Vodafone India Evaluation and Entry Strategy

Vodaf wizard India Evaluation and Entry St cropgyThe Indian telecommunication industry is the worlds express growing telecommunications industry. The total come up of ratifiers was 225.21 Million with a teledensity of 19.86 %. It was pass judgment that the meandering(a) ratifier lay down go away grow to 500 Million by 2010 i.e. more than whizz b stake phone per household and 1.159 Billion unstable subscribers exceeding total subscriber count in China by 2013. The average addition of new subscribers per month was 7.34 Million and it was change magnitude. The annual harvest-feast rate (2006-2007) of the new mobile subscribers was 46.82%.The average revenue per user (ARPU) for GSM was US$ 6.6 per month. There were more number of mobile users than fixed line subscribers.The Indian telecom industry witnessed a CAGR of approximately 22 per cent from 2002-03 to 2006-07. The CAGR from 2006-07 to 2009-10 is expected to stabilise at 21 per cent. In addition, the telecom equipment grocery store had enceinte to US$ 17, one C Million and the handset foodstuff had gone up to US$ 4,750 Million.In 2006-2007, Indian telecom industry generated revenues of approximately US $ 20 Billion. The commercialise witnessed a CAGR of 22% in the period 2002-2003 to 2006-2007 with last geezerhood addition rate of 33%. The high growth rate resulted in doubling the revenues of the Indian telecom industry in the past 3 years. The industrys revenue is expected to grow up to $ 43 Billion by 2009-2010.The Indian telecom industry fuck be divided in the main into Basic, nomadic and Internet suffices.Basic inspection and repairs cover Fixed fit come on Line and Wireless in Local Loop (WLL-fixed) proceeds. This segment is henpecked by BSNL and MTNL. MTNL operates in Delhi and Mumbai, whereas BSNL die hards the rest of the solid ground. A few clannish service deliver the goodsrs desire Bharati and confidence w atomic number 18 done fountainhead lately in this segment nevertheless presidency owned BSNL and MTNL continue to dominate in wrong of number of subscribers. In 2006, the total number of basic service subscribers exceeded 50 gazillion. Fixed wire line users do up a large sh atomic number 18 of this, with a contribution of 83 per cent.Mobile workThe prime reason of the spectacular growth in the Indian telecom industry is the rise of Mobile helpings. The total number of mobile function subscribers has change magnitude to 185.13 Million with an addition of more than 6 Million subscribers e re all in ally month. India is one of the few countries where there are more number of subscribers than the number of fixed line users. GSM dominate this segment with a share of 73% whereas CDMA has a share on tho 27%.Currently there are 12 active players in this segment. All the service providers provide operate predominantly under ii categories Voice Service and encourage Added Services (VAS). Voice service comprise of only basic professio n services whereas Value Added Services comprise of SMS, mobile profits services, email, chatting, conferencing, image conferencing, GPRS services etcetera The revenues from Value Added Services are growing by 30-40% annually. This growth is laying foundations for the introduction of 3G services in India.All the service providers have constantly indulged in price wars which have led to a reduction in the ARPU constantly. yet, the reduction in ARPU has been backed by the change magnitude number of subscribers. The ARPU of GSM service in India has been much higher as compared to CDMA.In spite of a constant decline in ARPU and with the help of constant tariff reduction, the mobile usage in India has been emergence constantly. Currently, India stands at second position in the world after China in terms of Minutes of Usage (MoU). An early(a) inference of reduced tariffs, reduced ARPU and change magnitude number of subscribers is that the service providers is boffoly tapping the b ottom of the pyramid by increase affordability, which has a huge market potential.Internet ServicesIn 2002, the organisation of India opened internet telephony and issued licences in this domain. In 2004, the politics of India utilize the Broadband Policy which sent out signals of governments positive intent of increasing the penetration of internet in India.Currently, there are 2.25 Million internet connections in India. There are nearly 400 Internet Service providers which are operational in India currently. Though the penetration rate is depleted, but this segment holds a huge growth potential in India. establishment owned BSNL is the largest player in this segment.The total number of Internet subscribers increased at a CAGR of approximately 60 per cent from 1997-98 to 2006-07. An emergence of private players and superior technologies, internet wideband segments have shown impressive potential for growth. With the square undergoing improvement in telecom substructure, t he quality and penetration of internet wideband services have undergone significant improvements.Though the private ISPs are spotting up fast, the government owned ISPs BSNL and MTNL still hold nearly two third share of the total internet services market India. telecom Subscriber Base and Tele-densityDue to the phenomenal