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-4 A Study of Two Wireless Telecommunications Companies' Globalization Strategies - An Analysis of Vodafone's and NTT DoCoMo's Foreign Investments by Hyungchul Joo B.S. Computer Engineering Seoul National University, 1989 & Peter D. Honkanen B.S. Electrical Engineering Boston University, 1985 Submitted to the Sloan School of Management in Partial Fulfillment of the Requirements for a Degree of Master of Science in Management at the Massachusetts Institute of Technology June 2003 D 2003 Massachusetts Institute of Technology All rights reserved Signature redacted Signatures of Authors .... ,....... ........ ,I.... ........... .,............. ISTo anSchool of Management May 9, 2003 Signature redacted C ertified b y ......................................................................................... Arnoldo C. Hax Alfred P. Sloan Professor of Management Thesis Supervisor Signature redacted A ccepted by........................................... ....... "tephen J. Sacca Director, Sloan Fellows Program ASSACHUStJSTSINSTITUTE IFCTHWLOGY ACIEARCHIVES A UG 0 4 2003 EIBFJI1 LIBRARIES U -~ -~ A Study of Two Wireless Telecommunications Companies' Globalization Strategies - An Analysis of Vodafone's and NTT DoCoMo's Foreign Investments by Hyungchul Joo & Peter D. Honkanen Submitted to the Sloan School of Management in Partial Fulfillment of the Requirements for a Degree of Master of Science in Management ABSTRACT NTT DoCoMo's and Vodafone's globalization strategies, as expressed through their foreign investments, were examined via direct interviews, reviews of (the company's) published information, market analyst and research reports, and financial news articles. The resulting data was collated and analyzed via the application of several strategic analysis tools, including those developed by Hax & Maljuf, the Delta model (Hax & Wilde), and the Five Forces (Porter). The foreign investments made by each firm reflect the objectives of their respective globalization strategies, as constrained by their unique corporate strengths and weaknesses - these strategies target the key drivers of the wireless telecomm market, the number of subscribers and ARPU, but in very different ways; Vodafone has focused on increasing its subscriber base by acquiring controlling interests in the number one (or number two) wireless operator in each target region (constrained primarily to "developed" areas). It has addressed ARPU by expanding its range of services to include wireless internet. NTT DoCoMo has focused on the proliferation of its wireless multi-media technology to increase its subscriber base; it has set the pace for improved service and expanded applications with its i-mode service running on its W-CDMA network. The relative success of Vodafone's and NTT DoCoMo's foreign investment and globalizations strategies are examined, and alternative strategies, with their pro's and con's, are suggested. Thesis Supervisor: Arnoldo C. Hax Title: Alfred P. Sloan Professor of Management 2 Table of Contents 3 List of Tables 5 List of Figures 7 Glossary 8 1. Introduction 13 1.1. NTT DoCoMo 13 1.2. Vodafone 14 1.3. Purpose of this Paper 14 1.4. Analytical methodologies 14 1.4.1.Data Collection 15 1.4.2.Analytical models 16 2. Globalization and Foreign Investment Strategies 19 2.1. NTT DoCoMo's Corporate Strategy - Globalization 19 2.1.1. Central Focus of Corporate Strategy 19 2.1.2. Corporate Internal Scrutiny 20 2.1.2.1. Mission of the Firm 20 2.1.2.2. Business Segmentation 26 2.1.2.3. Horizontal Strategy/Vertical Integration 26 2.1.2.4. Corporate Philosophy 28 2.1.2.5. Definition of Strengths and Weakness 30 2.1.3. Corporate Environmental Scan 30 2.1.3.1. Economic Factors by Key Geographical Areas 31 2.1.3.2. Trend Scenarios 38 2.1.3.3. Identification of Opportunities and Threats 39 2.1.4. Strategic Posture of the firm 40 2.1.4.1. Strategic Thrusts 40 2.1.4.2. Corporate Performance Objectives 41 2.2. NTT DoCoMo's Foreign Investments 42 2.2.1. Policies 43 2.2.2. Deal Structures 44 2.2.3. Management 45 2.2.4. Evaluation of Performance 46 2.3. Vodafone's Corporate Strategy - Globalization 48 2.3.1. Central Focus of Corporate strategy 48 2.3.2. Corporate Internal Scrutiny 49 2.3.2.1. Mission of the firm 49 2.3.2.2. Business Segmentation 57 2.3.2.3. Horizontal Strategy/Vertical Integration 58 2.3.2.4. Corporate Philosophy 61 2.3.2.5. Identification of Strength and Weakness 63 2.3.3. Corporate Environmental Scan 63 2.3.3.1. Economic Factors by key Geographical Areas 63 2.3.3.2. Trend Scenarios 63 2.3.3.3. Identification of