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An Economic and Business Analysis of Vodafone Essay

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Introduction

Economics refers to the study of the allocation of our limited resources to satisfy unlimited wants (Sivagnanam 2010). Economics helps professionals develop a disciplined method of thinking about problems. The application of Economics in problem solving does not always provide clear cut answers, but offers an avenue towards the correct course of action.

On the other hand, having some knowledge of market trends can help economists make informed decisions, including financial decisions (Sivagnanam 2010). In order to gain a deeper understanding of these concepts, this paper is going to give a detailed analysis of the business operations and economics of Vodafone.

The Business and the Competitive Environment

Vodafone is the world’s largest mobile telecommunication company in terms of revenue, and it is headquartered in London (Hitt, Ireland, & Hoskisson 2009). Vodafone is also the world second largest mobile telecommunication company in terms of subscriber numbers (Hitt, Ireland, & Hoskisson 2009).

The company is mainly involved with the provision of data and voice services through mobile phones. As a multinational company, Vodafone has established networks in over thirty counties around the globe (Khosrow-Pour 2006).

On top of that, it has partnered with other networks in other forty counties across the world (Hitt, Ireland, & Hoskisson 2009). Vodafone is ranked number two on London Stock Exchange in terms of market capitalisation (Hitt, Ireland, & Hoskisson 2009).

Core business

The core business of Vodafone is in the information and communication sector. The company’s main core business is the provision of voice and data services through mobile phones. Communication through mobile phones has grown remarkably in the last two decades. As one of the pioneers in the mobile telecommunication sector, Vodafone has established its network across the globe providing its customers with reliable mobile services.

Thus, Vodafone mainly acts as a service provider in mobile phones communication. The services are two fold. The first service involves voice communication via mobile phones. The second service involves data transfer via mobile phones. In other, words, Vodafone also provides internet connectivity.

Vodafone has a number of braded products that depict its core business. They include Vodaphone mobile connect USB modem, Vodafone 360, Vodafone live, Vodaphone connect to friends, Vodafone freedom packs, Vodafone passport, Vodafone 710 and Vodafone at home (Happer & Buress 2008).

Vodafone’s subsidiary Safaricom limited of Kenya launched another unique service called MPESA five years ago (Mohapatra & Ratha 2011). MPESA is the latest mobile money transfer method on the globe. The service enables subscribers to send and receive money (PESA) through their mobile phones.

This service was first launched in Kenya and has started gaining a global outlook. This mobile money transfer service was launched in favor of subscribers in Kenya who did not have bank accounts. The service has since grown and is used by not only individual subscribers, but also business operators.

It has become the most reliable and fastest mode of money transfer in Kenya. Vodafone has started to make efforts so as to make the service a global feature. Subscribers are able to deposit or money via their mobile phones (Happer & Buress 2008). This has been enabled by the establishment of numerous outlets in towns and villages. Thus, subscribers can easily locate an MPESA outlet in their locality.

Vodafone has also established another service called mHealth, which carters for emerging health markets (Hitt, Ireland, & Hoskisson 2009). MHealth necessitates the application of mobile communications and network technologies to the healthcare industry (Hitt, Ireland, & Hoskisson 2009). Vodafone has the objective of using this service to enhance the internal processes of organisations and to optimise the delivery and accessibility of healthcare (Klaver & Slaa 1992).

Main customers

The services provided by Vodafone capture anyone with a mobile phone. Customers using mobile phone services are however required to be of legal age. This is because minors in many countries in which the company has established its networks are not allowed to own mobile phones.

However, such minors can still use their parents’ or guardians’ mobile phones. The data transfer services cuts across all ages and gender. The internet connectivity is accessible to customers of all ages. Government institutions, private corporations and the general population benefit from the internet connectivity services provided by Vodafone.

Operations

Vodafone is headquartered in London from where it manages networks in thirty counties across the globe and an additional partnered network in forty counties (Ibbott 2007).

The Middle East and Africa

Vodafone has established its network in the following countries Egypt, Kuwait, Bahrain, Qatar, United Arab Emirates, Libya, South Africa, Ghana and East Africa (Ibbott 2007).

