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CHAPTER 8 · MULTINATIONAL STRATEGY

ACTIVE LEARNING CASE

Vodafone and the triad telecom market

Vodafone had its beginnings in 1982, when the Racal
Electronics Group Board successfully bid for a private-sector
UK cellular license. The Racal Telecomms Division was estab-
lished with 50 employees in the rural town of Newbury and
launched the first cellular network on January 1, 1985. By the
end of that year, Vodafone had 19,000 subscribers. Today,
London-based Vodafone is the world’s largest mobile phone
company with 133.4 million customers around the world.
Vodafone expanded globally through a carefully crafted
“triad” strategy. From 1991 to 1998 its focus was on

Europe, where it developed one of the basic ideas that it
continues to use in most cases—acquire companies in asso-
ciation with partners and pay for it with equity. This strategy
has given Vodafone access to new markets while providing
it with partners who help deal with local regulatory environ-
ment agencies and provide assistance in addressing local
market needs. For example, in the case of Libertel of the
Netherlands, Vodafone purchased 70 per cent of the com-
pany while Dutch ING, the local partner, held the rest.
Today the company has interests in companies that serve
17 European markets and holds over 50 per cent of the
shares in 12 of these companies.
If we attribute to Vodafone the customers of its sub-
sidiaries multiplied by its share of the subsidiary, Vodafone
has 90.8 million customers in Europe. In total, this accounts
for 71 per cent of all the customers of its wholly-owned and
joint-venture subsidiaries. In geographic terms, 68 per cent
of Vodafone’s subscribers and 70.3 per cent of its turnover
are in Europe.
To appease EU regulators during its acquisition spree,
Vodafone had to divest itself of Orange, the UK’s third
largest wireless operator. European acquisitions could not,
therefore, be the company’s only growth strategy. Rather, the
best strategy was to go international, gain market share in
all major economies, then link together all these firms into a
worldwide network. This is precisely what it has done.
In June 1999, Vodafone took a major step in implement-
ing its worldwide strategy when it beat out Bell Atlantic for
Airtouch Communications, a California-based firm. Creating
Vodafone Airtouch (VA) gave the overall company a market
capitalization of $154 billion and a total of 35 million wire-
less customers worldwide. Soon after the acquisition, VA
entered into an agreement with Bell Atlantic (which was
soon to merge with GTE) that gave it a 45 per cent stake in
a venture called Verizon Wireless. This decision has proved to
Source: Corbis/Reuters
be a very good one; prior to the merger of Cingular and
AT&T Wireless in 2004, Verizon was the largest US mobile
telephone operator. Indeed, Cingular snatched AT&T
Wireless from Vodafone, which was seeking to further ce-
ment its presence in the United States through a controlling
interest in the company.
The US market shows relatively low penetration levels
compared to Europe and Japan, where most adults have a
cell phone, and has the highest potential for growth across
industrialized countries. Today, Verizon has 38.9 million
subscribers, of which Vodafone claims 17.3 million. This
amounts to 12 per cent of Vodafone’s total subscriber base.
Vodafone cemented its position in Japan in late 2001 by
increasing its share of Japan Telecom to 69.7 per cent. That
decision completed the firm’s “triad” strategy. Today,
Vodafone has 10.4 million subscribers in Japan and this
amounts to 7.8 per cent of the company’s total subscribers.
It is a major player in the EU with holdings in Omnitel,
Mannesmann, and SFR. The company is a big force in the
US market through its minority of Verizon Wireless. And
in Asia, where the largest market for mobile phones is in
Japan, Vodafone holds operating control of Japan Telecom
and also owns J-Phone, a large mobile phone operator.
Vodafone has carefully ventured into other markets. In
Australia and New Zealand, it has wholly owned subsidiaries
and about 4 million subscribers. In non-industrialized coun-
tries, where the risk is higher, it presently holds minority
interests in most of its operations. Only in Egypt does it
have more than 50 per cent ownership. In South Africa,

