Telefonica International Business Environment - Essay Example

Telefónica International Business environment Lecturer: Table of Contents Telefónica International Business environment 12 Table of Contents 2 Introduction 3 Background of Telefonica 3 CSR in Telefonica 4 Critical success factors 5 Challenges for Telefonica 7 SWOT analysis 9 Conclusion 10 References 11 Introduction Telefonica being the largest telecommunications operator within Spanish and Portuguese speaking world remains the leading Spanish multinational by market (Martínez, 2008). Telefonica within the last decade has been characterized by prolonged profitability and growth. The company since 2000 saw its revenue double as its customers quadrupled resulting in revenue of more than £60.7 billion in revenue in 2010 an increase of 7.1% from the previous year (Palacios-Marqués & Devece-Carañana, 2013). Owing to the significance of size within the telecommunications sector, the company aims at increasing the number of customers. The company managed to increase its customer base by 23 million, which was an increase in 8.7% compared to 2009 making up 288 million customers and by September 2013 the customer base was more than 320 million (Palacios-Marqués & Devece-Carañana, 2013; Telefónica, 2013). Telefonica has managed to be among the 5 largest telecommunications operator across the globe with regard to accesses. The company operates in Europe and Latin America with its headquarters in Madrid, Spain, which makes the company to have one of the largest geographic footprints for any operator because it is present in 25 nations in Europe and Latin America. Background of Telefonica Before Telefonica was established, there was a royal decree in 1884 in Spain that controlled monopoly within the telecommunications industry, which meant Telefonica was the only company capable of offering such services. However, the prevailing telecommunications market is different because it is very competitive and having many operators and choices for customers in different nations. Although, since its inception in 1924 Telefonica benefitted from a privileged position for a prolonged period as the monopoly in Spanish telecommunication sector, the period of monopoly came to an end in 1996 after the market was completely liberalized forcing the company to adapt to the change (Albini, 2013). CSR in Telefonica In the prevailing globalised and turbulent environment, corporate social responsibility plays an essential role for companies to survive. Leadership in Telefonica values CSR as a means of managing business while considering all stakeholders. To ensure supervision of aspects associated with corporate reputation and responsibility, the company in 2002 appointed a commission tasked with the promotion of corporate responsibility. To ensure corporate responsibility and reputation the commission adopted various goals that include promoting development of company values and ensuring ethical and responsible behaviour in the company. Telefornica has three business units that include Europe, Latin America and worldwide business unit referred to as Telefonica Digital. Telefonica global resources being a business unit for the company monitors status of the organization in the market and locates the right approach to increasing and improving competitiveness. In order to understand the environment in which the business operates involves assessing the degree of turbulence with regard to likelihood of the environment changing and the degree in which the changes can be forecasted. In the prevailing global business environment for the telecommunication, company is rife with rivalry within the industry. Currently, there are various competitors, low differentiation that implies less ways of competing and gaining advantage, excessive production capacity and high strategic interests within the industry. Moreover, the presence of substitute products remains another force that determines the extent in which the sector is attractive. The use of data as a communication channel in the telecommunication sector is taking over the conventional communication methods because the advent of new technology and applications allow convenient way of communication (Palacios-Marqués & Devece-Carañana, 2013; Telefónica, 2013; Hamilton & Webster, 2012). The company policy is based on conviction regarding corporate social responsibility because Telefonica leadership believes in doing things right, and taking care of every action and decision. Through evaluation, the company develops ways of consolidating a transparent and collaborative relationship with its suppliers while at the same time setting up improvement plans. The company develops new applications in order to reach new market niches that in future may be the driving force for development. However, the company faces the challenge of carrying out this process through constant communication with other firms, the public. Nevertheless, the company has identified niches of growth associated with digital inclusion in order to enable access in telecommunications. The company as part of its CSR undertakes Pronino and Educared programs that target alleviation of child poverty and favouring education quality through networks relating to primary and secondary education. The projects are directly associated with the company business since they foster use of ICT in a education as a means of change (Palacios-Marqués & Devece-Carañana, 2013). Within the telecommunication sector, Telefonica identified projects necessary in controlling global risks, protecting children and responsible utilization of ICT. The company considers CSR to be a determinant in large Spanish firms especially within multinationals because effects