arcor presentation slides
TRANSCRIPT
INTERNATIONAL EXPANSION
1
Deepak Veetil, Jason Roper, Hala Taha, Peter Muller & Summaya Aziz
Dr. Rajiv Mehta, MGMT 670
Agenda2
1.Industry analysis2.Brief history & Company analysis 3.Economic downfall & Financial analysis 4.International expansion strategy
North America South America Asia Europe
5.Conclusion
INDUSTRY ANALYSIS3
Domestic market environment 4
Sold $9-10 billion worth of confectionary in 1999
Sold $3-5 billion worth of confectionary in 1999
Large Competito
rs
Medium Competito
rs
Global market environment5
$125 billiontotal confectionary
industry revenues in 2001
Nestle
Kraft
Mars
Cadbu
ry-Sh
weppe
s
Hersh
ey0%
20%
40%
60%
80%
100% 90% 90%
50% 50%
10%
Levels of internationalization
Chart portrays % revenues outside home markets
Global market environment6
Supermarkets
Convenience stores
Independent retailers
0% 10% 20% 30% 40% 50% 60%
55%
10%
5%
Confectionary sales in de-veloped markets$500
millonAnnual advertising spend
$2 millonAverage cost to
develop new product
$300,000Average cost for a
product adjustment
COMPANY ANALYSIS7
History8
Fulvio Pagani and two partners founded Arcor to manufacture candy in 1951 in Arroyito, Argentina.
The firm expanded gradually and by the 1980s expanded into the Southern Cone of Latin America: Argentina, Chile and Uraguy
Arcor build market share through smaller acquisitions and capacity expansions.
Internationally, Arcor's exports soared from $25 million to $200 million during the 1990s and stretched beyond the Southern Cone.
By 1999, Arcor had a 54% candy 33% chocolate market share in its domestic country, Argentina.
Marketing9
Historically invested heavily in distribution and new product introduction as opposed to advertising
Took opportunities to extended existing lines and tailor existing products for new markets
Preferred to spend money on training rather than advertising to ensure that they "don't waste money“
Ad spend increased in 1990s due to increased competition
120 new productsIntroduced each
year
Supply chain10
Poor development of input markets in Argentina
Arcor produced its own sugar cane, milk, and corn,
Supplied its own electricity and packing materials— sold to other companies
31 production locations—25 Argentina, 3 in Chile, 2 in Brazil, 1 in Peru
Imported chocolate 160 exclusive third-party distributors, as well
as wholesalers and supermarkets. Spent 3-4x more than competitors on
distributor training
$500,000Yearly spend on
distributor training
Verticallyintegrated
Domestic Penetration11
Arcor owned 5 of the top 10 chocolate brands - 25% market value. Market highly fragmented by brand - Arcor took advantage Domestically Arcor played a price game - 10% below competitors' prices - but quality with mass
appeal. Product diversification in domestic market with cookies, crackers, jam, canned fruit and other
packaged goods, over 1500 SKUs
Internationalization12
◻- It first attempted to export overseas in 1969 - failed attempt where a 80-ton shipment melted while crosses the equator. ◻- By the 1990s, Arcor exported successfully to more than 100 countries, with volumes remaining focused on the Americas. They made large foreign investments in Chile, and Brazil, which accounted for 10% of Arcor's revenues of over $1 billion in 2000.
SWOT13
Favourable Unfavourable
Internal Strengths• Ability to gain and maintain alliances• Product Variety (1500 plus products,
120 new product per year)• Produces many of its raw materials• Low affordable prices• Control of the domestic market• Lost cost of Labor
Weaknesses• Lack of research when entering Asian market• Low marketing investment• No manufacturing plants outside Latin America
External Opportunities• To expand in both developing and
emerging markets• To market share in global market
Threats• Economic downfall• Plateau of confectionery industry• Health conscious customers• Brand value
ECONOMIC DOWNFALL14
To investigate the impact that the Argentine economic decline had on Arcor and their expansion vision.
Argentine Financial Crisis15
Argentina ranked amongst richest countries in the world Great economic travesty after Great Depression, 1970s and 1980s Ended with the presidency of Carlos Menem in 1989 January 1999 brought another crisis Increasing debt and negative GDP growth slowed payments of
outside debt In early 2002, 70% depreciation of peso to USD, 15% decrease in
output at over 20% unemployment marked a new low before the election of Nestor Kirchner in 2003 increased export business
Arcor survival16
Very conservative financially $360 million in net debts at crisis apex with leverage ratio of
42% other companies average leverage ratio of 177% Just before 2003, Arcor was caught up on interest payments
and restructured $30million in loans originally due mid-year However, domestic volume dropped 40% and an initial plan of
cutting costs by reducing continuous manufacturing was brought up
However, the real problem lies in customer price point demands and this solution was met over several areas
Key Impacts17
Reduce unit sizes to reduce cost Replacing or shifting the quantity and mix of expensive
ingredients Production changes were costly, but Arcor adapted faster Shortened payment collection terms Focus on value to customer of existing products; cut new
development Changes in export tax Revenue dropped from $650M to $300M 2001-2002.
