Spain’s Telefonica had the opportunity to get down spread outing globally thanked to two important alterations in the economic and political environment: denationalization and deregulating. Telefonica was a typical state-owned national telecommunication monopoly when being established and so. the Spanish authorities privatized it and deregulated the Spanish telecommunications market. It means that Telefonica from a state-owned company became in private controlled. Government besides reduced regulations to open telecommunications market for more competition. For these grounds. Telefonica had a crisp decrease in the work force. rapid acceptance of new engineering and focused on net incomes and stockholder value and besides started spread outing globally for growing.
Telefonica ab initio focused on Latin America because of the similarity in civilization and the development of Latin American market. Much of part of Latin America and Spain had common linguistic communication and deep similarity in civilization and history. Furthermore. Latin America were truly a possible telecommunications market which were now turning quickly. increasing the acceptance rate and use non merely of traditional fixed-line telecommunications services. but besides of nomadic phones and internet connexion.
Telefonica was slower to spread out in Europe even though Spain is a member of the EU because for old ages. there had been a silent understanding between national telecommunications companies that they would non occupy each other’s markets. In 2005. this understanding broke down when France Telecom entered Spain and so Telefonica besides rapidly made its ain European acquisition.
Telefonica has used acquisitions. instead than greenfield ventures. as its entry scheme. In this instance. it was a rational scheme because acquisition has more benefits than greenfield ventures. First. acquisition is quicker to put to death. By buying the largest operators. taking companies or monopoly supplier. Telefonica rapidly become the No. 1 or 2 participant in about every Latin American state and had a singular market portion. If Telefonica had used greenfield ventures. it would hold spent old ages to construct the whole new system and besides a immense set up costs. Second. acquired houses have its valuable strategic assets such as client relationships. trade name trueness. distribution systems.
Therefore. it is easier and less hazardous for Telefonica to get those assets than to construct them from the beginning. Not merely Telefonica recognize the potency of Latin American telecommunications market. many other elephantine companies besides see that and want to run concern in this part. By geting dominate domestic operators. Telefonica had reduced the opportunity of other rivals to vie in this market and besides do itself stronger in planetary market. Third. Telefonica believed they could increase the efficiency of acquired houses by reassigning capital. engineering or direction accomplishments.
There are two possible hazard associated with acquisitions. Estimating the mark houses to geting is a complicated undertaking. If Telefonica overestimates the value of those mark houses. it will hold important impact on future net incomes. company may endure the loss. Besides. the struggle of differences in civilization. troubles in geting procedure or in direction and operation can be the hazards that Telefonica must confront when utilizing this entry scheme.
Telefonica’s FDI can hold positive effects on the acquired companies by providing capital. engineering and besides direction resources that would non be available otherwise. Since Telefonica has experiences in transforming state-own endeavors into efficient and competitory companies. the acquired will be the first to have these resources transferred. Consequently. employment base will increase due to enlargement of freshly acquired endeavors.
Telefonica’s investing certainly benefits the host state. This flow of FDI brings about resources transferred ( capital. engineering. managerial resources ) . hence. acquired companies become more efficient and competitory. This leads to stiffer competition in the market. finally lower the monetary value and benefits the consumers. Furthermore. more competitory environment requires enlargement both in graduated table and merchandises ; new occupations are available and services quality is improved. Therefore. both the host country’s consumers and economic growing benefit from Telefonica’s FDI.