9/10/2009

A CASE STUDY ON HUTCHINSON-ESSAR(INDIA) ACQUISITION BY VODAFONE

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION 1.1 About Hutchinson 1.2 About Vodafone CHAPTER 2: PRESENT SCENARIO OF VODAFONE INDIA CHAPTER 3: VODAFONE-HUTCH ACQUISITION 3.1 Reason Behind Acquiring Hutch 3.2 Was It a Diversifying Strategy 3.3 Why Hutchinson Got Acquired By Vodafone 3.4 Why Target Was Chosen CHAPTER 4: COMPANY PORTFOLIO 4.1 What Is The Business 4.2 Who Are The Customers 4.3 What Are Their Demands 4.4 What Would Be The Possible solution For The Demand 4.5 Who Will Be The Appropriate People To Deliver The Solution . 4.6 Where Do They Get Them CHAPTER 5: ANALYSIS 5.1 Porter s 5 Forces Analysis 5.2 PEST Analysis 5.3 SWOT Analysis 5.4 McKenzie s 7 s Model 5.5 Value Chain CHAPTER 6: FINANCIAL ISSUES CHAPTER 7: HR ISSUES & CHALLENGES FACED 7.1 Work Culture 7.2 Vision 7.3 Past and Present Job Scenarios CHAPTER 8: BIBLIOGRAPHY .. . .. . . .. .. ... .. . .. . .. . .. .. . . ... . . .. .. .. .. ........... . ..

INTRODUCTION
1.1 Hutchinson-Essar

Vodafone
Vodafone, based in the UK, was the world's largest mobile communications company by revenue. It operated under the brand name 'Vodafone'. The brand name 'Vodafone' comes from 'Voice data fone', reflecting the company's wish to provide voice and data services on the mobile phones. Vodafone operated in Europe, the Middle East, Africa, Asia Pacific, and the US.
Vodafone was formed in 1984 as subsidiary of Racal Electronics as a public company. Then known as Racal Telecommunication ltd, 20 % of capital was offered to public in 1988. It became an independent company in 1991. Changed name to Vodafone group. Again merged with Airtouch communication. Changed name to Vodafone Airtouch Plc. Later on revised his name to Vodafone group. Headquarters Area served Newbury, England, UK Worldwide Vittorio Colao, CEO Key people Sir John Bond, Chairman John Buchanan, Deputy Chairman Revenue Operating income Profit Total assets Total equity Employees VISION Vision is to lead the industry in responding to public concern regarding mobile phones, masses & health by demonstrating leading edge practices and encouraging others to follow.
US$ 69.138 billion (2008) US$ 12.867 billion (2008) US$ 6.756 billion (2008) US$ 218.869 billion (2008) US$ 123.499 billion (2008) 79,000 (2009)

VODAFONE-HUTCH ACQUISITION
3.1 Reason Behind Acquiring Hutchinson Essar(India)
The board of Vodafone continues to believe the mobile market in India has great potential and therefore considered the acquisition of a controlling interest in Hutchison Essar. With European markets nearly reaching the saturation point, Vodafone was trying to gain a foothold in the Indian market that was growing at a rate of more than 50 laces new subscribers every month, one of the largest telecom market in the whole market and where most of the region was still virgin to expatiate.

3.2 Was It a Diversifying Strategy ?

The Vodafone Hutch acquisition can be described as a diversifying strategy from the point of view of Vodafone with a fine tuned interest of the company to venture this totally new still a virgin market of India. Vodafone has been a successful name in Europe and UK being the successful hub, it has realized the maturing level of the market out there. Looking upon their vision to grow as a global leader Vodafone wanted to spread their market to the fast growing economy of Japan and parts of Asia. India being the prime part of this growing economy it was chosen the best location to venture for and multiply their business.

3.3 Why Hutchinson Got Acquired By Vodafone ?

There are two main reasons which are responsible for Li Ka-Shing, Hutchinson Telecommunications International Limited(HTIL) owner to leave India. They are : Hutch-Essar : Mutual Distrust A right time to quit Indian operations to finance other operations Though Hutchison Essar was one of the established players in this market, HTIL had exited India as the urban markets in the country had become saturated. Future expansion would have had to be only in the rural areas, which would lead to falling average revenue per user (ARPU) and consequently lower returns on its investments. HTIL also wanted to use the money earned through this deal to fund its businesses in Europe. Li Ka-Shing, the owner of HTIL was the 10th richest man globally in 2006, is known as a businessman who spots an opportunity early, invests in it and exits at a neat premium. It is only after he exits that the rush begins.