growth rate in the Indian telecom industry, India is likely to reach second position in the planetary telecommunications market by 2010. The total subscriber base in India is likely to reach 500 Million by 2010. The telecom subscriber base is augmenting phenomenally and the soaring industry revenues are a prepare proof of it. The additions in subscriber base in 2007 registered a growth of approximately 47 per cent over the previous year. The CAGR witnessed by the subscriber base for the period 2002-03 to 2006-07 stood at 40.4 per cent. The superbly increasingly subscriber base has too played its part in increasing the tele-density in the country.Currently, th e tele-density is India is funky as compared to other markets, which is an Indication of a huge untapped market and a huge stemma opportunity. In 2006-07, India had a tele-density of 18.31%, depicting a growth of 43%. From 2002-03 to 2006-07, the tele-density in India registered a CAGR at 40.4 per cent and 37.6%. telecom Service ProvidersThe Wireless Industry crossed 165.11 million-subscribers mark in 2007 comprising of 120.47 million GSM and 44.64 million CDMA subscribers registering an annual growth of 83.17%.Bharati leads the Indian telecom market with a total share of 22.49% fol ruggeded by BSNL, Reliance and Hutch. Despite stiff competition, Bharti has been successful in retaining its position of leadership.75% of the total GSM segment is occupied by the private players, Bharti and Hutch being the top two players. Reliance and Tata Teleservices dominate the CDMA segment with a combined market share of 91%.VodafoneVodafone conference is the worlds leading mobile telecommunica tions fraternity. It is a British multinationalmobile internet operatorheadquartered inNewbury, England. It has a significant armorial bearing in Europe, the diaphragm East, Africa, Asia Pacific and the United States. It currently has operations in 31 countries and follower networks in a further 40 countries. The guild has do its front man felt through the Companys world-wide strategies of subsidiary undertakings, joint feigns, associated undertakings and investitures.Based on subscribers, it is theworlds second largest mobile phone operatorbehindChina Mobileand overTelefnica. The anatomy Vodafone comes fromvoicedatafone, chosen by the companionship to reflect the provision of voice and data services over mobile phonesVodafone was formed in 1984 as a subsidiary of Racal Electronics Plc. Then cognize as Racal telecommunication Limited, approximately 20% of the companys capital was offered to the public in October 1988. It was fully demerged from Racal Electronics Plc an d became an independent company in September 1991, at which while it changed its name to Vodafone Group Plc.Following its merger with AirTouch Communications, Inc. (AirTouch), the company changed its name to Vodafone AirTouchPlc on 29 June 1999 and, following approval by the shareholders in General Meeting, reverted toits condition name, Vodafone Group Plc, on 28 July 2000.Country evaluationWe evaluate India from the sight of Vodafone during the period before its entry into India. We look at the conglomerate opportunities it could have foreseen in terms of sales revenue, ease of entry and operations and likewise look at some of the hurdles it could have predicted.Country opportunitiesWe come with an analysis of the opportunities it could have seen in a large country like India.Market sizeWith the second largest population in the world (Fig 1), the Indian market looked very promising. tho one hurdle it faced was low mobile penetration (Fig 2) and low tariff (Fig 3) which kept profit margins low. But the penetration was expected to increase over 40% in the succeeding(a) 5 years1(Fig 4).The population growth and the GDP growth both were in the positive indicating larger future potential( As shown below).Economic surroundSince 1991 when the Indian economy opened up, the gradual economic reforms have delivered study cumulative change. These have greatly been in favour of a outside(prenominal) party come toing and doing cable in India. The ease of operations has greatly increased. As the bureaucracy has been reduced and the state influence over clientele decision likewise reduced, it is easier for companies to apacely formulate and implement business policies. The government has been promoting competition and de-licensing key sectors giving great boost to positive market dynamics. Foreign investment is also being encouraged into many sectors of the economy. mingled capital market reforms have been undertaken and the foreign exchange rules have been r elaxed. boilers suit the economy growth rate increased, the balance of payments is stabilized and the economy overall looked very promising.Regulatory status TRAIThe regulatory institutions were very well positive among emerging market peers. The following is the mission of TRAI which is very encouraging for a foreign entrantTRAIs mission is to create and nurture conditions for the growth of telecommunications including transmit and cable services in the country in a musical elan and at a pace which will enable India to play a leading role in the emerging globose information society.The goals and objectives, as taken from its annual report 2006-07, clearly