international revenue increased from 35% to 60% focus on international strategy after crisis leveled off
International expansion strategy18
ARCOR Product Life Cycle Stages
Latin America - Problem 20
◻ 4th in sales in Latin America◻ 45% of total volume came from Brazil⬜Even with a 3R/1$ depreciation, the company continued to invest in Brazil
◻Sent $30 million to purchase several candy brands from Nestle in 2001 to become the market leader
Latin America - Case Solution 21
◻ 4th in sales in Latin America◻ 45% of total volume came from Brazil⬜Even with a 3R/1$ depreciation, the company continued to invest in Brazil
◻Sent $30 million to purchase several candy brands from Nestle in 2001 to become the market leader
Latin America - Alternatives22
◻ 4th in sales in Latin America◻ 45% of total volume came from Brazil⬜Even with a 3R/1$ depreciation, the company continued to invest in Brazil
◻Sent $30 million to purchase several candy brands from Nestle in 2001 to become the market leader
North America - Problem 23
◻ 4th in sales in Latin America◻ 45% of total volume came from Brazil⬜Even with a 3R/1$ depreciation, the company continued to invest in Brazil
◻Sent $30 million to purchase several candy brands from Nestle in 2001 to become the market leader
North America - Case Solution 24
◻ 4th in sales in Latin America◻ 45% of total volume came from Brazil⬜Even with a 3R/1$ depreciation, the company continued to invest in Brazil
◻Sent $30 million to purchase several candy brands from Nestle in 2001 to become the market leader
North America - Alternatives25
◻ 4th in sales in Latin America◻ 45% of total volume came from Brazil⬜Even with a 3R/1$ depreciation, the company continued to invest in Brazil
◻Sent $30 million to purchase several candy brands from Nestle in 2001 to become the market leader
Asia & Asia-Pacific - Problem 26
◻Asian regions are very heterogeneous in cultural, historical, social, ethnic, political and economic terms
◻"In Latin America we feel we understand everything, but we know little about Asia”
■- Ortiz de Rozas, General Manager for New Business
Asia & Asia-Pacific - Solution 27
◻In 2006, Arcor inaugurated a commercial office in Shanghai, China◻Centralized the commercial operations in China, Korea, Taiwan, Hong Kong, Australia, New Zealand and the Southeast Asia region◻In 2011, evolved into a subsidiary to operate directly in local market⬜Without intermediaries⬜Greater flexibility and control over operations
Asia & Asia-Pacific - Solution 28
◻Repackaging of products from Argentina, Brazil and Mexico to be commercialized in domestic Chinese market⬜Subsidiary kept the added value of repackaging
◻More customized presentation for Asian customers with original quality of product◻Customer's offices were opened in Dubai, Bangkok, Lucknow and Ho Chi Minh.
Europe - Problem 29
◻Transportation Cost - USD 1600 per container◻Western Europe - As Competitive as US market◻Higher tariff rate - 35%◻Markets are very demanding and the commercialization of the products requires very specific rules and regulations
Europe - Case Solution 30
◻ In 2002, Arcor opened commercial offices in Barcelona, Spain⬜To boost its international expansion policy⬜To position Arcor in the European and Middle East regions⬜To centralize operations of Iberian Peninsula(Spain, Andorra & Portugal), rest of Europe and Middle East Asia
■Differentiated into 3 regions to meet the specific demands of each market
Asia & Europe - Revenue Analysis31
◻USD 68 Million in 2002 to USD 173 Million in 2012⬜Cumulative growth at a compounded 10% annual rate⬜Sustained growth in all the regions
■Iberian Peninsula - USD 4 Million■the USA - USD 50 Million■Africa - USD 53 Million■Europe - USD 11 Million (93% growth compared to 2002)■India and Arab - USD 18 Million■Asia Pacific - USD 30 Million (440% growth compared to 2002)
Asia & Europe - Growth Factors32
◻Arcor presence in the main markets⬜ Through offices⬜ Periodical visits
◻Focus on products with a greater potential in each region◻Special attention on the core brand names◻Marketing investment for each portfolio◻Customization of production lines and flavors to suite Asian palate◻Direct relationship with ALDI to meet the needs of the market of Holland and Belgium
Asia & Europe - Growth Factors33
◻Massive Advertisement Campaign - ⬜included trade actions, advertising in public spaces, radio, Internet, promotions and a TV commercial
◻Opening of processes in CIS countries in 2009⬜Georgia, Ukraine, Azerbaijan, Armenia, and Uzbekistan
◻Participation in Business fair⬜Gulf Food 2010, Dubai, Prodexpo Russia 2009, World Food Russia 2010
Recommendation34
◻More active role in marketing in all geographical locations◻Open manufacturing plants in China◻Conduct research before entering new markets◻Use strengths to overcome threats⬜Low cost of labor, wide variety of chocolates, affordable price
◻Improve brand value in U.S ◻Diversify to manufacture other products⬜Milk based products, Cereals etc
THANK YOUQuestions?
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