Business environment consists of internal as well as external factors that have direct or indirect impacts on business operations of an organisation. The internal factors include customers, employees and management whereas regulations, supply and demand, competitors and so forth constitute external environment (Erasmus, Strydom and Rudansky-Kloppers, 2016). The report below is based on Vodafone Group plc, which is a British telecommunications conglomerate headquartered in London, United Kingdom. The report consists of expansion of Vodafone in Finland. The agenda of the report is to determine the external business environment of the country that would have an impact on operations of Vodafone. In addition, the report involves appropriate analytical approach for Vodafone to successfully expand its business operations in Finland.
COMPANY OVERVIEW- VODAFONE
Vodafone Group plc is one of the most successful telecommunications firm in the world. It has its operations in Europe, Africa, the Middle East and Asia Pacific. Since its first ever call in the UK in 1985, the firm has come a long way on its pathway of success. Even so, that the company has been ranked 4th in the world's largest telecommunications company in the world in 2017 (Top 10 Telecom Companies in the World 2017, 2018).
The vision of Vodafone is to provide excellent service to its customers and stay ahead of the competition by building a superior and stronger network infrastructure. The firm's investments are aimed towards achieving this objective. It wants to enhance customer experience of its users all around the globe and wants to establish itself as a market leader in every region in which it operates.
The company has recently launched “Digital Vodafone” within the Group with an agenda of simplifying and automating its business operations. It would also enable the firm to deliver excellent experience to its customers. With the rise of Corporate Social Responsibility, Vodafone with this programme plans to enhance revenue growth. To achieve its overall business goals, the firm ensures alignment of its strategies with the commercial objectives (Background information about Vodafone Group, 2017).
The firm serves more than 500 million customers. It transmitted more than 2,700 petabytes of data in 2016/17 (1 petabyte (PB) = 1,000,000 gigabytes (GB) ). To serve at such high range, the firm focuses on innovation for improve its customer service and retaining the users. The firm uses advanced technologies to attain improvements in its operations and stay ahead of other competitive firms in terms of speed, services and assistance (Bringing you a better Vodafone, 2017). Apart from developing products, engineers at Vodafone are working on various projects which would help to unravel the use of technology in the future. The firm alongside PT Scientists and Audi are working towards their first ever private moon landing. The aim is to create first telecom network of the moon and take hi resolution pictures of the moon. Another breakthrough of the firm is the opening of 5G Mobility Lab in Germany, which would enable the company to test the actual usage of 5G network in Europe. With such enhanced use of technology, the firm surely would attain a higher position in the telecommunications industry (10 of the most exciting technology projects in Vodafone, 2017).
Vodafone currently is looking to expand its operations in Finland, which is situated in Europe. Before taking this step, the firm needs to determine the external environment of the country that could affect the operations of the company.
EXTERNAL ENVIRONMENT OF FINLAND
Republic of Finland is located as a Nordic nation in the Fennoscandian region of Northern Europe. Its boundaries touch Norway, the Baltic Sea, Russia and Sweden in North, South, East and West respectively. It is very important that Vodafone takes into consideration the factors that would impact its expansion in Finland.
The best way to determine the external environment factors of the country is by performing a PESTLE analysis (Kimball, 2017). It is discussed below:
It denotes the overall political environment of the country. It includes political stability, policies and regulations, political restrictions and so forth. The political environment of Finland has always been stable. The reason of this stability is the formation of coalition governments. It is a system followed by the government which restricts a single party to gain access to power. The policies of the Finnish government concentrate on collection, retention and protection of electronic data. In addition to this, the telecommunications industry suffers no unreasonable and unrealistic restrictions which gives them freedom of operations without jeopardizing the privacy of themselves as well as the customers. The government supports Foreign Direct Investment (FDI) and is progressively eradicating discriminatory restrictions against foreign investment. This is an opportunity for Vodafone as it could operate freely in a well-structured and stable political environment. However, threat might arise because of bureaucracy and rigidities of labour market. In response to this problems, the government has launched various pacts that would result in reduction in labour costs and increase in flexibility.
