Case 1: Spain’s Telefonica
The Spanish telecommunications monopoly Telfonica, was founded in the 1920s and was state-owned until it was privatized by the government in the 1990s. At the same time the telecommunications industry in Spain was being deregulated. This followed a global trend of privatization that began in Britain in the 1980s when Margaret Thatcher sold the state-owned telephone company British Telecom. The decision to privatize companies, while at the same time deregulating their industries, has been employed to stimulate economic growth and efficiency through innovation fostered by competition. By removing or relaxing legal restrictions including, but not limited to, price and output control, deregulation has created the opportunity for private companies to enter industries previously controlled by the government. In Spain, Telefonica seized and capitalized on this opportunity. And while seeking growth and expansion, Telefonica looked toward the emerging markets of Latina America, which were experiencing similar privatization and deregulation. Foreign direct investment in Latin America appeared a very logical progression because of the linguistic and cultural similarities, the absence of which could present difficult barriers to overcome. These factors, coupled with the growing market for mobile and Internet services, presented Telefonica with a very attractive investment opportunity. After spending $11 billion on acquisitions throughout the late 1990s, Telefonica began to experience intense competition from a number of other telecommunications companies. In search of new markets to enter, Telefonica began to focus on other European countries. Up to this point in time, there had been a little spoken of agreement among telecommunications companies in Europe not to encroach on each other’s established markets. However, after France Telecom acquired one of Telefonica’s mobile...
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