North and South America

In the Americas, Vodafone has networks in the following countries U.S.A, Chile, Bermuda, Anguilla, Grenada, Jamaica, Trinidad and Tobago, Panama, Guyana, Curacao, Bonaire, Antigua & Barbuda, St. Vincent & the Grenadines, Canada, Dominica, Aruba, Haiti, Turk & Caicos, St. Kitts & Nevis, St. Lucia, Honduras, French West Indies, Cayman Islands and Barbados (Ibbott 2007).

In Asia &Pacific Region

Vodafone has networks in Australia, New Zealand, India, Japan Fiji, China, Sri Lanka, Samoa, Malaysia Thailand, Afghanistan, Azerbaijan Uzbekistan, Singapore, Taiwan, Hong Kong, Turkmenistan and Armenia (Ibbott 2007).

In Europe

Vodafone has established networks in the following countries UK, Spain, Turkey, Romania, Portugal, Slovenia, Netherlands, Malta, Italy, Ireland, Hungary, Greece, Germany, Czech Republic and Albania (Ibbott 2007).

Competition and market share

In terms of market capitalisation, there is no other mobile telecommunication company that can be seen as a rival of Vodafone. Through its global operations, Vodafone boasts of monopoly. In terms of revenue generation, Vodafone tops the list. However, in terms of customer subscription the company comes second after China mobile (Ganesh 1999). However, China mobile is not a potential threat to Vodafone’s global market capitalisation because it operates mainly in China.

In 2009, Vodafone reported a net profit of 15 billion pounds (Ganesh 1999). Most of the profits were generated from the European market. It was noted that outgoing subscriber calls were the leading source of income in comparison to other services (Ganesh 1999).

Thus, Vodafone seems to enjoy a monopoly in most of the regions that it has established its network. The company’s monopoly is dominant in the European market. The average cost of an outgoing call from a subscriber is well within the reach of many subscribers.

Thus, subscribers’ net contribution is determined by the frequency of outgoing calls. For that matter, the demand curve facing the company is inelastic. On the other hand, the data services are also flexible in terms of cost. This means that the company has the capability to mark up its price above the marginal cost.

Cost of Operation

Global penetration

Vodafone has used a unique strategy of establishing partnerships with other mobile service providers in foreign countries. Most importantly, Vodafone forms partnership with the leading service providers of that particular country. Therefore, Vodafone’s strategy of investing in good performing companies in the global outlets has enhanced the company’s global outreach.

This partnership requires a significant amount of investment. However, Vodafone has enough assets and thus financing the global outreach program is not a challenge at all.

Supply chain management

Supply chain management is involved with the buying of all equipments and materials required for the proper functioning of the company. Vodafone has enough resources thus the company is able to meet its production demands.

Marketing

Marketing of the company’s products is one area that Vodafone spends significant amount money. In the mobile communication industry, marketing is a crucial tool.

Marketing is required to inform the subscribers about the services provided, products in existence and new products. Since Vodafone has numerous operations in seventy countries around the world, the company requires proper planning of the finances to be spent. This is met by a competent team of financial advisors that Vodafone has recruited.

Human Resource

Vodafone provides employment to thousands of employees around the globe. These employees are involved in the direct and indirect running of the company. Owing to its success, Vodafone does not struggle to pay its employees. The cost of operation in terms of human resource management is met without any strain to the company.

Technology and Innovation

In addition, Vodafone has to remain technologically set in order to address the technological challenges that are emerging in the mobile telecommunication industry. Many companies that have a dream of challenging its market dominance have to come up with technologically relevant products.

Vodafone is a leading technological giant and this feature has contributed the company’s success. Vodafone has realised a tremendous growth owing to its outstanding strategic plans. The huge revenue returns that the company makes necessitate the proper functioning of the company. The company is able to meet its operation cost without straining.

The Macro Economic Environment of the Company

The European Environment

As stated earlier, Vodafone has a global out look. However, its operations are managed in the UK from its headquarters located in London (Klaver & Slaa 1992). As an economic power house, the UK offers a perfect business environment for Vodafone. The political and economic stability of the UK provides an excellent working environment.

The UK has an annual growth rate of 2.1% meaning that the economic stability of the country is impressive (Welch et al. 2007). The unemployment rate in the UK is 8.3%, and as an equal employer, Vodafone plays a key role in providing employment to many professionals in the Information and communication industry of the UK (Welch et al. 2007).

