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Discussion

Discuss about the Management Theory and Practice for Hutchinson 3G and Vodafone.

The merger between the Hutchinson 3G and Vodafone Australia has caused the formation of  “Vodafone Hutchinson Australia” (VHA). It is a joint venture and its primary industry is the telecommunication (Vodafone Australia, 2016). The headquarter of the company is located in Sydney, Australia. The primary products of the company include prepaid and postpaid mobiles, wireless broadband services and others. It has also purchased the Vodafone branded stores, which was run earlier by Digicall, Inside Mobile, GSM and First Mobile. The company is accredited with 7 million subscribers and is considered as the third largest telecommunications services in Australia (Vodafone Australia, 2016). It occupies a market share of 27.4% (approximately) and has an annual revenue of AUD$ 4 billion (as recorded in the first quarter of 2016) (Vodafone Australia, 2016).

Discussion

The SWOT analysis of Vodafone Hutchinson Australia is important and is helpful in understanding the business operations. It is an useful tool for providing competitive advantage for the company. It gives an id ea regarding the internal strengths and weakness of the firm. It also gives indication to the company regarding the external threats and the opportunities. The SWOT analysis is described below-

The strenghts of the company is characterised by high growth rate in the Australian market (Zhang, 2014). It has experienced business units which makes it operations hassle free. The company witnesses high  profitability and increased revenue. This is due to the increased visibility in the target market and the degree of operational efficiency (Zhang, 2014). The company employs labor at cheap costs and hence the profit margin is higher. The high barriers of market entry makes it profitable for the firm to expand its business operations (Menkveld, 2013). The company has significant presence in all parts of the world (Zhang, 2014). It is the known as the second largest telecommunications company in the world. It engages in extensive promotional activities such as sponsorships of the Cricket Team or sponsoring Formula 1.Vodafone has launched a new network in the 850 MHz frequency (Khare, Saxena & Dixit, 2012). The network guarantee of the company has made it very popular among the masses.

The weakness of the company has suffered severe financial losses in the past few years. It has lost several existing clients for which there was a reduction in the reveue generation (Dwyer, 2014). This is the reason that the company has opted for reducing its operational costs. It has reduced its worforce considerably so that there are no extra financial burden (Dwyer, 2014). It has also tried to reduce the operational costs by entering into “mobile tower infrastructure sharing” agreements with Optus (Dwyer, 2014). The brand portfolio of the company has been hampered and the close rivals have acquired the market. There are small number of business units which makes it difficult for the company to carry out its operation smoothly.

SWOT analysis

The opportunities include Australia has one of the highest smartphone penetration in the world. It is also predicted that there would be more smartphone users in the coming years. This is a lucrative opportunity for Vodafone (Sarwar & Soomro, 2013). It continues to invest more on the improvement of the mobile network. There would also be an increase in the smartphone users in the developing countries (Sarwar & Soomro, 2013). The global market presents many opportunities for the company. The growing economy and increased profitability poses a prominent future for the company. The acquisition of the new firms should be well utlilized by the company. There are new potential markets that should be properly tapped by the company (Sarwar & Soomro, 2013). The launch of new products ensure that the company has increased revenues from different sources.

The threat includes advent of the technological problems is a serious threat to the company. The increasing costs of the company would cause a decrease in the overall revenues of the company (Kneese, Ayres & d'Arge, 2015). The price of the raw materials is increasing and this would make it difficult for the company to regulate the prices of the production (Kneese, Ayres & d'Arge, 2015). The Australian market is highly competitive and Vodafone faces stiff competition from its closest rivals. The company faces stiff competition from Telstra Corporations Limited, which is considered as the biggest telecommunications firm in Australia. The recent high quality network services provided by the closest rivals are pushing the company to improve its network services.

