Telef nica Case Study The Making of a Multinational
Telefónica Case Study – The Making of a Multinational This case analyses the position of Telefónica in 1999 following the financial crises that occurred in Latin America in the first quarter of the year. It looks specifically at the ways in which Telefónica both transformed itself from a monopoly operator in Spain into a multinational telecoms giant and also at the ways in which it entered these new markets. In early 1990, Telefónica began its purchases in Latin America starting with a controlling stake in Chile’s fixed line operator; by 1998, it had invested a total of US$10bn and installed more than 4. ... The 1999 financial crises in Latin America, starting with the devaluation of the Brazilian Real and spreading across the region, sent Telefónica’s overnight success into a downhill spiral. ... In June 1998, Telefónica embarked on a restructuring process that aimed to reduce its staff in the core business and to shed a total of 9,979 jobs across the organisation. ... We can compare Telefónica’s situation to that of GTE and NEC in the late 1980s where they were faced with a similarly evolving market in both computer technology and telecommunications. GTE followed the Telefónica route, divesting in certain businesses and following the classical SBU strategy – they lost market share and profitability. ... In the face of these evolving industries, Telefónica must understand that its success will come not through acquisitions, or size, but through the leveraging of their core competencies and through alliances that focus on their core products and businesses – only in this way are they able to move with (or even faster than) the market. While this may seem obvious, it is important to note the difference between economies of scale, and possible scope – where Telefónica feel their strength will lie if they expand, and economies and profitability as a result of the full leveraging of core competencies and resources across the entire organisation. How would Telefónica look within five years? If left to follow its current path, in five years Telefónica would be a corporate chaos of individual operating companies, likely fighting amongst themselves for both capital investment and profitability. The deep recession in Latin America, followed by massive inflation would make further investments difficult, unpopular and risky, so Telefónica would be forced to re-evaluate its resources already deployed in this area.