The whole economic performance of a country are taken into consideration in this factor. The Finnish economy emphasize on usage of technology and is innovation-driven. Service industry is the largest sector of the economy of Finland at 70.2%. Due to ease in tax systems, electricity, property registration and so forth; the country has been given 13th position by the World Bank in its Ease of Doing Business report in 2018 (Overseas Business Risk – Finland, 2018). The per capita GDP of Finland is amongst the highest in the world with $US 43169.22 in 2016 (Finland PESTEL Analysis, SWOT Analysis and Risk Analysis Market Research Report Launched,2018). With increase in net exports, private consumption and investment, the GDP of the country is expected to rise between 2% to 2.5% in 2018. Even there is an expected reduction in the level of unemployment level from 8.7% to 8.1% in 2018 (FINLAND: ECONOMIC AND POLITICAL OUTLINE,2018). Such accelerating economy is an opportunity for Vodafone to achieve higher returns of investment. Decrease in unemployment level would enhance its workforce with skilled talent. The major threats in the economic upfront that could be witnessed by Vodafone is the reduction in industrial competitiveness. This would hinder the innovation in the services offered by the firm. To overcome the threats, the firm must keep innovating their services by focusing on customer needs.
Socially, Finland is considered as one of the most modern countries in the current scenario. The people follow latest trends and live healthy lifestyles which generally does not witness much change. The literacy rate in Finland stands at 100% for both males and females. This is because almost 7% of GDP has been used for strengthening education sector (List Of Countries By Literacy Rate,2018). Furthermore, the country is one of the least corrupt countries in the world. The people of Finland emphasize on using fair and ethical methods to strengthen the industries as well as infrastructure in the country. This is one of the most advantageous factor for Vodafone as it would be able to hire talented and educated employees which would enhance its productivity. With low corruption level, the firm would be able to conduct all its operation in a concrete legal framework that would be beneficial in the long run. However, the population of Finland is 5.5 million, majority of which speaks Finnish along with the minority of population speaking other languages like Swedish and Sámi (SHINE WITH FACTS ABOUT FINLAND,2018). This could be a threat for Vodafone's customer service executives. Another threat of the firm is that the population of the country is ageing (FINLAND: FOREIGN INVESTMENT,2018). This restricts the firm to introduce latest technological features in their services. To overcome these threats, the company must train its employees in using their language or hire local employees as representatives. It must also focus on developing strategies that could be of interest of Finland's ageing population.
Technologically, Finland adopts advanced techniques that are aimed towards betterment of society and support innovation in companies of any sector. Such strategies result in more R&D investments in the country. This is of the major beneficial factors as Vodafone would be able to establish its R&D labs easily in the country. This could help the company in innovating its techniques and could work on more advanced technological methods that could increase the level of service provided by the firm in the country.
The Finnish legal system provides a clear pathway for Foreign Direct Investments (FDI), However, it is required for companies to take proper authorisation in specific sectors that are regulated like banking, payment services, etc. However, there are certain regulations and acts like Anti-Money Laundering Act, which came into existence in July, 2018 (Doing business in Finland,2018). This act prevents any act of money laundering which could encourage a firm like Vodafone to conduct its financial operations ethically. Moreover, the country works closely with The European Patent Organisation so that there would be ease for companies to acquire patents. The country has effective employment laws and health and safety regulations to ensure a smooth running of business operations. This is a beneficial factor for Vodafone as it could build strong relationship with workforce by following this legal structure.
Finland is in a bad shape when it comes to environment. The country has been subjected to intense air and water pollution. These problems have increased climate change and loss in biodiversity. The country is working towards improving this condition of the environment by applying various rules and regulation in the favour of the environment. This can be a threat for Vodafone as the company now cannot conduct its operations freely. This is because there is a certain limit after which industries are restricted for any harmful emissions. They become subjected to various regulations which are harder to cope up by. Thus, to overcome this, firm must adopt technologically advanced equipments that reduce wastage and enhance the productivity.
After the determination of external environment of Finland, Vodafone must perform Porter's Five Forces Analysis to identify its industrial attractiveness.
PORTER”S FIVE FORCES MODEL
Developed by M. Porter in 1979, this model is an effective tool to analyse the level of competition and profitability level of companies by using five major forces of industry. It is essential for Vodafone to effectively analyse these five forces by gathering relevant information from each of these forces and thoroughly studying the information (Mathooko and Ogutu, 2015). This factor would allow the company to develop effective long-term strategy to successfully expanding its current operations in Finland.