The PESTEL analysis is used to measure the macro environment of the firm. The external environment of the firm impacts the functioning of Vodafone to a great extent. The PESTEL analysis considers six essential factors. They are discussed below-

The Government policies affect the functioning of Vodafone. The telecom license is strictly regulated and limits the entry of new firms. The Australian Government is formulating stringent measures for the purpose of decreasing the roaming charges in the mobile phone usage (Oaic.gov.au, 2016). The Government regulations regarding the internet services, network services and others affect the overall functioning of the country. Vodafone must follow the guidelines of the Telecommunications Act 1997 formulated by the Australian Government(Oaic.gov.au, 2016).

Vodafone needs to take care of the economic factors such as Australian interest rates, economic growth, exchange rates, inflation rate, taxes and others (Checherita-Westphal & Rother, 2012). It needs to take care of the Australian growth rate and the changes in the GDP. The license costs of Vodafone are very high as compared to other industries. The company faced issues with the 3G license bidding when there was increased economic expansion (Checherita-Westphal & Rother, 2012). Vodafone also faced high maintenance charges for networks. The global recession plays a major role in formulating the policies of the organization.

PESTEL analysis

The social factors do affect the functioning of the company. It decides the growth or decline of the company. The changing work patterns of the people of Australia have made them to depend more on technology (Helander, 2014). The “work from home” option is based on the utilization of technology (Helander, 2014). In this modern age, the organizations are not confined to a particular geographical location. The increase in the cross border trade has increased the need to adopt the telecommunication services. Vodafone needs to take care of these issues. There are other social factors such as ageing population and the eco friendly nature of the organizations.

The technological is the most important factor impacting Vodafone, since it belongs to the telecommunications industry. The emergence of 4G services and the proliferation of the video calling facility impacts the overall functioning of Vodafone (Kumar, 2013). The closest rivals of the company are providing latest technological facilities to the consumers, hence Vodafone must also introduce innovative technology (Kumar, 2013). The online chatting services such as Yahoo Messenger or Viber, has made the company to introduce innovative services in the market.

The company must abide by the environmental regulations of the Australian industry. It has encouraged the customers to safe disposal of their mobile handsets so that it causes minimal environmental pollution (Yadav, Yadav & Kumar, 2014). It has also introduced the recycling programs.

The legal framework of the country affects the functioning of the brand. It must follow the Telecommunications Act 1977 formulated by the Australian Law Reform Commission (Alrc.gov.au, 2016). The expectations and guidelines of the telecommunications industry have an effect on the strategic management of Vodafone.

PESTEL Analysis

Fig: PESTEL Analysis

Source: (Checherita-Westphal & Rother, 2012)

The Porter’s Five Forces is an important tool in the analysis of the level of competition prevalent in an industry. It is useful in the formulation of business strategy. It relies on the industrial economics to extract five forces which identify the competitive intensity and the subsequent attractiveness of the industry (Adam, Syahputra & Gunawan, 2015) . The level of attractiveness concerns with the industrial profitability. This analysis is concerned with the micro environment of Vodafone. The five forces are closely related to the company and is directly related to the customer relationship management and the profitability of the firm. The five forces are discussed below-

Bargaining Power of Consumers (High)-The telecommunication sector is characterised by extremely high level of competition. There are a large number of market players who coexist in the Australian market (Haucap et al., 2013). This presents the consumer with  a wide range of alternatives. This results in the higher bargaining power of the consumers. There is also a lack of differentiated products in the market (Haucap et al., 2013). The high bargaining power of the Australians marginally reduces the cost prices prevalent in the industry. Vodafone needs to design competitive products for the purpose of profit generation.

Government policies

Bargaining Power of Suppliers (High)- The bargaining power of Vodafone’s suppliers is quite high since there are greater profit margins as compared to the competitors. The market share of Vodafone is reasonably high and hence the company is able to neutralize the price fluctuations of the suppliers (Heimeshoff & Klein, 2013). The company must take active initiatives to control the prices of the suppliers. The fewer substitutes would give sufficient power to the suppliers (Heimeshoff & Klein, 2013). The suppliers can charge high prices for supplying unique resources to the firm. There are other potential factors such as switching costs of the suppliers, impact of the inputs, degree of differentiation, supplier concentration and others.

