Jeremy Warner's Outlook: Sarin heads back to his Indian roots, but is this the right approach for Vodafone?

Wal-Mart's publicity drive comes to grief; Exceedingly bad news from Mr Kipling
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The Independent Online

Already it's growing at breakneck pace, which for Arun Sarin, the chief executive of Vodafone, the mobile phones Goliath, would make the country a natural target for expansion even if he wasn't Indian-born himself.

The bald statistics on this market are quite staggering. India may be one of the poorest countries in the world in terms of GDP per head, but it is already the third-largest mobile phone market in Asia, behind China and Japan. What's more, with mobile phone revenues forecast to grow at 35 per cent per annum compound for at least the next five years, India is by far the fastest-growing market in the world - more than twice as high growth as Russia, which is the next swiftest.

This is not just the result of rising aspirations and prosperity. For many parts of India, mobile telephony is the only form of telecommunications, since the investment in adequate fixed-line infrastructure has never been made. India is leapfrogging fixed-line straight into mobile, making the latter even higher growth that otherwise. Furthermore, though mobile penetration is relatively high in the big cities at more than 30 per cent of the population, it is less than 2 per cent in the countryside. The potential is obvious.

So there's the case for being a part of the Indian story in mobile telephony. The question for Mr Sarin is whether he's chosen the right way in. Vodafone is paying $1.5bn for a 10 per cent stake in Bharti Tele-Ventures, the biggest of India's four main mobile operators.

Mr Sarin would much rather have bought more, or even the lot, but this was the most that was available, and unusually for such a small economic interest, it will give Vodafone a say in the management and future strategy. As a consequence, accounting rules allow Vodafone to consolidate its share of Bharti's earnings. India has just eased the rules on foreign ownership, so other shareholders allowing, Vodafone could eventually go as high as 75 per cent.

Yet even for Vodafone, $1.5bn is a lot to pay against the possibility that the company might eventually find a way of taking control, and in the meantime, the flow of benefit between the two companies is likely to be all one way, with Bharti lapping up Vodafone's advantages in buying power and expertise in technology but giving very little back in return.

Despite the "One Vodafone" programme, designed to exploit the supposed synergies of a global footprint, Vodafone is in essence still just a collection of local networks, each operating to its national tastes, tariffs and technologies. Attempts to create a global brand with common features have met with mixed results, particularly in Japan where the initiative had to be quickly reversed after a collapse in subscribers.

The vision for Vodafone was to create a genuinely global company, yet the company has so far failed to rise beyond being a kind of investment trust of far-flung mobile assets. To many, the Indian investment will look like more of the same. If investors want a slice of Bharti, they can buy it directly through the Bombay stock market. They don't need Mr Sarin to do it for them.

The Bharti investment may only serve to refocus attention on other territories where Vodafone has struggled to move beyond a minority interest - the US, France, Poland and China. Ironically for such a newly constructed set of assets, Vodafone is already facing pressure from some quarters for a break-up and return of capital. The advance into India shows that Mr Sarin thinks he can face this pressure down. He stays loyal to Sir Christopher Gent's vision of the global player, with strong market positions in five continents united by a single brand, but he's yet to demonstrate the value of this vision, either to consumers or investors.

Wal-Mart's publicity drive comes to grief

And it was all going so well. Thought of by many as the unacceptable face of global capitalism, Wal-Mart is in the midst of a concerted campaign to improve its public image. First there was the commitment to spend $500m a year developing techniques to cut the group's greenhouse gas emissions.

Then came the announcement that the cost of joining the group's healthcare plan would be cut to make it more affordable to its notoriously poorly paid workforce, some of which is forced to fall back on Medicaid, a government-funded safety net, when confronted with ill health.

Then finally, up pops Lee Scott, the chief executive, to propose an increase in the minimum wage, which in the US is a slave labour rate of $5.15 (£2.88) an hour. As things stand, the poor cannot afford to shop, even at the low prices offered by Wal-Mart, he protests. Could that be a crocodile tear rolling down his cheek?

In the meantime, Wal-Mart has been impressively active in coming to the rescue of New Orleans. All of a sudden, this red in tooth and claw corporate embodiment of unsentimental, free market capitalism seems to be developing a social conscience. Mr Scott must wake up each morning with a warm glow in his stomach just at the thought of it.

But of course this is not altruism. Actually it is as much a part of modern capitalism as Wal-Mart's rediscovery of exploitative, Victorian working practices, or its decimation of the little guy in US retailing. Faced with growing evidence of a middle-class boycott, Wal-Mart is being forced to change its ways. Those that can afford not to shop at Wal-Mart are beginning to exercise that choice in protest at the company's hegemony. For so long the consumer's friend, Wal-Mart is having to confront the possibility of a consumer revolt.

But calamity, and proof positive of the propensity of even the best-laid publicity campaigns to go horribly wrong. This came in the form of an internal executive memo of such crass insensitivity that even the man who penned it must have cringed at the thought that it should ever become public. Unfortunately for Wal-Mart, it did. This is what the company's vice president of benefits had to contribute to Wal-Mart's new warm and cuddly image.

Undesirable job applicants might be discouraged, he wrote, if the company had a policy of making physical activity compulsory for all positions, so that, for instance, cashiers would also have to collect trolleys. The purpose of this exercise, mind, wasn't just to discourage the weak, old, fat and infirm from applying for jobs. By encouraging the employment of healthier people, it would also cut down on the company's healthcare bill.

Aaagh! The warm glow in Mr Scott's stomach will have been dowsed in one go. If this gloriously clinical piece of corporate thinking wasn't so outrageous it would be almost funny, and if it hadn't leaked, the writer might even have got a bonus for his trouble. Unions said it had exposed all Wal-Mart's other initiatives as cynical publicity stunts. I have to admit to a sneaking admiration for Wal-Mart, an outstanding business achievement if ever there was one, but it is hard to disagree.

Exceedingly bad news from Mr Kipling

I was vigorously taken to task by RHM's advisers last summer after writing a negative piece about the Mr Kipling cakes group's forthcoming stock-market flotation, but it looks as if I was right. The shares slumped nearly 10 per cent yesterday, taking them back through their flotation price. Mr Kipling may make exceedingly good cakes, but it doesn't seem to have done the sales any good. They fell 12 per cent in the first half. As I said at the time, looks like years of underinvestment in the brand to me. Don't say you weren't warned.

j.warner@independent.co.uk

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