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INTRODUCTION

Kenya, and Fiji, it holds between 35 and 40 per cent. In
China, the market with the largest potential growth, it holds
a mere 3.3 per cent ownership of the venture. In such a
huge market, however, that accounts for nearly 5 million
subscribers.
Vodafone’s strategy is to maximize its footprint with a com-
mon technology and offer the largest possible “roaming”
wireless capability, which lends itself to overall lower costs.
Perhaps surprisingly, this roaming technology is more
prevalent in Europe than in the United States, mostly due
to EU-wide cooperation between governmental regulatory
authorities regarding common platforms.
Vodafone is not only relying on geographic diversification
of acquisitions. Technology plays a major role in this indus-
try, and Vodafone, like its competitors, purchased licenses
to operate 3G technology, the next step in mobile tele-
phony. When the industry overestimated the pace at which
the technology was developed, some providers stumbled
badly, but this technology is now available in urban areas
in Europe and Japan and is likely to expand quickly. Mobile
telephones with video and picture technology are more es-
tablished in the market, but it is data transfers that mobile
service providers are counting on for increased profits. This
new technology is expected to reduce overall costs and,
competition permitting, might allow Vodafone to increase
its revenue per subscriber.
The biggest challenge facing Vodafone will be that of
coordinating all of its worldwide holdings so as to maximize
shareholder value. In an effort to handle this problem, the
company’s head office has now abandoned the use of cen-
tralized control and opted for a decentralized type of oper-
ation. In the United States, for example, local partners and
operating managers now make many of the major decisions
regarding how to do business. The same is true in Europe.
Vodafone is realizing that in order to manage all of these
different units in worldwide markets where regulations and
customer preferences are often quite different, the best
approach is to create a strategic plan that recognizes and
takes advantages of these differences.
Websites: www.vodafone.com; www.verizon.com;
www.omnitelvodafone.it; www.mannesmann.de; www.nttdocomo.com;
and www.kddi.com.
Sources: “Vodafone Moves on Japan Telecom,” Financial Times, September 17,
2001, p. 20; Michiyo Nakamoto and Thorold Barker, “Vodafone Offer Aims to
Cement Takeover,” Financial Times, September 21, 2001, p. 25; Dan Roberts,
“Vodafone Meets Forecasts,” Financial Times, October 5, 2001, p. 20;
“Vodafone’s Dilemma,” Economist, February 12, 2004; “The Shunning of 3G,”
Economist, September 18, 2003; “Vodafone Launches 3G in Europe,” BBC News,
May 4, 2004; and Vodafone Annual Reports and Accounts, 1999, 2000, 2004.

1 Given the competitiveness of the environment, how much opportunity exists for Vodafone in the
international mobile phone market?

2 What type of generic strategy does Vodafone employ? Defend your answer.
3 What forms of ownership arrangement is Vodafone using to gain world market share? Explain.
4 On what basis would a firm like Vodafone evaluate performance? Identify and describe two.

INTRODUCTION
Strategic planning is the process of evaluating an enterprise’s environment and internal Strategic planning
strengths, identifying its basic mission and long- and short-range objectives, and imple- The process of evaluating
the enterprise’s environ-
menting a plan of action for attaining these goals. Multinational enterprises (MNEs) rely ment and its internal
heavily on this process because it provides them with both general direction and specific strengths and then identify-
guidance in carrying out their activities. Without a strategic plan, these businesses would ing long- and short-range
have great difficulty in planning, implementing, and evaluating operations. With strategic activities

planning, however, research shows that many MNEs have been able to make adjustments
in their approach to dealing with competitive situations and either redirect their efforts or
exploit new areas of opportunity. For example, as a result of losing market share in Europe
in recent years, General Motors is now cutting its European capacity in an effort to stem
further losses.1 Meanwhile, Dell Computer is expanding its international presence. In 2001
the company became the largest firm in the worldwide PC business, with a market share of

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