Arcor International Expansion

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

2. 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 ANALYSIS3

4. Domestic market environment
4
Sold $9-10 billion worth of confectionary in 1999
Sold $3-5 billion worth of confectionary in 1999
Large
Competitors
Medium
Competitors

5. Global market environment
5
$125 billion
total confectionary industry
revenues in 2001
90% 90%
50% 50%
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Levels of internationalization
Chart portrays % revenues outside home markets

6. Global market environment
6
55%
10%
5%
Supermarkets
Convenience stores
Independent retailers
0% 10% 20% 30% 40% 50% 60%
Confectionary sales in developed
markets$500 millon
Annual advertising spend
$2 millon
Average cost to develop
new product
$300,000
Average cost for a product
adjustment

7. COMPANY ANALYSIS7

8. History
8
 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.

9. 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 ensure that they
"don't waste money“
 Ad spend increased in 1990s due to
increased competition
120 new products
Introduced each year

10. Supply chain
10
 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
$500,000
Yearly spend on
distributor training
Vertically
integrated

11. 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

12. Internationalization
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◻- 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.

13. SWOT
13
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

14. ECONOMIC DOWNFALL14
To investigate the impact that the Argentine economic decline had on Arcor and their
expansion vision.

15. 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

16. 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

17. 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%
 focus on international strategy after crisis leveled off

18. International expansion strategy18

19. ARCOR Product Life Cycle Stages

20. 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

21. 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

22. 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

23. 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

24. 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

25. North America - Alternatives
25
◻ 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

26. 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

27. 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

28. 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.

29. 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

30. 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

31. Asia & Europe - Revenue Analysis
31
◻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)

32. 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

33. Asia & Europe - Growth Factors
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◻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

34. 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?
35