Case Study: Failure of Vodafone in Japan

Vodafone Group plc is a British multinational mobile network operator, its main headquarter is in Newbury, England. It is the world’s largest mobile telecommunication network company, based on revenue, its market value on the UK stock exchange is about £80.2 billion as of August 2010, making it Britain’s third largest company. It is currently operating in 31 countries and has partner networks in a further 40 countries.

In 2001 Vodafone announced to get into Japanese market with acquiring AT&T’s 10% economic interest in Japan Telecom Co., Ltd. (“Japan Telecom”) for a cash consideration of US$1.35 billion ( £0.93 billion). Japan Telecom was one of Japan’s leading telecommunications companies and parent of the fast growing mobile network, J-Phone Communications Co., Ltd., and its regional wireless operating companies (collectively known as “the J-Phone Group”). After this deal, Vodafone held 25% of Japan Telecom’s equity.

The reason for Vodafone going into Japanese market was the way this market was increasing. In 2001, the mobile market was worth 5789 billion Yen and it was growing with 3-4% every year. Japan Telecom in which Vodafone bought shares was in second place in Telecom market and was having 18.6% of market share. Although, the nature of Japanese government was not very open for the foreign industries, but the market was worth getting into the risk.

But the failure of Vodafone had nothing to do with the closed nature of Japan or any Government intervention. It was because of lack of market understanding and not changing its strategies aggressively. Consumers in Japan use high technology and Vodafone was lacking in this thing. Vodafone was working with traditional handsets from Nokia and Motorola, so it was unable to offer 3G services successfully there. Vodafone captured only 2.2 million 3G subscribers there which were just 6.3% of the total 3G market. Whereas, NEC and Panasonic were working with NTT DoCoMo and KDDI for years.

Japanese customers are more advanced and unique, along with Vodafone, Nokia and Motorola also admitted this thing. They were making those handsets which were doing well in other countries, but they didn’t realize that Japanese are more choosy and they are very forward in technology. Technology keeps changing in Japan and you need to cope up with that change.

Japan failure was not a marketing failure, because people were coming to Vodafone stores, but they were not satisfied with the range of handsets Vodafone was offering. Even those who bought those sets, found that Vodafone’s services are not up-to the mark. Vodafone attracted the customers initially but was unable to sustain them because it was not spending enough on the 3G infrastructure. Although Vodafone finally moved with speed to rectify the problem, users, even in major metropolitan areas, were often left with frustratingly unusable handsets.

On 17 March 2006, Vodafone announced an agreement to sell all its interest in Vodafone Japan to SoftBank for £8.9 billion, of which £6.8 billion will be received in cash on closing of deal. Vodafone Japan later changed its name to SoftBank Mobile.

After acquiring Vodafone-Japan, SoftBank succeeded to turn around the company within about 6 months by giving customers the handset and the tariffs they wanted, and by investing at the levels required in Japan for network coverage etc.

After selling its stake in Japan, Vodafone learnt a lesson that choices of consumers are increasing and came up with a new strategy, they call it 2006 five point strategy.

  1. Revenue stimulation and cost reduction in Europe.
  2. Deliver strong growth in emerging markets.
  3. Innovate and deliver on our customers’ total communications needs.
  4. Actively manage our portfolio to maximize returns.
  5. Align capital structure and shareholder returns policy to strategy.

In Europe they focused on cost reduction and revenue stimulation. For that they did outsourcing and shared their services. They also realized that emerging markets will deliver strong growth. Emerging markets would be of 60% of total growth expected in 5 years.

Vodafone bought 67% stake in HutchisonEssar in India for $19 billion in 2006. Here they understood market well and did not repeat the mistake they did in Japan. They knew that consumers in India are not tech savvy, so they came up with economic deals there, kept their business simple and today they are one of the top market leaders in Telecommunication market in India.

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