Spain’s Telefonica

Spain’s Telefonica

Spain’s Telefonica

Description of the company

Spain’s Telefonica began operations in the 1920s as a government-owned telecommunication and broadband company that served the whole country (Birkinbine, Gomez, & Wasko, 2016). Telefonica was a monopoly from its formation until the 1990s. Spain’s Telefonica mainly focuses on both mobile and fixed telephone business. Telefonica operates in 25 nations and has more than 230 million customers worldwide (Birkinbine, Gomez, & Wasko, 2016). Telefonica has substantially established itself in Latin America, Europe and Spain.

The political event that made Telefonica expand to other nations is its conversion to a private entity and deregulation. Whereas the economic factor that triggered its growth is the fast growth that was taking place in Latin America. At first, Telefonica focused on Latin America due to similarities in their culture and language.

In the 1990s the Spanish government turned Telefonica to a private company. Besides, the government also removed all the constraints imposed on the nation’s telecommunications market. The telecommunication company also embraced modern technology, and this ultimately led to a retrenchment of a considerable number of its employees. During this period, the primary intention of the company was to achieve growth and expansion. Telefonica found Latin America as a good investment destination (Nations, 2001). The decision to expand to Latin America made Spain’s Telefonica be an international business. This is because it was operating in more than one state.

Dominant issue of the case

The central issue in the case of Telefonica is the use of acquisition as a strategy of venturing into a foreign market. This is because Telefonica explored the Latin American markets through the acquisition of several companies. Through the acquisition of another entity, the acquiring company uses existing business processes and technologies. Similarly, talented employees and managers who previously worked in the acquired company will be used (Anonymous, 2002). Thus new staff will not be hired. Telefonica preferred acquisition as an entry strategy as opposed to greenfield venture as it is faster and cheap to execute. The major pitfall associated with an acquisition is the cultural mismatch between the acquiring and the acquired company.

Telefonica’s goals

The primary goals of Spain’s Telefonica were to increase its shareholders’ value and to raise its profit levels. To achieve the named goals, Spain’s Telefonica made the decision to expand globally. To realize the set goals, Telefonica began its operations in Latin America. Later on, it launched its activities in Europe (Guillén, 2010). Telefonica also intended to be the market leader. It is for this reason that the company acquired most of its competitors. It also continuously searched for new markets all over the world.

Constraints of the problem

The key constraint is intense price competition. In Latin, America Telefonica was compelled to search for other markets due to stiff competition that was imposed by America Movil (Guillén, 2010). The competition emanated from the fact that numerous companies were being attracted by the growth opportunity that was available in the new market. Telefonica left the Latin American market after finding out that its major challenger had acquired a substantial share of the Latin America markets. Another constraint was the slow expansion of Telefonica into Europe due to the tacit agreements. The arrangement was between companies operating in the telecommunications industry. Under the agreement, telecommunication companies were barred from invading the markets that were owned by competitors.

Relevant alternatives of getting into a foreign market.

Spain’s Telefonica used acquisition as a strategy of entering into the foreign markets. There are other methods of entering an international market which include; licensing, Joint venture, Foreign Direct Investment (FDI), greenfield investments, Turnkey projects, Franchising, Direct exporting, strategic alliances and piggybacking (Tielmann, 2010). Direct exporting involves the sale of a company’s products into the desired foreign market directly. Distributors or sales agents may be used to represents a company’s interest in the international markets. Piggybacking is indirect exporting that involves the sales of a company’s products in foreign markets. The selling company uses logistics and distribution channels of another enterprise (Tielmann, 2010).

Under a joint venture and partnership agreements, different parties come together and set up a business in a foreign market. The parties to the agreement share in the ownership and management of the business depending on the terms of their engagement. According to Tielmann (2010), most joint venture and partnership arrangements involve an association between a foreign and a local partner. Parties to the joint venture get to benefit from the core competencies of each other.

Licensing involves permitting another company to uses a service or products that belong to another firm. This contract is most useful if the licensee has a significant market share in the market the licensor intends to enter. On the other hand, franchising is giving another company the right to use ones’ brand and business models for a given duration at a fee. Tielmann (2010) notes that franchising works well for companies that have sound business models and a popular brand.

Under the Greenfield investments market entry strategy, a foreign company purchases land and builds a site from which it will be conducting its operations in a foreign country. This strategy is the costliest, but it is desirable since a firm gets access to skilled labor, modern technology. The concerned entity also reduces transportation and other costs significantly. FDI is the direct control and ownership of companies in a given country. Resources, technology, personnel and capital are transferred under FDI (Daft & Marcic, 2008). FDI may be achieved through the formation of a new concern or acquisition of an existing entity.

Selection of the best alternative

All the above strategies can be used as a means of entering a foreign market. However, there are many factors that define the most applicable method. The best method depends on the situation that the concerned company is in. For instance, a company may opt for a piggybacking method as opposed to greenfield investments or FDI if it does have the required financial resources. Similarly, the nature of the product and competition in the foreign market also determine the international market entry strategy to be used.

In the case of Spain’s Telefonica, the best entry strategy was acquisition since it had all the required finances necessary to finance the acquisition process. An acquisition strategy was the best since by acquiring its business rivals; Telefonica was able to reduce competition. The values that Telefonica added to the acquired companies were; resources, experience and international networks (Lemstra & Melody, 2014). The inwards investments of Telefonica benefitted the host nations through the introduction of new technologies and competition. The increased competition compelled companies to increase their operational efficiencies.

Implementation plan

Many companies fail to benefit maximally from an acquisition due to the failure to lay out effective strategies for integrating the acquired company into the existing company (OECD, 2001). To successfully implement an acquisition, companies should put out an effective strategy of assimilating the acquired. In this regard, a steering committee should be formed whose responsibility is to oversee the integration process. The specific task of the committee is to ensure compliance with all applicable rules and to minimize resistance to change.

Conclusively, there many strategies of getting into a foreign market. The strategy that is most relevant to a given company depends on the situation the company is in. Spain’s Telefonica used acquisition as an entry strategy because it had sufficient finances. To successfully implement an acquisition, companies should lay out an effective strategy of assimilating the acquired company into the existing company