Sunday, 18 November 2012

Vodafone Group Plc Porters Five Forces

Vodafone Group Public Limited Company is the world’s leading mobile telecommunications company operating in more than five continents. The company runs its operations from two geo-regions: Europe, which includes Western Europe andGermany, and EMAPA, which includes Middle East, Africa,Asiaand the pacific. The European market is the largest accounting for close to 80 percent of the revenues as of 2009. However, the increasing partnerships with other mobile networks globally have seen revenues from regions outsideEuropeaccount for close to 40 percent as of 2011. The success story of Vodafone Group PLC revolves around the strategic competencies and acquisitions of other networks to become a powerful and leading mobile services provider. Strategic competencies and operations are well captured in the SWOT analysis, as well as the Porters five forces, which help give the position of the company and the challenges it encounters both within and without the organization.

Introduction and background information
Vodafone Group Public Limited Company is a global telecommunication company operating in various continents including Europe, Asia, Africa, Middle East, United Statesand the Pacific. Vodafone Group PLC has its headquarters in Newbury, United Kingdomand ranks among the leading global telecommunications providers. Listed on the London Stock Exchange, it is a part of the FTSE 100 Index with the largest revenue among the telecommunications companies. It ranks second behind China mobile in terms of worldwide subscribers, but leads the track in terms of revenues. Vodafone Group PLC ranks among the top 20 companies of the FTSE 100 Index coming in at position three based on statistics released on August 3 2012 (Financial Times, 2012).

The company has equity interests in over thirty countries globally with approximately forty partner networks. Vodafone has achieved this place through a process of competent acquisitions of communication networks in different countries, powerful organizational ability and efficient techniques that have permitted it to build out Wi-Fi systems, which are extremely competitive. The company also provides effective data services, which subscribers can access using the extremely progressed third-generation (3G) communications systems available to its markets globally. This analysis will look into factors that have propelled Vodafone to its position, how it markets and promotes itself in the competitive telecommunications market, and the competition it experiences in the telecommunications industry (MarketLine, 2012, p. 7). The internal and external environment explained using the SWOT and Porters 5 forces analysis will help provide a better market picture for Vodafone Group PLC.

Financial analysis
A report by Mintel released in 2010 indicates that Vodafone is the fastest growing mobile company globally with over sixteen million new subscribers each month (Mobile Network Providers, Mintel, 2012). This explains its huge turnovers and revenues attributed to the ever-growing number of subscribers as well as wireless and wire line networks across the world. For instance, the yearly revenues increased from £45.9 billion to £46.9 billion in the first quarter of 2012 (Vodafone Annual Report, 2012). A general observation and analysis of the financial report released in the first quarter of 2012 indicates that the results are negative, probably due to the Euro zone crisis, but the bottom line is that the revenues, especially from EMAPA have kept increasing as summarized in the tables below.

Source: http://www.vodafone.com/

Strengths

Vodafone’s major strengths are the reason behind its success in the global telecoms market. These strengths include

