernable set of business conditions. While the wireless business is

obviously quite distant, we understand that we are buying a stake in MobiFone’s proven

success rather than attempting to change the stakes of the wireless marketplace in

Vietnam. Our informal control of the company will be accordingly limited.

Expatriates: Vodafone realizes that, despite its strides over the past few decades,

Vietnam can still be hostile to foreign interlopers. Expatriates will be instructed to keep a

low profile, and eschew speaking to the press, making public comments, etc.

Marketing Strategy and Implementation:

Vodafone’s Vietnamese marketing strategy will respond to the painful lessons

Vodafone learned in another Asia-Pacific country, Japan. In 2006, Vodafone was forced

to exit Japan because of a massive hemorrhage of customers. The reason for this failure

was simple, and has been noted by industry watchers: “Vodafone was focused more on

the benefits of using its massive scale to spread the same phones and brand image

globally rather than focusing on the trendchasing Japanese consumer” (Kiessling,

Marino, & Richey 2006, p. 245).

We do not intend to repeat this mistake son soon after the bitter lessons of Japan.

Chastened by that experience, Vodafone will rely on the existing marketing plan of

MobiFone, which has succeeded in attracting hundreds of thousands of new subscribers a

month with its current approach. MobiFone is already a hugely successful brand in

Vietnam, and we retain the MobiFone name, messaging, and advertising strategies with

minimal interference from Vodafone. This approach privileges the experiential

knowledge of MobiFone rather than Vodafone objective knowledge, which failed the

company in its last venture into the Asia-Pacific region.

Aside from the Japanese experience, however, there are other reasons to leave

marketing to MobiFone: “Global marketing is not easily transferred to Vietnam. Like

China, Vietnam has a tonal language that poses problems in marketing communications

for firms” (Yip 2000, p. 284). Learning from our new Vietnamese colleagues about the

special requirements of tonal advertising will be an immensely valuable addition to the

knowledge base of Vodafone, which can mobilize this knowledge in China.

In addition to language, another potential minefield in marketing is the realm of

culture: “when Coca-Cola launched its Viet Nam marketing campaign by placing two

giant inflated Coke bottles on the steps of the Hanoi Opera House, the Vietnamese

scowled at the vulgarity of the…gesture” (Shillue 1997, p. 176). Based on this

information, there is an unacceptable high chance that Vodafone’s advertising culture,

with its reliance on garish advertising (including in auto sports environments) will not

transfer to Vietnam.

Future Strategic Plan and Recommendations:

    The favorable climate for foreign direct investment (FDI) is not only Vietnam but

    also the entire Asia-Pacific region is highly favorable (Freeman, 2002)

    As FDI inflows have accrued, and confidence has grown, the foreign

    investment regimes have continued to improve, in tandem with

    improvements to the wider business environment in these host countries.

    There is little doubt that considerable progress has been made over the last

    decade in the field of FDI activity in Cambodia, Laos and Vietnam.

These trends are based on not only top-down initiatives, such as governmental pushes for

privatization and the creation of favorable tax regimes but also the bottom-up affection of

consumers in these countries for Western brands, products, and services. However, since

we will remain in the background of the MobiFone deal, we will remain happily insulated

from the possibility of an unpredictable Vietnamese backlash against the West. Our risk

profile therefore dictates that we will not advertise with the Vodafone name or otherwise

promote our brand in Vietnam as we do in Europe. We are buying subscribers only, and

are content to allow MobiFone to be the operational and marketing face of the Vodafone

in Vietnam as long as Vodafone accrues the profits.

 

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