1 ) What changes in Political and economic environment allowed Telefonica to expand globally?

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The changes that were involved in the politics and economy, which allowed Telefonica to start out expanding worldwide, were privatization and deregulation. In addition economic growth, removal of many restrictions on FDI and programs that exposed to international investors built some countries more attractive to Telefonica pertaining to expansion. Spain’s Telefonica was established in the twenties being a state-owned national telecommunications monopoly.

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Soon, the Spanish government privatized it, along with deregulated the marketplace for The spanish language telecommunications.

Due to these changes, Telefonica has a reduction in staff, rapid re-homing of new technology and began to focus on the increasing earnings. Telefonica started to grow and expand globally. Hence an over-all shift to democratic politics institutions and free marketplace economies stimulates Telefonica to purchase different international locations especially in developing nations such as countries in Latin America.

2 . How come Telefonica initially focused on Latina America? How come was this slower to expand in Europe despite the fact that Spain is a member of European Union?

When changes were being made, Telefonica was looking for expansion.

Picking out a firm to engage in FDI occurs rationally and empirically prior to the decision about best places to locate. The main determinants for choosing a location pertaining to FDI are markets which have strong likelihood of growth, visibility of person country to foreign transact, production cost in beneficiary countries, transact agreements, similarities in tradition and dialect and the like.

The markets were developing rapidly in Latin America and Telefonica acquired many businesses, which were when part of point out owned telecommunication monopolies. Latin America was also going through a rapid alter of deregulation and privatization across the location. Moreover, Telefonica focused on Latina America due to similarities in the development of the marketplace, shared common language and deep cultural and historic ties with Spain.

Latina American markets were also increasing theadoption charge and usage, including Internet and mobile phones. Since Local trade contracts are important determinants of FDI. Telefonica was slower to expand in Europe because there had been an implied contract between the nationwide telecommunications businesses that they may not invade each other’s markets. By june 2006, this contract broke down when France Telecom entered Italy.

3. Telefonica used buy rather than greenfield ventures as the entry approach. Why do you consider this has been the truth? What are the hazards associated with this kind of entry approach?

Strategic cha?non

Strategic alliance identifies cooperative agreement between potential or real competitors. It may range from a short-term contractual agreement for cooperating on a particular task to formal joint undertakings in which two or more firms have equity stake. This helps to circumvent entrance barrier, reveal fixed costs of developing new product or processes and also to bring together expertise and possessions that corporations would not perform separately.

However , strategic complicité or joint ventures let competitors a low cost route to new-technology and marketplaces. In initial strategic alliance may generate income but in permanent it hollowed out out organizations leaving them with no competitive advantage. In the event firms are certainly not careful they could end up moving more of that knowledge and skills with out receiving much benefits.

Why firms select Acquisition instead of licensing

A company that possesses a great intangible asset (e. g. proprietary technology) enjoys a potential ownership advantage over others in foreign markets. Below these circumstances the firms may consider maximizing the benefits of its title advantages by simply licensing another company to make its goods and services.

Nevertheless, if there are excessive transaction costs associated with negotiation, monitoring and observance of contracts with overseas companies then this firm can be expected to choose FDI with its individual multinational part as a remarkable alternative to licensing. Licensing can result in a business giving away its know-how into a potential foreign competitor. Firms cannot improve its profitability, as it does nothave strong control over manufacturing, marketing and strategy in a international country. Great things about acquisition

There are plenty of benefits of obtaining current assets than undertaking greenfield purchases. First mergers and purchases are more rapidly to implement. In quickly evolving market segments this is very important concern. When Telefonica wanted to develop a service presence in Latina America, that did so by using a series of purchases, purchasing telecommunications companies in Brazil and Argentina. The key reason why was Telefonica knew that was the quickest way to establish a sizable presence in the target audience.

Second reason behind Telefonica preferred to acquire companies was because those organizations had beneficial strategic possessions such as company loyalty, buyer relationships, trademarks or patents, distribution devices, production devices and so on. Hence it was simpler and less dangerous for Telefonica to acquire those assets than to build all of them from surface up through a greenfield expense.

Thirdly Telefonica might have assumed that they can boost the efficiency with the acquired unit by transferring capital, technology or management skills. Nevertheless , there are some hazards involved in joining with or perhaps acquiring the companies as corporations may fail to realize their very own anticipated benefits. Many times mergers or acquisitions fail to attain expected revenues. Acquisitions may fail if there is clash of culture of acquiring and acquired organizations. Political lack of stability or inflation in number country may have bad impact on accomplishment after obtain.

4. What is the value that Telefonica produces in the companies this acquires? Firms learn useful skills and receive new-technology. In addition obtain leads to production, growth, product and method innovation and greater monetary growth. Extra capital coming from acquiring organization can lead to further development.

5. In Your wisdom, does back to the inside investment by Telefonica benefit a host region? Explain the reasoning. FDI can make a positive contribution into a host overall economy by supplying capital, technology, and management resources that might otherwise certainly not be available and so boost the country’s economic expansion. New technology received may result in economic expansion andindustrialization.

Expanding countries with lack of r and d rely on advanced industrialized countries for most of the technology required to stimulate monetary growth and FDI can provide it. One other benefit is that FDI delivers jobs into a host region that would in any other case not be created there. Effects of FDI on work are both direct and indirect. Direct benefits arise once Telefonica employed host nation citizens straight. Indirect rewards arise when ever jobs are manufactured in community suppliers as a result of the expenditure and when jobs are created due to increased community spending simply by employees of Telefonica.

When FDI is in the form of buy the effect could possibly be to reduce career when the obtaining company restructure the procedures to improve productivity. But when restructuring is over the company usually grow their employment bottom at a faster rate because compare to its domestic rivals. FDI leads to more competition within the industry that energizes capital investment by firms in flower, equipment and R&D to find a competitive edge above their opponent. The long-term results can include increased production growth, product and process innovation, and greater economical growth. Consequently increased competition and growth give rise to lower prices, which is necessary for consumers.

FDI by Telefonica may not include much effect on country’s balance of payments account, as Telefonica can be described as service industry providing telecommunication services. To get services sector there is no approach to exports plus the services should be produced exactly where it is provided. Here the effect of FDI on competition becomes important for monetary growth of the region.

For example under a 1997 arrangement sponsored by World Transact Organization, sixty-eight countries accounting for more than 90 percent of world telecommunications revenues pledged to start starting their marketplaces to overseas investment and competition and also to abide by prevalent rules to get fair competition in telecommunications. Before this agreement telecommunication markets had been closed to foreign competition, and in most countries a single carrier monopolized markets, which has been often a state-owned enterprise.

Consequently, Inward investment by Telefonica has increased competition and triggered investment in modernization of telephone sites around the world, leading to better services that further more resulted in affordable prices. With benefits FDI has costs to get the number countries. You will discover possibilities that Telefonica, being a large MNE, has more financial power than local companiesso it may finally dominate the industry. In long term it may monopolize and maximize prices to impact economical welfare of host region in a negative way.

Telefonica may generate some countrywide sovereignty and autonomy problems within the number governments by simply creating a feeling of economical dependence of host countries. Being a large MNE crucial decision created by foreign father or mother Telefonica might impact economic system of the host country in which Telefonica will not have genuine commitments for the host region.

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