February 7, 2011

Case analysis of the Hutchison Essar Acquisition:

Vodafone’s Foray into an Emerging Market

Submitted To:

Ms Kanika Jhamb

Submitted By:

Raman Sharma

Roll no. 14

A17B1

February 7, 2011

The case study revolves around the Vodafone’s entrance into India’s Telecommunication Sector

via acquisition of Vodafone over Hutchison Essar on February 11, 2007.This case also helps to:

» Understand the importance of international mergers and acquisitions as a growth strategy in the

globalization.

» Understand the opportunities that emerging markets such as India offer to global business

enterprises.

» Understand the issues and challenges faced by global business firms expanding into emerging

markets.

» Understand the entry and exit strategies adopted by firms operating in the international

markets.

» Understand the importance of the government's policy in influencing the business strategy of a

firm.

February 7, 2011

Vodafone had tried earlier to step up into the Indian telecom sector but the FDI policies were not

optimum and favorable. They entered the Indian market with the acquisition of a 10 percent

stake in Bharti Venture Ltd. in December 2005(now Bharti Airtel Ltd.). In the meanwhile they

were also expanding globally in Europe and US by making some highly paid merger and

acquisitions in the corporate sectors.

VODAFONE

Vodafone was established in 1982 when Racal Strategic Radio Plc, a subsidiary of Racal

Electronics Plc. Later it was de-merged from Racal Electronics and named the Vodafone Group

in 1991 by accounting its 20 percent shares of its value in to London stock Exchange.

During its expansion in overseas it purchases Air Touch Communication Inc in the US and

changed its name to Vodafone Air Touch Plc.

HUTCHISON ESSAR LTD.

HEL was one of the leading mobile operators in India. It was the fourth largest service provider

in terms of customer numbers.HEL was a Joint venture between HTIL and Essar. They started

their services under the brand name ‘Hutch’ in 1994 after it acquired the cellular license for the

Mumbai circle. The company was initially set up as a joint venture between HTIL and Max India

Ltd.

February 7, 2011

In July 2005, Essar bought a 64 percent stake in BPL Cellular Ltd. for US$ 1.156 billion, making

it the largest ever acquisition in the Indian telecom sector at that time.

SOLUTION FOR QUESTIONS IN THE CASE STUDY:

Question-1 what according to you, prompted Vodafone to expand into the emerging

markets? Do you think Vodafone’s acquisition of Hutchison Essar will help it in this

regard?

Answer:

The fast growth of the Indian mobile market coupled with a relatively low penetration level

made it a very lucrative market which made Vodafone to expand into emerging markets like

India. Also Vodafone was only having limited presence in Asia. It had plans to roll out 3G

services widely in the Indian market as the next big drive into the telecom market would be high

speed data services.

The acquisition will help Vodafone is well experienced in terms of new technologies like 3G and

other high speed data services. Also stepping into any growing market is beneficial in terms of

making profits. India’s most of the population resides in rural area which was Vodafone’s target

platform to grow in terms of gaining customer.

Question-2 Critically analyze the Vodafone’s decision to acquire Hutchison Essar. Discuss

whether it would have been more beneficial for Vodafone if it had started business on its

own form scratch, rather than acquiring Hutchison Essar.

Answer:

Considering the amount of money spent for the acquisition of Hutchison Essar the deal is

somewhere overpaid. Also considering the time and policies at the time of acquisition when the

FDI policies were allowing 74% stake of foreign company, Vodafone should have started

services on its own with some small merger with a local telecom partner.

Vodafone’s past experience in telecom services would have been beneficial alone for the new

setup as well as launch of the company.

February 7, 2011

Question-3 Discuss HTIL’s strategy of exiting the highly lucrative Indian market after it

has developed business in India from scratch.

Answer:

For HTIL the sale of overall stake in HEL has made it a 700% return on its investment in India.

Also the decision of HTIL for exiting was well timed as they were expecting the fall of ARPU in

India. Also the future expansion of the company was demanding the heavy infusion of funds. So

the declining ARPU would have made the future of HTIL’s investments non-profitable. So the

decisions made altogether were proving out to be advantageous in terms of their future plans.

Problems for Vodafone:

The challenge is to provide value added services and competitive charges to existing customers

who are becoming more sophisticated and demanding. As the mobile technology has changed the

customers are demanding for better network, cheaper mobile service, quick access to internet,

mobile banking, easy recharge etc.

Solution for these demands:

GOOD CUSTOMER INTERFACE:

In order to become the no.1 in India. Vodafone needs to win more customers by improving

customer satisfaction.

VERY ATTRACTIVE BRANDING STRATEGY:

They should understand the need of the customers and customers and should offer tariff plans

according to their needs.

CHOOSING APPROPRIATE PEOPLE FOR INTERVIEWS,WALK-IN INTERVIEWS AND

SURVEYS:

To get the best solution they should also conduct the interviews on students of business schools

B schools and other post graduate schools all over India to get there ideas.

February 7, 2011

Porter’s five forces analysis:

Rivalry against Existing competitions:

The major competitors are:

1. BSNL & MTNL(State Owned companies)

2. Reliance telecommunications, Bharti-Airtel, IDEA (Private India Owned Companies)

The bargaining power of customers:

Well there is no such provision as the tariffs are decided by the company itself or in other

words service providers are the main drivers.

February 7, 2011

Bargaining power of suppliers:

Mobile handset providers: Vodafone takes low cost handsets from ZTE.

Optical fiber suppliers and aluminum for towers proves out to be less concerned to be

bargained.

Software providers do have strong bargaining power.

Threats from new entrants:

Uninor

STel

DOCOMO

MTS

Threats from substitutes:

Landline market in rural areas mainly provided by BSNL being a substitute of mobile

technology is still a threat to Vodafone.

PESTEL analysis:

P-Political stability, labor laws, tariffs, tax policies.

E-economy and its growth in terms of inflation, exchange rates, interest rates, SENSEX,

NIFTY

S-health conscious and heath oriented wireless technologies, devices and handsets.

T-Technological changes like automation and R&D etc.

E-Environmental changes, Ecological changes, environmental aspects.

L-legal obligations by government bodies like TRAI etc.

SWOT Analysis:

Strength:

Vision to become global leader

February 7, 2011

Good & strong relationship with customers

Best & latest Technologies etc.

Weakness:

Shortage of expensive and costly material

Meeting needs of each and every customer is a tuff task

Opportunity

Targeting rural area

Mobile data access

Broadband etc.

Threat

Competitors

New entrants

MNP & change in service as a change in taste.