of globalization influence the company, which is a powerful stimulus for CSR. Critical success factors Identification of critical success factors for Telefonica has been essential in ensuring that the company remains competitive within the telecommunication industry. The company ensures that it addresses the needs of its customers that include quality of service, reliability, coverage of the signal and convenience with regard to price. The environment in which telecommunication companies rely on values reliability and the extra service offered by telecommunication providers like high quality and performance. Moreover, customers are attracted by low prices offered by reliable operators that have broad network and strong presence across the globe. This ensures that a user can travel abroad without concern since large telecommunication operators like Telefonica offer roaming services (Telefonica, n.d). Competition is another dimension within the telecommunication industry and has increased in Europe following liberalization of the market. Success in the prevailing business environment for telecommunication companies is influenced by ownership of a broad network, which is an asset when operating in the market. Besides, substitute products offered by companies that do not have a network, which is made possible by the technological innovation, also influence the telecom industry. Therefore, the ability to be innovative is another critical success factor that is a determinant in defeating competition and the industry is continuously bombarded by new technologies. Exposure to corporate culture, values and methodology in Telefonica reveals the most significant assets the firm has that represent its strength and they include experience of the workforce, competence and motivation, success history, infrastructure and broad customer base. The company’s success history is considered as something everyone ought to be proud of and remains as key input for sustaining high degrees of motivation and performance. This has been essential in establishing a strong brand image as well as reputation for company even in potential workforce and future workers. To gain this image the company obtained outstanding results in the market during its long history making it to offer great services to its clients. The high quality associated with the company has enabled it to be perceived as one of the top-quality alternatives compared to the different telecom service providers in the nations where Telefonica subsidiaries are found. Moreover, the company’s infrastructure signifies a strong point in Telefonica’s global solutions as well as the group’s subsidiaries. The main features that allow the company’s infrastructure a strong point in its business environment include broadness with regard to the nations it covers and the level of reliability and quality that has been achieved so far. Because of its network, Telefonica is able to be competitive in its business environment because of its cost advantages while other operators’ outsource flow of data to other networks. Strength for the company results from its broad customer base evident as company expanded across geographical regions in the last few years. The moves have assured Telefonica high volume of revenue resulting from long-terms with customers across the globe; moreover, the company benefits from agreement and relations with customers across the globe. The broad customer base guarantees the company high-risk diversification that allows it to survive from local crisis or even quickly utilize local opportunities abroad. Challenges for Telefonica However, the main challenges Telefonica faces are associated with the size of the group where its business unit belongs and the challenges include complexity and lack of flexibility as well as capability to generate innovation. The corporate structure for the company and its business offer a high level of complexity in various areas such as finance, information systems, communication and procedures (Telefónica, 2011). The evident example in Telefonica is represented by information system because the company has different platforms software needed in completing daily tasks. The lack of unified platform makes it impossible for the organization to keep different systems in the same umbrella that allows optimization of storage. Even though, Telefonica manages to successfully complete tasks requiring information systems, the company does not carry out this in an efficient way. Although Telefonica has access to ERP (Enterprise Resource Planning), the company has not achieved full integration of the software since the enterprise is used to using smaller software apart from ERP. The reason organizations introduce expensive software like ERPs is to have the opportunity to benefit from the various applications of the system, which is efficient rather than having different software with dedicated data (Albini, 2013). Having single software, the system can use a one database for the several modules. Moreover, ERPs are conceived to optimize generations of outputs that are compatible with any module and that can easily be adapted to the need of the user. However, Telefonica seems not to utilize the full potential offered by the system because it still uses different software specialized for different phases of the business process. The various software works independently taking data from various databases and producing outputs of different formats and structures. Once such files need to be modified or even merged, there arise compatibility issues because working with different files is hard and necessitates a way of making the different files compatible. Such software need to be interconnected; however, this