Spain’s Telefonica

1. What changes in the political and economic environment allowed Telefonica to start expanding globally?
The changes that were involved in the political and economic environment, which allowed Telefonica to start expanding globally, were privatization and deregulation. Spain’s Telefonica was established in the 1920s being a state-owned national telecommunications monopoly. Soon, the Spanish government privatized it, as well as deregulated the market for Spanish telecommunications. Due to these changes, Telefonica has a reduction in workforce, rapid adoption of new technology and began to focus on the increasing profits. Telefonica began to grow and expand globally. 2. What did Telefonica initially focus on Latin America? Why was it slower to expanding Europe, even though Spain is a member of the European Union?
While changes were being made, Telefonica was looking for growth. Latin America also experienced a rapid change of deregulation and privatization across the region. Telefonica focused on Latin America because of similarities in the development of the market, language and culture. Latin American markets were also increasing the adoption rate and usage, including internet and mobile phones. Telefonica was slower to expand in Europe because there had been an implied agreement between the national telecommunications companies that they would not invade each other’s markets. By 2005, this agreement broke down when France Telecom entered Spain. 3. Telefonica has used acquisition, rather than Greenfield ventures, as its entry strategy. Why do you think this has been the case? What are the potential risks associated with this entry strategy?
Telefonica has used acquisitions as its entry strategy because acquisitions appeared to have more benefits than greenfield ventures. By the 2000s, Telefonica was the No. 1 or two player in almost every Latin American country, by purchasing the leading companies/monopoly providers. If Telefonica was to use Greenfield ventures, they would have huge costs and also it would take more time to build their business. Through reading the chapter, it is easily to believe that acquired firms have customer relationships, distribution systems, etc, making it easier and less risky for Telefonica to acquire these. Potential risks associated with acquisitions may be a difference in culture, difficulties in management and operations.

4. What is the value that Telefonica brings to the companies it acquires?

- Largest mobile phone operator in the world- Power
- Can offset losses in one country with profits in another- more strategic options.
- Scale economies by operating in multiple countries simultaneously.
- New skills and experience to the companies it acquires.

5. In your judgment, does inward investment by Telefonica benefit a host nation? Explain your reasoning.

- New jobs, capital, and other benefits like infrastructure improvements and technology.
- Telefonica’s presence probably contributed to the overall growth and prosperity in the host market through increased competition and lower prices on telecommunications.
- However, sometimes detrimental. E.g. Local companies may find it hard to survive, jobs then lost.