Opportunity and Threat 64 2.3.4. Strategic Posture of the firm focusing on globalization 64 3 2.3.4.1. Strategic Thrusts 64 2.3.4.2. Corporate Performance Objectives 66 2.4. Vodafone's Foreign Investments 67 2.4.1.Policies 68 2.4.2.Deal Structures 69 2.4.3.Management 70 2.4.4.Evaluation of Performance 72 3. Strategic Performance 74 3.1. Strategic Positioning in the Global Market - Hax's Delta Model 74 3.1.1. Strategic Options in the Global Wireless Telecom Industry 74 3.1.1.1. Best Product 76 3.1.1.1.1. Low Cost 76 3.1.1.1.2. Differentiation 77 3.1.1.2. Total Customer Solution 79 3.1.1.3. System Lock-In 80 3.1.2. Strategic Options - NTT DoCoMo 83 3.1.3. Strategic Options - Vodafone 84 3.2. Competition in the Global Wireless Telecom Industry - A Forecast 85 3.2.1.Rivalry - Economies of Scale and Scope 85 3.2.1.1. Global Market and Technology Growth 85 3.2.1.2. Competition via Scale 90 3.2.1.3. Competition via Scope 93 3.2.1.4. Rivalry via Global Economies of Scale & Scope - A Look Forward 97 3.2.1.4.1. Other Is tier Operators 97 3.2.1.4.1.1. mmO2 97 3.2.1.4.1.2. TIM 99 3.2.1.4.1.3. Telefonica 101 3.2.1.4.1.4. U.S. Operators 103 3.2.1.4.1.5. KDDI 104 3.2.1.4.1.6. China Mobile 104 3.2.1.4.1.7. China Unicom 105 3.2.1.4.2. A Scenario - Cooperation for Global Economies of Scale and Scope 106 3.2.2. Other Forces 110 3.2.2.1. Barriers to Entry and Exit 110 3.2.2.2. Power of Suppliers 110 3.2.2.3. Power of Buyers 111 3.2.2.4. Substitutes 112 3.2.2.5. Overall Effectiveness 112 4. Conclusion 112 Attachment 1 116 Bibliography 117 4 List of Tables 2.1 NTT DoCoMo Existing and New Product Scope and Priority Assessment Chart 20 2.2 NTT DoCoMo Existing and New Market Scope and Priority Assessment Chart 21 2.3 NTT DoCoMo Existing and New Geographic Scope and Priority Assessment Chart 22 2.4 NTT DoCoMo Existing and New Unique Competencies and Priority Assessment 23 2.5 NTT DoCoMo Challenges Emerging from Changes in the Mission of the Firm 24 2.6 NTT DoCoMo Mission Statement 25 2.7 NTT DoCoMo Business Segmentation with Rational 26 2.8 NTT DoCoMo Horizontal Strategy / Vertical Integration 27 2.9 NTT DoCoMo Corporate Philosophy 28 2.10 NTT DoCoMo Corporate Strengths and Weaknesses 30 2.11 Economic Factors by 4 Major Geographical Areas in Global Market 31 2.12 Economic Factors by 5 Major Nations in Western Europe 32 2.13 Economic Factors by other 11 nations in Western Europe 33 2.14 Economic Factors by 5 Well-Developed Nations in Asia Pacific 35 2.15 Economic Factors by 3 Fast Growing Nations in Asia Pacific 36 2.16 Economic Factors by Five Nations in Eastern Europe and America 37 2.17 NTT DoCoMo Trend Scenarios 38 2.18 NTT DoCoMo Corporate Opportunities and Threats 39 2.19 NTT DoCoMo Corporate Strategic Thrusts 40 2.20 NTT DoCoMo Corporate Performance Objectives 41 2.21 NTT DoCoMo Foreign Investments 42 2.22 NTT DoCoMo Advantages / Disadvantages of Minority Stake Investments 44 2.23 NTT DoCoMo United States Offices 45 2.24 NTT DoCoMo Foreign Investment Impairments 46 2.25 Vodafone Existing and New Product Scope and Priority Assessment Chart 50 2.26 Vodafone Existing and New Market Scope and Priority Assessment Chart 51 2.27 Vodafone Constituents 52 2.28 Vodafone Existing and New Geographic Scope and Priority Assessment Chart 53 2.29 Vodafone Existing and New Unique Competencies and Priority Assessment Chart 54 2.30 Vodafone Challenges Emerging from Changes in the Mission of the Firm 55 2.31 Vodafone Mission Statement 56 2.32 Vodafone Business Segmentation with Rational 56 2.33 Vodafone Interrelationship through SBU 58 2.34 Vodafone stage of value chain and integration 59 2.35 Vodafone Horizontal Strategy / Vertical Integration 60 2.36 Vodafone Corporate Philosophy 61 2.37 Vodafone Corporate Strengths and Weaknesses 63 2.38 Vodafone Corporate Opportunities and Threats 64 2.39 Vodafone Corporate Strategic Thrusts 65 2.40 Vodafone Corporate Performance Objectives 66 2.41 Vodafone major investments for the past four years 68 2.42 Vodafone Foreign Investment Deal Structures - The Past Four Years 69 2.43 Vodafone Management Committees 71 3.1 Best Product Option in Global Wireless Telecom Service Competition 79 3.2 Total Customer Solution Options in Global Wireless Telecom Service Competition 80 3.3 Complementors of Global Wireless Telecommunication Industry 80 5 3.4 System Lock-In Option in Global Wireless Telecom Service Competition 82 3.5 Classification of Global Wireless Telecom Market 93 3.6 Classification of Western European Wireless Telecom Market. 94 3.7 mmO2's subscribers and market share 98 3.8 Subscribers and market share for TIM operations 100 3.9 Overview of U.S.