is not possible directly because other applications are required to allow the interconnection. This structure is referred to as spaghetti integration structure, which is a heterogeneous point-to-point integration (Albini, 2013). This configuration is synonymous with low efficiency and high complexity because of managing various systems, different upgrades and providers. Lack of flexibility in the company is associated with size of the company and is part of procedures, bureaucracy and various hierarchical levels that result in low flexibility. The company’s existing corporate social media is helpful in allowing traceability of decisions and relations with customers; however, the process is slowed by the large amount of people, rules, exceptions and level of complexity with the procedures. Another challenge for Telefonica is the big Mobile Virtual Network Operators (MVNOs) represented by their strong innovation brought to the telecom industry. The environment in which the company operates offer different hints possible opportunities that can be exploited. There are various opportunities resulting from social change because of the shift toward data traffic and increasing mobile connectivity. This offers the potential new clients or even high volume sales that can be attained because of low prices, increased demand for IPTV services and the cost advantage provided by owned network. For instance, Telefonica invested $14.6 billion to expand its telecommunication network and services across Brazil with a focus on integrating the company’s fixed-line, broadband, pay-TV and its mobile business (Business Environment Risk - Telefónica Moving Ahead, 2011). This would allow the company to leverage its considerable competitive strengths with the multiplay arena; moreover, the company is hopeful of winning new next generation wireless services that would enable it to offer converged services to mobile devices (Hibberd, 2014). The growing competition within the telecom industry is increasing pressure on all companies operating in the industry because companies that previously led local markets with monopoly are increasingly losing market share because of the introduction of new operators. Moreover, the constant introduction of substitute products and other means of communication increase challenge for companies in the industry because customers are attracted by the substitute services. This threatens Telefonica sales and revenues because people are not merely buying more data traffic but also using Ip channels to replace voice services as well as SMS using Over-the-Tops (Albini, 2013). SWOT analysis SWOT analysis of Telefonica reveals that the operator is integrated within the telecommunication sector by offering communication, information and entertainment solutions to its customers. The firm’s geographic footprint is diverse in the industry that exposes it to growth markets; however, economic factors within key markets of Europe and Latin America continue to influence demand for Telefonica products and services. The company’s strengths include the diversified geographical footprint and market share that is enhanced by the company’s scale of operations. However, the weakness of the company include its debt and pricing that resulted in erosion of its market share; however, the company opportunities include the increasing market for pay-TV in Latin America as well as the increased demand for machine-to-machine services. However, threats for the company remain and they include saturation of mobile market within Latin America, extensive regulations and increased competition that can reduce the company’s market share as well as revenues (‘Telefonica, S.A. SWOT Analysis, 2013). Conclusion Telefonica remains one of the five largest telecommunication companies in the world with its headquarters in Madrid, Spain. The company boasts of a large customer base and a huge geographic region that allow the company to continue to grow in terms of customer base and revenue. However, the industry offers many challenges to multinational companies because of innovations that threaten to take a share of the market by creating substitute product that are attractive to customers. Besides, the industry also offers opportunities for the company because of the increased demand in its markets for pay-TV and machine-to-machine services. Although, the company structure has been successful for years, the system it uses in its operations has not as effective since it uses different software instead of the single ERP that offer one database to allow optimization of data storage. References ‘Telefonica, S.A. SWOT Analysis 2013, Telefonica, SA SWOT Analysis, pp. 1-8. Albini, G. L. A. (2013). An analysis of the European telecommunications strategic environment: how can strategic actions be defined to adapt to the new scenario? A Telefónica case study. Business Environment Risk - Telefónica Moving Ahead 2011, Latin America Monitor: Brazil Monitor, 18, 5, p. 5. Hamilton, L., & Webster, P. (2012). The international business environment. Oxford, Oxford University Press. Hibberd, M. (2014). Telefonica unveiuls comprehensive virtualization plans. Aavilable at: Martínez, G. (2008). Latin American telecommunications: Telefónicas conquest. Lanham, Lexington Books. Palacios-Marqués, D, & Devece-Carañana, C 2013, Policies to Support Corporate Social Responsibility: The Case of Telefónica, Human Resource Management, 52, 1, pp. 145-152. Telefónica (2011). Our Structure, Available at: Telefónica (2013) Cokrporate Plrofile: Tgelefonica Global profile. Available at: Telefonica (n.d). Global Services. Available at: < http://www.telefonica.com/en/about_telefonica/html/global_services/global_services.shtml> Read More