In addition, Vodafone has other established markets in Europe. Spain, Germany, and Netherlands are all economically stable and thus offer a good operational environment for Vodafone. This may explain why most of the company’s profits come from Europe. In addition, most subscribers in the European market are economically stable.

Therefore, they have extraordinary spending habits. Due to an increase in the need to communicate, most subscribers frequently use mobile phones to communicate with friends, families and workmates. These habits significantly boost revenue generation for the company. This may also explain why profits from voice calls top the list.

The United States Environment

The U.S environment is also exceptionally important to the success of Vodafone. Vodafone owns 45 percent of Verizon Wireless the county’s top mobile service provider. As the economic pillar of the world, the U.S market is very essential to any given business. Vodafone has exploited this market to the fullest.

In addition, the economic and political situation in the U.S is exceptionally stable. This means that the subscribers in the U.S market are economically empowered. The U.S market is also characterised with a growing demand for communication. Most of the subscribers in the U.S use mobile phones to communicate (Welch et al. 2007).

These characteristics benefit Vodafone in a great way. Thus, revenue generation from voice calls from the U.S market matches the returns from the European market. On the other hand, the U.S market is composed of a technologically empowered population owing to its outstanding level of modernisation.

Therefore, Vodafone does not only generate revenue from voice calls but also from internet connectivity (Ulrich & Lehrmann 2008). Most Americans have been found to frequently use the internet. In fact, a significant percentage of all house holds in the U.S has internet connectivity (Ulrich &Lehrmann 2008). As a leader in internet connectivity service, Vodafone benefits from a high demand for internet services in the U.S.

The African Market

On the contrary, the African market is composed of emerging economies. These economies are not as stable as those found in Europe and the U.S. For that matter, the average revenue generation per subscriber is low. However, Vodafone still makes enough revue from the African market.

South Africa is the leading African revenue generator. On top of that, Kenya provides significant revenue returns from its MPESA service. Safaricom which is partly owned by Vodafone has been the most successful company in East and Central Africa for the last five years (Mohapatra & Ratha 2011). According to the former Safaricom CEO Mr. Michael Joseph, most of the profits were generated from voice calls and the MPESA Service (Mohapatra & Ratha 2011).

The African market is however still unstable owing to the political inability present in the region. Libya and Egypt are some of the countries that have undergone political instability in the recent past. Political and economic instability deters service delivery. The African market is promising though it still has a long way to go in terms of economic and political stability.

The Asian Market

India, Australia and Japan are the key markets for Vodafone in Asia. The economies of these three countries are somewhat stable. The other countries have struggling political and economic environments. For that matter, the penetration of Vodafone is affected by such instability. However, it is important to note that Vodafone commands a significant percentage of the mobile telecommunication industry in most of the counties in Asia.

The Middle East Market

Like the African market, the Middle East market is also unstable. The U.A.E is the only promising Middle East Market owing to its economic resurgence and a cosmopolitan population. Although Vodafone still generates good revenue from its operations in the Middle East, a lot needs to be done in order to realise outstanding results.

The Economic Out look of the Business

The mobile telecommunication industry continues to grow day by day. New companies, new technologies and new communication demands continue to emerge. Vodafone needs to remain focused on providing affordable and reliable services in order to remain on top of the game. Different countries in which Vodafone operates have unique needs and political situations. For that matter, Vodafone has to devise strategies that will address the challenges that each market presents.

The European Environment

The mobile communication industry in Europe will continue to grow owing to the increase in the demand for communication. As an economically stable region, new technological developments in the industry are forthcoming. Vodafone has to stay technically put so as to withstand any challenge that may evolve.

However, looking at the current market command that Vodafone has, any emerging competitor will have to dig deep in order to overpower Vodafone. Thus, Vodafone is likely to continue with its market dominance in the coming years. Vodafone has won the trust of many subscribers in the European market. This feature gives Vodafone an edge in comparison to other service providers. In addition, Vodafone has established many operational stations across Europe. This enables the company to monitor market trends.

The United States Environment

The U.S market is another strong solid market that Vodafone has established. Like the European market, the U.S market has a high demand for communication. A high demand for communication is an encouraging feature. A high demand for communication however may lead to the emergence of other competitors.