The five industrial forces are described below:
BARGAINING POWER OF BUYERS
The first industrial force is the bargaining power of buyers. It denotes the intensity of buyers to force companies to change their price. Since its inception, there were quite a few existing companies that are still operating as market giants alongside Vodafone. Customers of Vodafone are very large in number. However, all of these customers are aware and informed about the strategies, schemes and services provided by the rival companies. There is a constant pressure on the firm by the buyers to provide them with enhanced customer service with affordable price. Thus, the bargaining power of buyers is very high.
In order to tackle with this problem, the firm must innovate its services and and methods to bend the customers as per their will and sell their offerings at a profitable pricing. In addition to this, they could introduce a new product or a service which would eliminate the competition and enhance the firm's sustainability.
BARGAINING POWER OF SUPPLIERS
Suppliers too hold a power to make firms alter their prices while acquiring raw materials from them. Vodafone is one of the biggest companies in the world. It has few major suppliers. These suppliers, if efficient, must dominate the scenario and could affect the margin earned by the company. In addition to this, Vodafone plans on building a long-term relationship with its customers, employees as well as suppliers. It wouldn't be profitable for the firm to switch the suppliers as switching costs are high. This indicates that the bargaining power of suppliers is moderate for the company.
To reduce this power, the firm must build effective supply chain and increase its number of suppliers. Also, the company could experiment more on its products and services so that it can easily switch to another raw material if the cost of the prior material is high. It must enhance its relationship with suppliers who are dependant on the firm to conduct their business problems. This way the firm could reduce their bargaining power which could add to the profitability.
THREAT OF NEW ENTRANTS
With existence of major telecommunications companies in places like Europe, it seems likely that it would be difficult for any new firm to enter the market. This is because to enter the industry, new firms require huge investment in terms of license acquisitions, infrastructure building, factory set ups, etc. Moreover, these firms require large amount of initial capital. It will be very tough and complicated for new firms to enter in a market where Vodafone already has a large share. In addition, Vodafone already has developed vast customer loyalty which is very tough for new firms to change. Thus, this threat of new entrants is low for Vodafone (PORTER's 5 Forces,2018).
THREAT OF SUBSTITUTES
Threat of substitutes refers to the danger of existence of a new product or service that could effectively replace the offerings of a company. For Vodafone, this threat is presumably high as there are lots of technological advancements happening in recent times and companies are developing new products and services that could improve the customer experience and replace the current offerings of rival companies. With companies like Airtel, AT&T and Verizon developing techniques to make them facilitate 5G networks in developed nations like Europe and USA. Thus, it endangers the firm's efforts as well as the strategies to expand its customer base. Vodafone, in order to cope up with this threat, must be more service oriented and must address the immediate needs of the customers which is speed, reliability and consistency. They must experiment to achieve improvements in order to stay ahead of this problems.
The existing rivalry in the industry is high. This is because there are many potential competitors like Verizon, AT&T, Deutsche Telekom, etc. These rivals are constantly developing new services and new market penetration technique to attract customers with their offers and advanced use of technology. This threat of rivalry is perhaps the most severe threat for Vodafone. There is a bottleneck competition in Europe and different telecommunication firms are adopting various new technologies and enhancing their services to serve a wider market in the country.
To stay ahead of the competition and gain a long-term edge in the market, Vodafone must ensure differentiation in its services from that of its competitors. They must enhance their service quality and provide adequate offers to customers to sustain in this highly competitive market. Another way in which Vodafone could successfully enhance its market is by collaborating with rival companies and together penetrate a wider market.
Vodafone must adopt the strategies to enhance its service quality and expand its business successfully in Finland. The firm, after application of competitive and better strategies would be able to eradicate competition in the marketplace and enhance its industrial attractiveness in the country.
It is thus concluded from the above report that a thorough analysis of external environment of a nation is necessary for firms to expand their current operations in the country. It is crucial that the the overall environment supports the activities undertaken by the company to ensure smooth running of the business operations. To determine and enhance its service quality, it is important that the firm uses analytical approach like Porter's Five Forces Model. It is necessary for the company to introduce new and innovative methods to stay ahead of the threats of substitutions and new entrants and also secure themselves from competition in the market.
Books and Journals
Erasmus, B., Strydom, J.W. and Rudansky-Kloppers, S. eds., 2016. Introduction to business management. Oxford University Press Southern Africa.
Kimball, G., 2017. Outsourcing Agreements: A.
Mathooko, F.M. and Ogutu, M., 2015. Porter’s five competitive forces framework and other factors that influence the choice of response strategies adopted by public universities in Kenya. International Journal of Educational Management. 29(3). pp.334-354.
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