indicated the creation of a golden market for telecom operators. Following are some goals of TRIA particularly complimentary to a foreign mobile operator entering IndiaIncreasing tele-density and glide slope to telecommunications in the country at affordable prices,Providing a evenhandedly and perspicuous policy envir onment which promotes a level playing field and facilitates fair competitionRe-balancing tariffs so that the objectives of affordability and operator viability are met in a conformable mannerPreparing the grounds for smooth transition to an era of convergence of services and technologies,Various recent dynamic consultations were done on 3G licensing, roaming and infrastructure manduction. The government had clear targets for teledensity such as 500m telecoms connections by 2010 (implies significant unsophisticated coverage) 20m broadband subscribers by 2010The high levels of fees and taxes had been reduced to promote affordability and increase teledensity further increasing scope for higher revenue. The sharing of passive infrastructure (sites, towers) was permitted and encouraged by the government of India. TRAI was evaluating active network infrastructure sharing to underpin teledensity targets. different factorsIndia has a very well developed and written legal dodge in mark making the legal aspects easy to comprehend and whence easier for a foreign company to enter. With the IT boom in place, there was a large educated workforce available for a foreign company to exploit. Although language barriers existed, they could be overcome in a phased manner.Major CompetitorsWe can classify players in telecom industry in terzetto major categoryGovernment MTNL, BSNLIndian Owned companies Reliance Infocomm, Tata TeleservicesForeign Invested companies Escotel, appraisal Cellular, BPL Mobile, Spice Communication, Bharti Tele-Venture, Hutchinson-EssarBharat Sanchar Nigam Limited (BSNL)BSNL is a one of the biggest player in telecommunication industry throughout the globe. It was established in year 2000. It stands 7th in the world in term of its size. It provides diverse range of tele-services which encompasses wired phone, GSM Mobile, CDMA, Internet, VoIP, broadband, VPN etc. It is one of the largest Public Sector Undertaking (PSU) in India. It has a dollar volu me of $ 8 billion. It covers 45 million lines covering 35 million connections across 5000 towns in India. It is a Government of India Undertaking. It plans to increase its guest base up to threefold to 125 million and invest Rs. 733 crores in coming three years.Mahanagar Telephone Nigam Limited (MTNL)MTNL is a Government of India undertaking. It has some 13% market share and covers 5.92 million consumers. GoI holds 56.25% stake in the company. It has revenue about $ 2.47 Billion. lately it has formed a JV with Telecom Consultants India Limited (TCIL) under name of United Telecom Ltd in Nepal. It has also apparatus its subsidiary in Mauritius. It has also formed two joint ventures with Software Technology putting surface of India and BSNL. With estimation of growth in telecom sector it is try to enter M-commerce.BhartiIt was formed in 1985 and was incorporated with name of Bharti Tele-Venture Limited on July 7, 1995. It has in general two groups Mobility Group and Infotel Gro up which handles operation. It has overthrow of $ 1.37 billion. It provides fixed and radio receiver telecommunication services across India, also offering broadband services across 94 cities. It has formed a joint venture with British Telecom for Internet services, in 1998. It is trying to found join venture for motley sector like, submarine cable landing station in Chennai, infrastructure projects. It is ready to focus on semi-urban and country-bred areas and to do this is has aggressively to setup more than 3000 towers.Reliance CommunicationIt was established in 1999 and is available in more than 340 towns across eight telecom circle. It has been offering first of its diversity mobile data service in India. It is present in CDMA 1X network. It offers know package of services ranging from fixed telephones to broadband, long distance call and also data services. It has revenue of $ 767 million. It has very strong infrastructure of about one hundred fifty thousand kilometres o f optic fibre spanning India, Middle East, Asia Pacific as well as Europe. It is also a wholesale service provider for dissimilar tele-services across the world. It has a strategy to give more focus on mobile content provider rather than it voice services. It also plans to parallel its coverage area in next three years.Tata TeleservicesIt was established in 1996 and is a part of Tata Group. The range of tele-services it provides are mobile services, public booth, wireless desktop phones, wireline etc. It also has services spanning internet, Wi-Fi, USB modem, calling cards, and enterprise services. It has it presence in 19 telecom circles. It has also acquired Tele.com in Maharashtra in 2002. It has very aggressive and has paid DoT for 11 new licenses.IdeaIt was founded in 1995 as a part of Aditya Birla Group which is Indias first multinational corporation. venture of Idea are distributed among various sister companies of Aditya Birla Group. It has a sales turnover of Rs 24,005.50 