Threat of Substitutes (High)- This factor concerns with the availability of the substitute products in the market. If the consumers are bombarded with a large number of substitute products, then the company would lose its profitability (Adam, Syahputra & Gunawan, 2015). For example, a product that exactly matches the needs of the customers is a substitute to another company that provides the same product. The potential factors that need to be considered by Vodafone are attraction of the substitute, switching costs of the buyer, ease of substitution, quality depreciation, availability of the closest substitute, product differentiation perception and others. Vodafone faces a considerable amount of threat in this factor. There is a sharp decline in the landline and CDMA services while there is an increase in the broadband services. The primary services of Vodafone include the mobile services. There is a wide range of substitute services such as video conferencing, VOIP (Google Talk, Yahoo Messenger, Skype and social networking sites) (Adam, Syahputra & Gunawan, 2015). More number of consumers are getting attracted to the substitute products, which poses a threat toVodafone.

Industrial Rivalry (High)- This is the most important factor for Vodafone. This factor is the major determinant in the competitiveness of the industry. Vodafone should consider factors such as competitive advantage, level of advertising expenses, degree of transparency, firm concentration ratio and the competition prevalent in the industry (Bogdanov, 2015). The competition must include the online as well as the offline companies. Vodafone faces an extremely high level of competition from its rivals (Bogdanov, 2015). This is due to the subsidized call rates of the closest competitors. The competitors are always in the process of providing innovative products as well as services. This makes it mandatory for Vodafone to launch new products that meet the customer requirement.

Economic factors

Threat of new entrants (Low)- The Australian market is a highly profitable market that attracts the entry of the new firms. However, the government has imposed several barriers due to which the companies have a difficult time in venturing into the market. The market is characterized by high entry barriers and low exit barriers (Dunne et al., 2013). This implies that few firms can actually enter the market and the non-profitable firms can make an exit from the market. The companies that are eager to venture into the markets must pay huge licensing fees along with complying with the regulatory issues (Dunne et al., 2013). There are high costs of setting up of the network infrastructure. The new entrants are bombarded with new technology, which they find it difficult to cope up. Vodafone must cope up with this issue by introducing high-level efficiency in their products as well as services.

The Porter’s Generic Strategy were developed by Porter for the purpose of analyzing the competitive advantage for a firm. It is essential for the purpose of the creation and sustenance of the superior performance of the organization. There are three generic strategies that are used by Vodafone. They are discussed as follows-

Cost Leadership-The cost leadership of an organization is achieved by two ways. If Vodafone increases its profit percentage by the reduction in the costs of the products, then it can capture the market within a short span of time (Rothaermel, 2015). The company can also increase its market share if they charge less prices of their products. However, this strategy is not frequently adopted by the company.

Differentiation-The differentiation strategy is widely used by the company. It appeals the customers by creating a particular product attribute that is desirable by the target audience. It aims to build customer loyalty by offering unique products to the customers. The company has created unique products such as 4G services, video calling, teleconferencing, micro recharge coupons, open cloud systems, smart phone application and others (Rothaermel, 2015). This has improved the brand image of the company as the customers are fascinated by the products. The differentiation strategy is an important strategy which helps the firm to be ahead in the competitive market.

Focus-This strategy is used by Vodafone to focus on a particular market niche and for understanding the market dynamics. The company should understand the preferences of the consumers and design its products accordingly. The creation of strong brand loyalty is important for the consumers (Severi & Ling, 2013). Vodafone is spread across the world by capturing almost all the geographical locations. It has varied customer groups, product portfolio and other value added services (Severi & Ling, 2013). It has formulated strategies such as joint ventures, horizontal integration and strategic alliance with the other market leaders.

