Telephonica Global Strategy Structure and Operations

The economics of scale in producing and marketing a product in the same way worldwide would produce substantially lower costs and thus allow lower prices that would overcome remaining differences in tastes. According to the case study: "the telecommunications industry has today become the largest in the world, generating $US 1 trillion (US$1,000 billion) in revenues in 1998 in worldwide service revenues and equipment sales. In 1997, telecom services alone generated revenue in excess of USS650 billion" (Telephonica Today, 1999).
Globalization allows Telephonica to maintain high-speed growth through continuous optimization of is product mix and constant technological innovation. It has also realized rapid expansion through capital injections. In 1997 Telephonica became "a completely private company" and has begun to follow a strategy of withdrawing from small markets with limited potential for its core products and to look for markets in countries with major growth potential for the telecommunication industry. "The first half of 1999 was putting Telef6nica’s aggressive strategy of investing in Latin America to the test" (Telephonica Today, 1999).
The choice of Brazil was not accidental. This market is considered as the most potential one for telecommunication industry because it had the poorest telecommunication infrastructure development among other Latin American countries. The other potential markets were Argentina, Venezuela, Puerto Rico, Colombia, Peru, Mexico, El Salvador and Chili. The situation is marked by two factor – specification, which is to do with the ‘design quality’ of service, and conformity, which is to do with the ‘process’ quality which is achieved are of particular importance to customers. The main challenge is that Telephonica is well-positioned to take on this important global leadership role. It has the global resources and certainly has the technological capability.
According to Johnson and Scholes (1998), the size of the investment required by a business wishing to enter an industry is an important determinant of the extent new entrants. The higher the investment required, the less the threat from new entrants. The lower the required investment, the greater is the threat. In this situation: "Telefonica saw an opportunity in Latin America whereas most other companies saw risk, and is now present in nine countries with an annual average growth of 13% since 1995" (Telephonica Today, 1999).
Another important challenge of global strategy applied by Telephonica is the concept of international culture, which "was absent in the world of telecommunication at that time" (Case study). Latin America has a complex culture which interacts with business in the way of socialization (the influences which shape behaviour in a particular social setting). At its deepest level. In spite of this fact, it was more easy for a Spanish-based company to penetrate into the Latin American market and gain its competitive position.
Another important opportunity is the great belief of the management team in potential and success. Juan Villalonga commented that "Latin America is to Telephonica what the United States is to AT&amp.T, It is our home, our culture and our language" (Telephonica Today, 1999). In general, it is possible to say that the culture in Telephonica is based on the interrelationship of strategy formulation and implementation.