million. It has a customer base of over 17 million which are present in 12 telecom circles. It has merged or acquired various players in the different circles to become a service provider. It plans to enter rural and less developed cities to gain subscriber form first operator advantage. It also plays a pro-active CSR roleMode of EntryThere are basically five major different modes of entry for a company to enter a foreign market. They areExportingLicensingFranchisingStrategic alinement or articulation VentureWholly owned subsidiary pickax of entry for a company depends and varies from company to company and also on county of investment. We can see from the figure insecurity associated with various modes of entries. We can also compare various pro and cons of different entry modes in the table. take of ControlHigh starting cartridge clipLowHighLevel of dangerModeDescriptionAdvantagesDisadvantagesExportingTransfer of goods orservices acrossnational boundariesAbility to realize l ocation and experience-curve economiesAvoids the terms of establishing manufacturing operationsLow riskHigh transport costsUnpredictability oftrade barriersProblems with topical anesthetic trade agentsLicensingForeign licenseebuys the rights toproduce a companys crossway inthe licenseescountryLow developmental cost fond growth possible operose to have controlover technologyFranchisingSelling of limited rights to its injury name andbusiness modelLow costs of development and riskQuick growth possibleDifficult to engage in global strategicalcoordinationDifficult to control qualityStrategicalliance/JointVentureSharing of ownership and control byparent companies devil to partners experienceShared development cost and riskTransfer of complementary color skillsDifficult to engage in global strategicRisk of knowledge sharingWhollyownedsubsidiaryParent companyowns 100% ofthe subsidiarysstockProtection of technologyAbility to engage inglobal strategic coordinationHigh costs andrisksMode of EntryAcquisition of Hutchison EssarIn February 2007, Vodafone Group, one of the leading global telecommunication companies entered into Indian market by acquiring the 67% stakes in Hutchison Essar, one of the leading telecom operators in India, which provided its services under the brand name, Hutch. When Vodafone acquired Hutch the later had already earned a huge brand success in Indian mobile communication sector.Rational Behind the AcquisitionBelow sections will describe about the rational of why Vodafone chose acquisition as its mode of entry in India rather than going alone or other mode of entries.Leveraged up-on existing infrastructure built by Hutch angiotensin-converting enzyme of the objectives of Vodafone was to bring the product and services at the lowest possible cost for the Indian consumers. Existing infrastructure such as, towers, power supply, distribution bring etc. could help Vodafone to reduce its operating costs and investment requirements. later on five years of acquisition Vodafone was able to save more than one billion dollar by leveraging upon the ready-made and shared infrastructure.Quick entry to the new market- Acquisition also helped Vodafone to make a quick entry to the Indian market. Other mode of entry could have been time consuming or at least could take years to realize the communications channels and network if Vodafone decided to enter by own. to a fault taking the approval/license from the government could have been the time consuming.Minimizing the risk due to cultural differences- Since Hutch was already operating in Indian market before the Vodafone came it had a good understanding of consumers behavior towards selecting a product or services. Also Indian consumers are diversified in term of product choices, likes and dislikes, social and cultural influences, so managing the risk arises out of this divers consumers could have been difficult if Vodafone entered alone.Growth opportunity India is the worlds 2nd m ost(prenominal) populated country and the fastest growing mobile market in the world. So entering to India could help Vodafone to accelerate its business growth create a Strong Brand Acquisition would result in forming a strong brand name Vodafone Essar in India, enabling them to make comprehensive presence with strong financial position.Better competition to competitors One remarkable point regarding the Indian telecom market is that, this sector is highly private-enterprise(a) as there are many strong players, like Airtel, Reliance and BSNL operating in the market. So, it could have been difficult for Vodafone to counter the threat represent by those competitors. However, Vodafone along with Hutch could give them better competition. This further computer backup the Vodafones strategy to acquire Hutch.Win- Win situation for both Vodafone and Hutch-Vodafone-Hutch acquisition was an strategic movement for both the companies. Although Hutch had done well in the Indian market, i ts penetration of total Indian population was only 40%. So, in locate to expand its business to other parts of the country, Hutch necessitate money for investment. At the same time Vodafone was ready to make the investment in India market. So, Hutch decided to sell its 67% stake to Vodafone to pucker its financial needs.Other