Dr.

Rajiv Mehta, MGMT 670 1

INTERNATIONAL
EXPANSION
Deepak Veetil, Jason Roper, Hala Taha, Peter Muller & Summaya
Aziz
 Agenda
2

1.Industry analysis
2.Brief history & Company analysis
3.Economic downfall & Financial analysis
4.International expansion strategy
North America
South America
Asia
Europe
5.Conclusion
3 INDUSTRY ANALYSIS
 Domestic market environment
4

Large
Competito
Sold $9-10 billion worth of confectionary in
rs 1999

Medium
Competito
Sold $3-5 billion worth of confectionary in
rs 1999
 Global market environment
5

Levels of internationalization
100% 90% 90%
90%
80%

$125 billion
70%
60% 50% 50%
50%
40%
30%
total confectionary 20% 10%
10%
industry revenues in 0%
t s
e es ey
2001 es
tl
K
ra
f
M
ar
ep
p sh
N w er
h H
y-S
r
dbu
a
C

Chart portrays % revenues outside home markets

 Global market environment
6

$500 Confectionary sales in developed markets

Annual advertising
millon
spend Independent retailers 5%

$2 millon
Average cost to Convenience stores 10%
develop new product

$300,000 Supermarkets 55%

Average cost for a

product adjustment 0% 10% 20% 30% 40% 50% 60%
7 COMPANY ANALYSIS
 History
8

Fulvio Pagani and two partners founded Arcor

to manufacture candy in 1951 in Arroyito,
Argentina. By 1999, Arcor

The firm expanded gradually and by the 1980s had a54%

candy 33%
expanded into the Southern Cone of Latin
America: Argentina, Chile and Uraguy
chocolate
Arcor build market share through smaller market share in
acquisitions and capacity expansions. its domestic
country,
Internationally, Arcor's exports soared from Argentina.
$25 million to $200 million during the 1990s
and stretched beyond the Southern Cone.
 Marketing
9

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 120 new products
ensure that they "don't waste Introduced each
money year
 Supply chain
10

Poor development of input markets in

Argentina
Verticall
Arcor produced its own sugar cane, milk, and y
corn, integrat
Supplied its own electricity and packing
materials sold to other companies
ed
31 production locations25 Argentina, 3 in
Chile, 2 in Brazil, 1 in Peru
$500,000
Yearly spend on
Imported chocolate distributor
160 exclusive third-party distributors, as well training
as wholesalers and supermarkets.
Spent 3-4x more than competitors on
distributor training
 Domestic Penetration
11
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
 Internationalization
12

- 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.
 SWOT
13

Favourable Unfavourable
Internal Strengths Weaknesses
Ability to gain and maintain alliances Lack of research when entering Asian market
Product Variety (1500 plus products, Low marketing investment
120 new product per year) No manufacturing plants outside Latin America
Produces many of its raw materials
Low affordable prices
Control of the domestic market
Lost cost of Labor

External Opportunities Threats

To expand in both developing and Economic downfall
emerging markets Plateau of confectionery industry
To market share in global market Health conscious customers
Brand value
14 ECONOMIC DOWNFALL
To investigate the impact that the Argentine economic decline had on Arcor and their
expansion vision.
 Argentine Financial Crisis
15

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 survival
16

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 Impacts
17

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%
18 International expansion strategy
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
21 Solution
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 - Alternatives
22

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
24 Solution
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 -
25 Alternatives
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 tarif 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
31 Analysis
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 Factors
32
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 Factors
33

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
 Recommendation
34

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
 35

THANK YOU
Questions?