Telefonica: A Spanish Telecommunication Business


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Spain’s Telefonica a state owned national telecommunications monopoly which was established in the 1920’s, made many changes in the political and economic environment that allowed them to start expanding globally. One of these changes that were brought forward, was that the Spanish government privatized Telefonica in the 1990’s. Economically they could keep expenses low and they would get more revenue, which in turn would generate more profit. The Spanish government also deregulated the Spanish telecommunication market. This allowed a lower worker force, growth in new technology, and increasing the shareholder value for the company. As Telefonica was searching for a place to expand, they found that Latin America was the perfect fit for them. It was a great place to settle in because they had better opportunities to become successful than anywhere else in the world. This is because Latin America had familiarity with the Spanish language and their culture, as well as having rich historical roots with them. There was also a high demand for telecommunications services so it was a perfect fit for Telefoinica.
Telefonica initially focused on Latin America because they were looking for growth and expansion. Latin America also experienced a rapid change of deregulation and privatization across the region. Therefore, making it a target market for Spanish Telefonica to expand their telecommunications services. They also had a resemblance in the improvement of there market, language and culture. Latin American markets were growing rapidly, increasing the adoption rate and usage not just of traditional fixed line telecommunications services, but also for mobile phones and internet connections. 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. Even though Spain is a member of the European Union, Telefonica though it was best to just expand outside of Europe. Eventually in 2005, this agreement was broken when France Telecom entered Spain, purchasing Amena, the country’s second largest mobile carrier. This then led to Telefonica to make its own move on other European markets, by buying Britain’s biggest mobile phone carrier O2. This allowed Telefonica to become the second largest mobile phone operator in the world.
Telefonica had used acquisitions rather than greenfield ventures as its entry strategy. This is because if you just start out from scratch, then it will be very hard to generate profits. It would take Telefonica many years just to build a customer base as well.

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Whereas, if you can acquire a company you already have a system that is already in place to help move your business forward and most importantly a customer base to sell your services to. We find that Telefonica did exactly this. They invested about $11 billion in Latin America in which they quires many companies through the region. They bought out the largest companies in Brazil, Argentina, and Chile. Therefore you find that in the early 2000’s Telefonica became a household name in Latin America becoming one of the most popular mobile operations in that region. At the same time, there are potential risks taking part in this kind of strategy. Of course you can have more costs now that you are getting more workers and are being taxed as well. Their can be a culture clash as well, when there could be many different philosophies or ways of doing the daily operations between management and employees. At the same time it may be harder to grow in sales because there might not be enough new customers outside the customer base you have already.



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