motive toward acquisitions was that through the acquisition, Hutch would get the global platform for its business as Vodafone was an international player in telecommunication. agree to Vodafone Essar director as saying that the objective is to leverage Vodafone Groups global outperform in bringing millions of low-cost handsets from across-the-world into India.Sound economic environment later the economic reform Indian foreign policy has been very amiable to the foreign companies who want to come to Indian market. There is relaxation in taxation and foreign exchange rules. Also there is least incumbrance by the bureaucracy in the management of the forei gn companies in India. value Purposes The corporate effective tax rate in India is 33.22% for a topical anesthetic company and 42.23 % for a foreign company. However joint venture companies are taxed same as domestic companies with some minor differences. According to Indian FDI policy,Foreign companies are free to open branch offices in India. However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of the parent company is also greater in model of a branch office.ImplementationAfter the acquisition, Vodafone brought many improvements to the existing business model of Hutch. It also made a huge investment to expand its network and distribution channels. The story doesnt stop here it also made a substantial spending in the branding and advertisement. Its zoo-zoo ad was one of the most successful ads ever made for Indian market. Due to its attention-getting design and features, the ad contributed a lot in bran ding the Vodafone products- peculiarly value added products and services. Over all Vodafone adoptive an aggressive strategy towards expanding its business in Indian market.Below is the elaborated view of the Implementation strategies adopted by Vodafone IndiaRe-brandingBefore acquisition, Company was named as Hutchison Essar, which was the name of the previous owner, Hutchison. However brand was marketed as Hutch, just because its simple to rememberAfter the government approval to Vodafone Group to acquire majority of stake, the company name was changed to Vodafone Essar. The marketing brand was again changed to Vodafone on September, 2007Escalating the Distribution ChannelsInvestment to increase the number of sole(a) showrooms and sell outlets -Hutch management was such that it relied on no subsidy (Only SIM) and low cost strategy. Vodafone continued with the same strategy. However it made a huge investment to increase the current level of exclusive shops and retail outlets. The n there were around 1800 exclusive shops and more than 300,000 retail outlets across India.Accelerate distribution roll-out in-line the network roll-out plans Vodafone took a holistic undertake for improving its supply-chain network. Vodafone had correctly realized the escalation of the channels for of product delivery is as of the essence(p) as developing its network channels.Escalating the Network CoverageMOU with BharatiAirtel on extensive level of sites sAdding up more mobile circles India is divided into 23 license territories, also called Circles for the purpose of mobile services. Out of 23 circles, Hutch was operating into only 16 circles, which covers only 40% of the Indian total population. After the acquisition Vodafone expanded it coverage and now captures all 23 circles in India.Sharing of active infrastructure- MOU with AirtelIn order to give its long term strategy to become the cheapest mobile operator in India, Vodafone actively shared its infrastructures with o ther telecommunication operators in India Currently about 2/3 of Vodafone sites are shared with other mobile operators.haring including, sharing of towers, shelters, civil works and power supplyEasily penetration to rural segmentsAchieved low cost servicesSignificant capital expenditure and operating expenses savings for the Vodafone-more than one billion dollarsavings was achieved due to infrastructure sharing evolution consumer and business propositionsMore consumer focused strategy One of the most important drivers who contributed towards the success of Vodafone in India is that its more consumers centric. It offers a blend of product and services that suits to souls needs. Consumers can choose the kind of products that they think best cater to their individual needs. Following are the major steps taken in order to make Vodafone the most preferred mobile service providerIntroduced low cost handsetsBrought Vodafone live to IndiaPayments through MobileA range of product schemes t argeted towards the customers with different needsFirst mover advantage to become the only operator in India integrated into an world-wide mobile companyInternational voice and data roamingStrong brand presence improved the credibility of the company and hence made the consumers to become more dependent on the VodafoneStrong Management team Vodafone took the control of management from Hutch. It formed a hierarchy of management team to ensure that the business objective is achieved at each and every level of the businessStrong and efficient customer care services Emphasized on providing 247 customers care services high-octane customer feed-back mechanism- It also brought a customer feedback mechanism at place