3.4 Why Target Was Chosen

Hutchison-Essar was not just the 4th largest player, but also one of the better-run companies with higher average revenue per subscribers, in India. The biggest one is a presence in a market of 143 million subscribers that's growing at a mind-boggling rate of 5 per cent on a month-on-month basis, making it the fastest-growing cellular market in the world. What's more, penetration levels are still low at 12 per cent (less than 2 per cent in rural India), and as developed telecom markets slide into saturation, India is clearly the geography where most of the long-term potential is concentrated.

 Fourth largest mobile operator in India with 24.41 million subscribers 16.41% of the Indian mobile market Present in 16 of 23 circles. Has license for six others barring Madhya Pradesh ARPUs at Rs 374 ($8.31) against national average of Rs 335.46 ($7.45) Hutch Mumbai ARPU at Rs 609.36 ($13.54), the highest in India, but yet to be integrated Accounted for 41 per cent of Hutchison Telecommunication Internationals revenues Revenues of $908 million (Rs 4,086 crore) in H1 2006 against $1.29 billion (Rs 5,800 crore) in 2005 Operating profits of Rs 1,017 crore, EBITDA margins at 32.7 per cent in H1 2006 Vodafone had to face face many obstructions in clinching the deal - initial opposition for the Indian partner of HTIL, Essar Ltd., aggressive bidding by competitors, as well as regulators who took their time to approve the deal. But in the end, Vodafone bagged the deal outbidding other competitors. Though some critics felt that Vodafone had overpaid for Hutchison Essar, Vodafone contended that the price was worth paying as the deal would help it get a massive footprint in one of the most competitive telecommunication markets in the world.

3.5 THE DEAL

In the year 2007, the world's largest telecom company in terms of revenue, Vodafone Plc (Vodafone) made a major foray into the Indian telecom market by acquiring a 52 percent stake in the Indian telecom company, Hutchison Essar Ltd (Hutchison Essar), through a deal with the Hong Kong-based Hutchison Telecommunication International Ltd. (HTIL). It was the biggest deal in the Indian telecom market. Vodafone's main motive in going in for the deal was its strategy of expanding into emerging and high growth markets like India. In 2007, India had emerged as the fastest growing telecom market in the world outpacing China. But it still had low penetration rates, making it the most lucrative market for global telecom companies. British telecom giant Vodafone has bagged the 67% Hutch Telecom International (HTIL) stake in HutchEssar at an enterprise value of $19.3 billion (approx Rs 86,000 crore) which comes to $794 per share.

CHAPTER 4: COMPANY PORTFOLIO

4.1 What Is The Business
Vodafone's strategy is product-led; the company is continually developing new products and services which utilize the latest technological advances. In order to retain market leadership, Vodafone has established a set of marketing objectives. These are to:
y Obtain new customers y Retain the existing customers y Introduce new technologies and services (eg text messaging, WAP) y Continue to develop the Vodafone brand.

Vodafone is achieving these objectives by continually updating the range of phones and services offered to keep ahead of its competitors. Vodafone also communicates regularly with its customers to keep them well informed of the benefits of all Vodafone products. So the challenge is to provide added value services and competitive charges to existing customers who are becoming more sophisticated and demanding.

4.3 What Are Their Demands ?

Mobile technology has changed. Customers demand for better network, cheaper mobile service, quick access of internet, mobile banking, good tariff plan, easy recharge, more point of sales and good after sales service.

4.4 What Would Be The Possible solution For The Demand ?

INFRASTRUCTURE SHARING: This is a new game plan for telecommunication sector. Reliance, Essar, Bharti have floated or demerged separate companies to look after the infrastructure business. BSNL is the only telecom operator who does not want to share the infrastructure. Around 1/3 of Hutch Essar was shared with other mobile operators. Vodafone is planning around2/3 of total sizes to be shared with a low cost. Thus making it a cost minimization venture. C USTOMER INTERFACE : In order to become number one in India, Vodafone needs to win more customers by improving on customers satisfaction. According to Voice & Data mobile users satisfaction survey 2006 Hutch customer Satisfaction dropped to 89.2% (TRAI benchmark of 90%).They use customer delight index to measure the level of satisfaction and dissatisfaction among the customers. Vodafone goes 14.4 MBPS in high demand areas-busy areas of the country would be updated, so that customers can have data services, access internet using data card,3D handsets. VERY ATTRACTIVE BRANDING STRATEGY: They understand the need of customers & of the customers and offer attractive tariff plans according to their needs

CHAPTER 5: ANALYSIS
5.1 Porter s 5 Forces Analysis for Vodafone
Porter's five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market.