* Diversified and expanded geo-regions across the world divided into two:Europeand EMAPA. The diversification has strengthened its mobile network operations in these regions and accorded it more subscribers
* A strapping international presence and powerful brand image have made it the leading telecommunications company. According to a Mintel report released in 2010, Vodafone is the most trusted service brand owing to its excellent signal strength and efficient services (MarketLine, 2012, p. 5)
* Vodafone has well-defined cost reductions structures owing to the vibrant cost cutting initiatives, effective outsourcing and managed purchasing. This has improved the company’s revenues by reducing the operational costs
* An excellent network infrastructure with innovative services including 3G network and Wi-Fi systems
* An established presence in mature and emerging markets such as Africa andAsia, which have expanded its market share and revenues
* Vodafone’s major weaknesses include
* Uncertainty in the profits obtained from the HSDPA networks attributed to the slow consumer take-up of improved 3G networks services
* Vodafone’s return on assets is negative, which means that its competitors such as Deutsche Telecom and BT Group surpass it due to underperformance
* Over-reliance in the European market, which has seen its revenues and share decline due to the crisis in Europe(MarketLine, 2012, p. 6)
* Vodafone does not have network operations in rural areas
* Vodafone specializes in mobile services that lead to greater churn rates. The incapacity to offer bundled services due to specializations has compelled the company to compromise its prices
* The growing demand for 3G networking among businesses globally has seen Vodafone collaborate with leading laptop manufacturers to embed its SIM chip to allow for up selling of the broadband service
* Vodafone has also diversified its market share and EMAPA remains the leading target because of its potential. Indeed, recent statistics indicate that revenues from EMAPA have improved (MarketLine, 2012, p. 6)
* The strategy to drive higher voice usage acrossEuropehas spread to other locations implying that the company does not have to reduce prices to increase call time since the monthly bundle provides customers with enough voice time
* The telecommunications market is swiftly growing and becoming highly competitive with extremely high penetration rates in the European markets. Its major competitors includeChinamobile, Deutsch Telecom and BT Group
* Frequent tariff interventions and European Union policies on cross border mobile usage put pressure on its revenues
* Vodafone lags behind its major competitors inAmerica

Porter’s five forces
Buyer power

The bargaining power of buyers in the telecommunications industry is high due to the cutthroat competition and lack of differentiated products. The strong buyer power effectively reduces the cost prices in the industry though not to the level of its competitors. As such, Vodafone will keep making reasonable profits compared to its competitors.

Supplier power
Vodafone’s suppliers have a high bargaining power since the company operates with greater margins compared to its competitors. As a leader in the market, the market share is large meaning that it can easily absorb any price increments from the suppliers more than its competitors can. As such, Vodafone can easily maintain low prices from its suppliers and continue making profits (MarketLine, 2012, p. 9).

Threat of substitutes
Vodafone faces a considerable threat for products and services. The landline and CDMA services are fast declining while broadband services are fast becoming common. Video conferencing, VOPI such as Skype, Google Talk and Yahoo Messenger, email and social networking have emerged as substitutes to mobile services. However, due to the strong buyer power and effective economies of scale, Vodafone does not need to pass down the costs attributed to substitution to consumers (MarketLine, 2012, p. 8).


Threat of entrants
The threat of fresh market entrants is low because of barriers to entry. Companies wishing to enter the market must pay huge licensing fees coupled by spectrum availability and regulatory issues attached to the industry. Similarly, the costs of setting up network infrastructure are high, and the rapidly changing technology make is difficult for new entrants to cope. However, Vodafone can cope with this by maintaining high-level efficiency of its services to unrivaled heights.


Industry rivalry

Vodafone faces extremely high rivalry from its competitors due to the low call rate prices charged by its closest competitors. Similarly, the competitors constantly provide innovative products and services to the customers, which mean that Vodafone has to provide the same to its customers.


Conclusion and Recommendations

Vodafone has consistently outperformed its competitors despite the cutthroat competition in the industry. This notable performance and ability to diversify its products together with numerous acquisitions have seen it become a leading company in the industry. It financial position also continues to grow due to the innovativeness and ability to explore new markets in different geographical regions. Similarly, Vodafone has capitalized on its opportunities and worked on ways to eliminate the threats and improve on its weaknesses through various competitive strategies (MarketLine, 2012, p. 7). In recommending to Vodafone, the company must increase its GPRS subscriber base due to the high demand, deliberate more on value added services, introduce location-based services, diversify its broadband network by introducing voice over internet and finally tapping rural markets.

References

BBC, 2012. Vodafone agrees takeover of C&W Worldwide, 24 March 2012, viewed 14 August 2012

Financial Times, 2012. Vodafone confirms talks with C&WW. 14 February 2012, viewed 14 August 2012

Mobile Network Providers, 2012. Mintel. [Online] viewed 14 August 2012

MarketLine, 2012. Vodafone Group Public Limited Company, SWOT Analysis. Viewed 14 August 2012

Vodafone Group PLC, 2012, Vodafone Annual Report. 31 March 2012, viewed 14August 2012