Social factors

Porter’s Generic Strategy

Fig: Porter’s Generic Strategy

Source: (Rothaermel, 2015)

The analysis of the models should be given vital importance by Vodafone. The company must try to convert their weakness to strengths and must devise suitable strategies to combat the threats. It should prevent reducing the workforce so that there is maximum organizational efficiency. The company must take adequate measures to deal with the political, social, economic and other macro environmental factors. The company must take steps in the bargaining power of consumers, bargaining power of suppliers, threat of substitutes, industrial rivalry and others. The company should adopt relevant strategies in order to be ahead of the competitive market. 

Conclusion

Vodafone should devise suitable strategies after considering the analysis. This report presents the loopholes and the opportunities of the company, which should be considered by the company before making strategic decisions. The different models used in this report would guide the future research in this domain.

References

Adam, M., Syahputra, H., & Gunawan, B. (2015). Industry Attractiveness and Knowledge Management on the Formulation of Competitive Strategy and Partnership and Its Implication on Coffee Company Performance in Aceh.

Australian Law Reform Commission | ALRC. (2016). Alrc.gov.au. Retrieved 9 September 2016, from https://www.alrc.gov.au

Bogdanov, A. (2015). METHODS FOR ANALYSIS OF LOGISTICS SYSTEMS. ASSOCIATION SCIENTIFIC AND APPLIED RESEARCH, 4, 19.

Checherita-Westphal, C., & Rother, P. (2012). The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European Economic Review, 56(7), 1392-1405.

Dunne, T., Klimek, S. D., Roberts, M. J., & Xu, D. Y. (2013). Entry, exit, and the determinants of market structure. The RAND Journal of Economics,44(3), 462-487.

Dwyer, T. (2014). Australian Media Monitor, April 2014. Global Media Journal Australian Edition, 8(1), 1-4.

Haucap, J., Heimeshoff, U., Klein, G. J., Rickert, D., & Wey, C. (2013).Bargaining Power in Manufacturer-Retailer Relationships. Düsseldorf Institute for Competition Economics (DICE).

Heimeshoff, U., & Klein, G. J. (2013). Bargaining Power and Local Heroes. Düsseldorf Institute for Competition Economics (DICE).

Helander, M. G. (Ed.). (2014). Handbook of human-computer interaction. Elsevier.

Home - OAIC. (2016). Oaic.gov.au. Retrieved 9 September 2016, from https://www.oaic.gov.au

Khare, A., Saxena, M., & Dixit, S. (2012). The Subscriber You Have Dialed is not Reachable. Computer Engineering, 1(1), 28-32.

Kneese, A. V., Ayres, R. U., & d'Arge, R. C. (2015). Economics and the environment: a materials balance approach. Routledge.

Kumar, S. N. (2013). Emergence of 4g Technology in India and its Future Implications. International Journal of Engineering and Management Sciences, 4(2), 247-249.

Menkveld, A. J. (2013). High frequency trading and the new market makers.Journal of Financial Markets, 16(4), 712-740.

Mobile Phone, Tablet and Mobile Broadband Plans.. (2016). Vodafone Australia. Retrieved 9 September 2016, from https://www.vodafone.com.au

Rothaermel, F. T. (2015). Strategic management. McGraw-Hill.

Sarwar, M., & Soomro, T. R. (2013). Impact of Smartphone’s on Society.European Journal of Scientific Research, 98(2), 216-226.

Severi, E., & Ling, K. C. (2013). The mediating effects of brand association, brand loyalty, brand image and perceived quality on brand equity. Asian Social Science, 9(3), 125.

Yadav, S., Yadav, S., & Kumar, P. (2014). Metal toxicity assessment of mobile phone parts using Milli Q water. Waste management, 34(7), 1274-1278.

Zhang, Y. A. (2014). A Case Study on Collaboration in the Australian Mobile Telecommunication Market. In Collaboration in the Australian and Chinese Mobile Telecommunication Markets (pp. 167-196). Springer Berlin Heidelberg.

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