Vodafone has taken a monumental step by buying shares in the company that commands the largest portion of the mobile telecommunication industry in the U.S. This partnership is going to serve as a foundation for the penetration of Vodafone in the U.S market. At the moment, Vodafone owns 45 percent of the shares in Verizon Wireless (Welch et al. 2007).

Thus, Vodafone will be able to work hand in hand with Verizon Wireless in monitoring the trends in the mobile phones communication sector. In the forthcoming years, Vodafone will still command a significant proportion of the U.S mobile telecommunication sector owing to its partnership with Verizon Wireless.

The African Market

The African market is promising. The main limiting factors are political and economic instability. However, Vodafone has already established a strong foundation in three countries namely South Africa, Kenya and Egypt. The presence of Vodafone in these three states is encouraging.

Policy makers of the company argue that was a strategic move (Hitt, Ireland, & Hoskisson 2009). South Africa is one of the most promising economies of Africa. As the chief economic powerhouse in the South, South Africa will act as the operational center for the South African region.

On the other hand, Kenya and Egypt will act as the operational points for the East African and North African regions respectively. The presence of Vodafone in the rest of Africa relies on the political situation of the continent. Thus, the economic out look of Vodafone in Africa is not as promising when compared to the European and American markets.

The Asian Market

The Asian market is composed of somewhat stable economies. However, the political situation in most of the counties in which Vodafone has established its network is still unstable.

Thus, the success of Vodafone in this region will depend on two factors; political maturity and flexibility of the economies. Most of the subscribers in these regions are not economically empowered like their counterparts in the U.S and Europe. The success of Vodafone will also depend on its capability to provide affordable services.

The Middle East Market

Similarly, the Middle East market is also still unstable. The political renaissance in several Middle East Countries puts the expansion of Vodafone in this region in doubt. The only, promising region in the Middle East is the United Arab Emirates owing to its cosmopolitan population.

In addition, this region is predominantly Arabic. Not so may subscribers in this region understand English. Thus, Vodafone will be required to devise strategic plans that address the communication barriers present in this market. The business outlook of Vodafone in this region is also questionable.

The South American Market

The South American market has not been exploited to the fullest by Vodafone. In order to enhance its business out look in South America, Vodafone needs to identify the needs of subscribers in this region. On the other hand, the political and economic situations of most counties in this region are still unstable. Vodafone needs to establish its services in countries with promising economies like Brazil.

Conclusion

Vodafone is the leading mobile service provider around the globe. The company has established its network in seventy countries across the globe. Vodafone has solid strategic plans that spur its revenue generation. One of the most rewarding strategies that Vodafone has used is its partnership with top mobile service providers in its global outlets.

In addition, most of the company’s revenues come from voice calls owing to their affordability and reliability. Europe and the U.S are its top markets. Vodafone boosts of monopoly in most of the regions in which the company has established its networks.

Vodafone has established its networks in Europe, the U.S, South America, Asia, the Middle East and Africa. Market analysis enables economists to make informed decisions. This paper has been influential in enhancing my market analysis skills.

References

Ganesh, G 1999, Privatization, Competition and Regulation in the UK: Case Studies, Mittal Publications, Delhi.

Happer, A & Buress, R 2008, Mobile Phones: Networks, Applications and Performance, Nova Publishers, Hauppauge.

Hitt, M, Ireland, R, & Hoskisson, R 2009, Strategic Management: Competitiveness and Globalization: Cases, Cengage Learning, Connecticut.

Ibbott J, 2007, Global Networks: The Vodafone-Ericsson Journey to Globalization and the Inception of a Requisite Organization, Palgrave McMillan, Basingstoke.

Khosrow-Pour, M 2006, Emerging Trends and Challenges in Information Technology Management: 2006 Information Resources Management Association International Conference, Idea Group, Washington

Klaver, F & Slaa, P 1992, Telecommunication: New Signposts to Old Roads, IOS Press, Amsterdam.

Mohapatra, S & Ratha, D 2011, Remittance Markets in Africa, World Bank Publications, Washington.

Sivagnanam, P 2010, Business Economics, Tata McGraw Hill Publication, Noida.

Ulrich, H & Lehrmann, E 2008,Telecommunications Research Trends, Nova Publishers, Hauppauge.

Welch, L et al. 2007, Foreign Operating Methods: Theory Analysis and Strategy, Edward Elgar Publishing, Cheltenham.

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