The case calls for an analysis of the potential benefits from international scope in wireless telecommunications and the development of strategy recommendations for Vodafone. This case offers an opportunity to how to analyze the costs and benefits of international scope in an industry where global scale economies do not mandate an international presence. the benefits of a presence in multiple countries are far from self-evident—some of the most successful wireless communication providers (AT&T, Verizon and China Mobile) are primarily domestic players. (The same issue arises in other industries: in beer, cement, commercial banking, and steel, cross-border acquisitions are creating a few global giants, but again the benefits of multinationality are elusive.)
CASE SPECIFIC QUESTIONS
1. What are the benefits of international scope in wireless telecom? 2. Advise Vodafone on its international strategy. How can Vodafone derive increased value from its international portfolio of businesses? Are there any businesses that Vodafone should divest?
How do you view these two lists of telecomm. cos:
Deutsche TelekomVerizon Wireless
Hutchison WhampoaTelecom Italia
which is it better to be? Which would you prefer to be, a wireless telecom provider with $10 billion of revenue from a single country, or a wireless telecom provider with $10 billion of revenue spread across five countries?”
Key; by having a large market share in a single country, a wireless provider derives two major benefits: economies of scale in infrastructure and other fixed costs and market power. Hence, like many other service industries, the economics of globalization are very different from those in aerospace, pharmaceuticals, automobiles, or video games where serving the global market is essential to exploit scale economies in product development and production. So, if most of the benefits of scale in wireless telecom exist at the level of the nation state, where are the benefits from cross-border operation? We can separate these into four: cost benefits, differentiation benefits, financing benefits, and portfolio management benefits. But so far we have considered only advantages. Are there any disadvantages from international scope? Three points worthy of mention: Emphasis on global standardization may constrain adaptation to local market conditions.
Lack of agility
The potential synergies from product diversification may be greater than those from geographical diversification.
Advising Vodafone on its international strategy
How can Vodafone derive increased value from its international portfolio of businesses? Further opportunities for value creation are more likely to lie in enhancing the range and quality of services available to users. In the interests of greater international “seamlessness” customer experience, Vodafone needs to recognize that these benefits are likely to accrue mainly to international customers (e.g. multinational companies and types of international organization) and to individual customers with itinerant professions and lifestyles. Are there any businesses that Vodafone should divest?
The existing CEO has the following criteria
1. Which national markets offer the most attractive profit opportunities? These are presumably those which offer the best prospects of growth, where competitive pressures are not too strong, and where the regulatory environment is relatively benign. 2. Where does Vodafone have the best opportunities for establishing competitive advantage? The most important single factor is probably market share—the key to cost advantage is this business. The other issue concerns the potential of exploiting cross-border synergies. It is likely that these are strongest between countries where there is strong economic and social integration which results in considerable mobility of phone users. It is also strongest where Vodafone is able to offer close technological integration.