Indias telecom industry rank 2nd in the world with over 225.7 million telephone subscription by the end of 2008. Porters Analysis consists of those forces that affects its ability to serve customers & make profit.

The 5 forces are 1. Rivalry Against Existing Competitors

The Three Major players are : a. BSNL & MTNL ( State Owned Companies) b. Reliance Infocom & Tata Telecommunications ( Private Indian Owned Company) c. Bharti-Airtel, Idea, Spice ( Foreign Invested Companies)

2. Bargaining Power of Consumers

Service providers are the main drivers. Moreover Telecom market being an Oligopoly type of market consisting of few and limited competitors, consumers have no place to bargain over the price tariffs.

3. Bargaining Power of Suppliers

Telecom industry is a service based industry, which is intangible, so in this case suppliers are negligible a. Mobile Handset Suppliers Vodafone takes handsets at low cost from ZTE. b. Optical Fibre Suppliers(for network wirings) and Aluminium is required for towers their bargaining power is limited. c. Software assistance is provided by Wipro, TCS and these software providers charge independently to their clients as the client wants some unique solution. Thus they have a strong bargaining power.

4. Threat for New Entrants

Indian Telecom Sector gives opportunity for foreign companies so this is a easy playing market for all entrants. The new entrants in telecom market of India are: y Spice

y Virgin y MTS y IDEA y DOCOMO (Tata) y Unitech These companies are emerging on the national level from its state level existence.

5. Threat to Substitute Products

y The reach of Internet has now become a real threat, internet telephony and voice chats are not only a cheaper substitute but also effective and successful with growing awareness among the users. Growth of Landline market, BSNL penetrating the rural areas of the country has developed a key threat to this industry. Moreover competition with the tariffs are growing every day.

5.2 PESTL Analysis

PESTL analysis stands for "Political, Economic, Social, Technological and Legal analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. P- includes tax policy, labor law, tariffs, trade restrictions, political stability etc. It is trying to shift its approach by unit pricing and unit tariffs to propositions that deliver more customers value E- includes economic growth, interest rate, exchange rate, and inflation rate. Gives customers right and justly cost. So that everybody can avail its product. S- Cultural aspects, Health consciousness, population growth rate etc. need for an equipment that can be a good device for every age is available since everybody oriented in mobile use. T- Ecological and environmental aspects like R & D, automation, technological change etc. L- Legal benchmark is followed by all the service providers as prescribed by TRAI (Telecom Regulatory Authority of India).

5.3 SWOT Analysis

SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a projector in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. y Strengths - reputation of business in a local market because of product 1) Vision to become the global leader 2) Strong bond with customers 3) Best technology Weakness - shortage of material / expensive material Meeting customer needs hard to cope Opportunity- well distributed position when business landed in foreign market Three target areas are : 1) Mobile data, 2) Enterprise,

y y

3) Broadband Threat- competitors, the emerging new players in the domain and the customers change in service taste.

5.4 McKenzie s 7 s Model

5.5 Value Chain Primary :

Vodafone has collaborated with ZTE a leading Japanese mobile phone manufacturer, and getting mobile handsets for a lower cost, which has made possible for Vodafone provide handset with connection to the needy market of India at a competitive price.

Secondary :
In long run Vodafone is looking forward for sharing of Infrastructure on a large basis, but on the other side its also planning for acquiring a mainframe company for its server support. May also plan for the same for its software solution.

CHAPTER 7: HR ISSUES & CHALLENGES FACED

7.1 CULTURE
Ethics
Vodafone Group Business Principles are an established part of our core CR commitment, but awareness of the requirements and the issues is currently low in Vodafone Essar. Embedding these principles into the culture of this newly acquired business will take time. We have appointed a head of Fraud, Risk and Security in India, with the responsibility to tackle this challenge.