internationalization at Vodafone ch1

Vodafone, a British company headquartered in Newbury, Berkshire, England, is the world's

second largest mobile communications operator, with networks in 64 countries in five
continents, serving 458 million customers. Its annual revenues in 2015 were UK £42.2 billion
and its EBIDTA £11.9 billion. (£1 = $1.51 or €1.40). About 90% of Vodafone's revenues
come from voice communications. But data over mobile devices is gaining momentum. More
than 20 million of its customers were already using 4G services in 2015. Industry forecasts
predict a total of 7 billion mobile phone subscribers by 2016, with 2 billion using
smartphones. The company's business is organized in four major product units: • Consumer
Services, Europe: 41% of the company's service revenues in 2015. This segment is sensitive
to availability of 4G networks. • Unified Communications: 20% of revenues. It aims at
satisfying increasing customer demand for bundling multiple technologies: 3G, 4G, WiFi,
cable, and fibre. • Consumer Services, Emerging Markets: 23% of revenues. Mobile banking
and data are core activities of this business unit, with sales doubling annually since 2011. •
Enterprise Services: 27% of revenues. High growth potential, as ubiquitous round-the-clock
customer and employee relations are becoming a standard enterprise practice.

Regulatory and Technology Challenges, and Opportunities:

Vodafone began its activities in 1982 as Racal Electronics, a manufacturer of military

communications equipment, and entered the civil cellular sector in 1985, at a time when
telecommunications was a highly regulated industry in most of the world. Deregulation in
Europe began in mid-1980s, first in Britain and later in Continental Europe. This
development was followed in the 1990s by the introduction of a pan-European technological
standard, the Global System for Mobiles (‘GSM'), which is now used in 219 countries on
harmonized frequencies that enable seamless roaming. Vodafone was one of the very first
telecommunications services providers to convert its network to the new technology.

Threat of Foreign Competitors:

The advent of GSM and the abolition of state monopolies in EU mobile telephony stimulated
speculative investors to get into the industry. By 1998 there were in the average three mobile
operators per country. The more ambitious ones, from France and Germany, quickly saw
opportunities for expansion in the Continent and Britain. Vodafone came under attack,
through alliances built by competitors wanting to exploit the UK market.

International Expansion:

In a defensive reaction, Vodafone's management began contemplating overseas expansion. It

considered that confronting its major Continental competitors head-on was risky. Its first
internationalization moves were towards former British colonies and protectorates, such as
Gulf States and Malta, where cultural differences were low. The business potential of these
markets was, however, limited. In a bold move, the company decided to sail across the
Atlantic, where cellular telephony was still fragmented with scores of small operators
jockeying for limited geographical territories. The British company was in June 1999
successful in acquiring 45% stake in Air Touch Cellular, a Californian corporation using
AMPS technology standard. It was a year later renamed to Verizon Wireless.
Confident after this strategic move, Vodafone made an offer to buy controlling interest in
Germany's second largest mobile operator, Mannesmann, which was already in partnership
negotiations with two heavyweights of the industry, Hong Kong's Hutchinson Whampoa and
France's Vivendi. But quickly Mannesmann's CEO and Board replied they were not interested
to sell. Vodafone swiftly made a hostile take-over bid directly to the German company's
shareholders. In spite of resistance from the German government and general public,
Vodafone in February 2000 succeeded to strike a friendly merger, paying $180.95 billion for
the control of 50.5% of the new company. This transaction, the largest cross-border merger
ever, did not involve any cash: Mannesmann's shareholders received Vodafone shares in lieu
of payment. This company's global expansion followed rapidly, and the stock-swap payment
method has been enshrined in Vodafone's financial strategy. Its strategic goal has also
remained steady: to invest in the number two operator in the target country. Vodafone's
network is today composed of 24 wholly- or majority-owned subsidiaries and 40 associated,
partnership and joint venture operations. Customer billing is done in local currencies.
Through interconnection agreements, Vodafone also offers its users roaming to practically
any country on the globe. Its submarine cable infrastructure reaches 100 countries. Vodafone
is a truly multicultural organization. It employs 101,443 persons from two-dozen different
nationalities. Its CEO is Italian, while his predecessor was Indian. Women occupy 24% of
senior management positions. The Emerging Markets have taken prominence in the
company's internationalization strategy, with emphasis on Asia and Sub-Saharan Africa.
Vodafone is organized in two geographical divisions: Europe and AMAP (Africa, Middle
East, Asia-Pacific), which contribute at 66% and 32% respectively to total revenues.
Vodafone failed to enter the Chinese market with an acquisition, but it broke through in India,
where today it serves 142 million customers.

Expansion Hurdles and the Future:

Vodafone's internationalization has not always been smooth. Technology incompatibility with
national standards in Japan and America, shareholders' appetite for dividends, and cross-
cultural issues in certain markets have forced the management to divest from its ventures in
Japan, France, and USA, thus reducing the company's market value. It has now become a
target of take-over bids by China Mobile, world's largest mobile operator, and AT&T of
Dallas, Texas. In Europe, where mobile telephony revenues have fallen 11% between 2009
and 2015, industry consolidation is in the air, with Orange, Telefonica, Hatchinson Whampoa,
Liberty, new-entrant Altice, and corporate raiders looking for acquisitions. Vodafone may
benefit from this race, or become its victim.
Q1: What is the nature of the international business environments Vodafone faces? What
types of risk does the firm face?

2. How has Vodafone benefited from expanding abroad? What types of

advantages has the company obtained from its international expansion?
What advantages acquired overseas can help Vodafone maintain its
leadership in Europe?

Q3: What is the underlying rationale for Vodafone's expansion strategy to

invest in the number two operator of a target country, instead of the
incumbent number one?

Q4: Why did Vodafone expand first towards the U.S., through the
acquisition of 45% of Air Touch's share, although there was no technology
compatibility between North America and Europe, making roaming and
other synergies between the UK and U.S. networks impossible? What
competences did the company have that it could use in this venture?

Q5: Why did the German government and public resist the acquisition of
Mannesmann by Vodafone in late 1999? Are there any similarities with the
lack of success of the company to acquire a local Chinese operator, or a
stake in China Mobile in recent years?