The paper "International Trade Investment - Spain's Telefonica" is a great example of a business case study. In 2013 Hill stated that Right decisions must be made when making an entry into an international or foreign market that can make a great difference on a firm`s performance. Nevertheless, the opposite can also be true when the wrong decisions are made. Making the right decision, certainly, increase reputation and profit as the organization prosper. It can affect in ultimate cost-effective global expansion. To enter global markets and gain competitive advantage companies must make the right decisions which are efficient, strategic and advantageous while taking risks (Engel & Rogers 347).
As big companies take over and invest in several offshore businesses they must analyze external factors such as political, economic, social, technological and legal and their effects on their businesses. Based on this revelation, this paper seeks to analyze political and economical factors that allowed Telefonica to expand internationally. The discussion also assesses the reasons why the company initially focused on Latin America while slowly expanding to Europe. Political factors that allowed Telefonica to expand globally At first, Telefonica remained a government-owned company until the 1990s when it was privatized and deregulated.
Thus, the political and economic changes that enabled Telefonica to begin expanding internationally were deregulation and privatization. Bel claims “ the deregulation gave managers the power to make independent decisions that resulted to the growth of the company” (Bel 1422). The Telefonica’ s privatization last measures were created to support scattered ownership and offer managers a higher degree of good judgment in the operation of the company. This successfully resulted in an agency concern in the firm.
The need for the company to compete with other players was the driving force which prompted the decision. It is also stated that the internet company has grown into the internet platform by acquiring InfoVia, although the corporation did not wholly privatize until 1997 when they put on sale its remaining 20.9 percent interest of the firm. The creation of The Telecommunication Market Commission was a boost in the industry since it was applied to encourage competition in the fast deregulating telecommunications sector. Bel claims that a crucial effect of privatization was to eliminate the poor performance of this public enterprise to make it efficient and do way with carrying goals of politicians as normally known by government-owned firms (15). It is known that governments normally create incompetent economic managers.
Lewin affirms that these managers are driven by political pressures as opposed to sound business and economic sense (14). For instance, a government of Spain employed excess staffs at Telefonica who were inefficient. The government was reluctant to do away with these workers due to the negative publicity that would have surrounded job losses.
The excess incompetent employees when used abroad cannot perform according to expectation. It was just after privatization that the company laid off a number of employees. In 2002 Megginson, Bortolotti, D’ Souza & Fantini argued that by privatization and reducing the number of employees the company cuts cost while making incentive that they used to enter new global markets (244). This can be attributed as a mistake of the state because when the employee, they do not do it on merit. Laffont & Tirole in 2000 contended that frequently privatization of state-owned monopolies happens beside deregulation which allows a company to get into a new market and enhance the market competitiveness (27).
It is as a result of the rise in a competition that greatly spurs improvements and efficiency.
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