China Mobile and Vodafone are both looking to emerging markets as part of their global business strategies
China Mobile wants to expand its global presence and is attempting to gain access to emerging markets through its acquisition of Millicom. The launch of a more comprehensive global strategy is expected to follow. Conversely, Vodafone – under the threat of fixed–mobile convergence – needs to strengthen and consolidate its business model and is looking to emerging markets to deliver future growth.
In the global context China Mobile is the largest operator by subscribers (280 million) and the sixth largest by revenue (USD30 billion), while Vodafone is the largest operator by revenue (USD62 billion) and the third largest by subscribers (155 million). However, the two companies differ in their approach to the opportunity presented by emerging markets.
China Mobile is at the start of its expansion into the global market, while Vodafone has begun an exit strategy
The expansion of Chinese companies overseas is another example of the country looking outside of its own borders for business opportunities. China Mobile has agreed to buy international mobile operator Millicom at a value of USD4 billion. Millicom has 8.9 million customers in 16 emerging markets across Latin America, South Asia and Africa. Vodafone has moved away from the 1990s strategy of global dominance through acquisition and may withdraw further from mature markets in order to focus on cost reduction and exploiting the lower penetration and higher growth potential of emerging markets. Examples of this strategy include the sale of Vodafone Japan to Softbank and the potential sale of Vodafone’s 45% stake in Verizon Wireless in the USA.
China Mobile’s approach to emerging markets is very different from Vodafone’s
China Mobile’s likely strategy will be to take over mobile networks in lower-profile emerging markets that have long-term growth potential, using its extensive financial and operational resources to exploit that potential in each market. By following the same process in each emerging market it enters, China Mobile will aim to gain the experience and profile required to move into more mature international markets. Vodafone, by contrast, is pursuing a more short-term strategy, seeking to leverage its reputation, brand and size to develop a presence.
China Mobile can draw on its resources to reduce costs but must build a strong brand
China Mobile has an advantage over Vodafone in being able to leverage resources, such as low-cost engineering and network design staff who can upgrade the infrastructure of the companies it acquires. The sheer scale of the Chinese market means Chinese operators have extensive experience in building wireless networks, which can give them an advantage over local operators. However, China Mobile lacks the global reputation and brand that Vodafone enjoys. Furthermore, China Mobile has little experience in overseas acquisitions and there may be risks in consolidating acquired assets. Vodafone has more experience at entering new markets, along with the financial discipline this requires.
China Mobile is employing a low-risk, long-term strategy as an opening gambit in global expansion; given the time to develop overseas expertise and a strong exportable brand, it could become a major player on a wider stage and ultimately a threat to global mobile operators such as Vodafone.