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INTERNATIONAL EXPANSION 1 Deepak Veetil, Jason Roper, Hala Taha, Peter Muller & Summaya Aziz Dr. Rajiv Mehta, MGMT 670

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Page 1: Arcor presentation slides

INTERNATIONAL EXPANSION

1

Deepak Veetil, Jason Roper, Hala Taha, Peter Muller & Summaya Aziz

Dr. Rajiv Mehta, MGMT 670 

Page 2: Arcor presentation slides

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

Page 3: Arcor presentation slides

INDUSTRY ANALYSIS3

Page 4: Arcor presentation slides

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

Page 5: Arcor presentation slides

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

Page 6: Arcor presentation slides

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

Page 7: Arcor presentation slides

COMPANY ANALYSIS7

Page 8: Arcor presentation slides

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.

Page 9: Arcor presentation slides

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

Page 10: Arcor presentation slides

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

Page 11: Arcor presentation slides

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

Page 12: Arcor presentation slides

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.

Page 13: Arcor presentation slides

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

Page 14: Arcor presentation slides

ECONOMIC DOWNFALL14

To investigate the impact that the Argentine economic decline had on Arcor and their expansion vision.

Page 15: Arcor presentation slides

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

Page 16: Arcor presentation slides

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

Page 17: Arcor presentation slides

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

Page 18: Arcor presentation slides

International expansion strategy18

Page 19: Arcor presentation slides

ARCOR Product Life Cycle Stages

Page 20: Arcor presentation slides

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

Page 21: Arcor presentation slides

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

Page 22: Arcor presentation slides

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

Page 23: Arcor presentation slides

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

Page 24: Arcor presentation slides

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

Page 25: Arcor presentation slides

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

Page 26: Arcor presentation slides

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

Page 27: Arcor presentation slides

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

Page 28: Arcor presentation slides

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.

Page 29: Arcor presentation slides

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

Page 30: Arcor presentation slides

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

Page 31: Arcor presentation slides

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)

Page 32: Arcor presentation slides

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

Page 33: Arcor presentation slides

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

Page 34: Arcor presentation slides

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

Page 35: Arcor presentation slides

THANK YOUQuestions?

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