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The Food Industry Case Nuno Tiago Pimenta Ferreira The Latin American International Management Strategy Prof. António Vieira da Silva Student Supervisor

The Latin American International Management Strategy: The Food Industry Case

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This investigation intends to analyze this tendency, looking specifically to the companies’ path from Latin American, and to understand which strategy these companies have been following to become global. Based on existing international strategy models and perspectives, we set out the analysis of seven case studies about Latin American food industry companies which will allow us to recognize which is the international strategy followed by each firm, how they organize their operations abroad in terms of multidivisional structures, what is the role of people in their internationalization processes, and how their financial partners look to this new reality.

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Page 1: The Latin American International Management Strategy: The Food Industry Case

The Food Industry Case

Nuno Tiago Pimenta Ferreira

The Latin American International Management Strategy

Prof. António Vieira da Silva

Student

Supervisor

Page 2: The Latin American International Management Strategy: The Food Industry Case

CONTENTS

Literature Review1

2

3

4

5

The Emerging Economies and the increasing importance of Latin America in World GDP

Methodology

Case Studies

Results

6 Conclusions

Page 5: The Latin American International Management Strategy: The Food Industry Case

Literature Review1

2

3

4

5

The Emerging Economies and the increasing importance of Latin America in World GDP

Methodology

Case Studies

Results

6 Conclusions

CONTENTS

Page 6: The Latin American International Management Strategy: The Food Industry Case

The Emerging Economies and the increasing importance of Latin

America in World GDP

World’s GDP growth (2013-2015) and share by region (2014)

Sources: International Monetary Fund (IMF) – October 2013, ES Research.

GDP growth

8%

8%

2%

World

2%

4%

GDP share

Canada and the USA

Latin America

European Union

North Africa and Middle East

Sub Saharan Africa

Commonwealth of Independent States

Developing Asia

Japan

Australia

25%

23%

4%

18%

7%

2.52.8 3.0

2013 2014 2015

3.03.7 3.9

2013 2014 2015

1.92.7 2.9

2013 2014 2015 2.4 3.34.8

2013 2014 2015

2.12.6

3.1

2013 2014 2015

6.5

6.76.8

2013 2014 2015

1.7 1.71.0

2013 2014 2015

5.1

6.1 5.8

2013 2014 2015

2.6 3.0 3.3

2013 2014 2015

0.0

1.3 1.6

2013 2014 2015

Page 7: The Latin American International Management Strategy: The Food Industry Case

Literature Review1

2

3

4

5

The Emerging Economies and the increasing importance of Latin America in World GDP

Methodology

Case Studies

Results

6 Conclusions

CONTENTS

Page 8: The Latin American International Management Strategy: The Food Industry Case

Methodology

Which strategy the Latin American companies

have been following to become global,according to the Bartlett & Ghoshal matrix?

There is no identified strategies

about the Latin American

international management

how they set up and

manage their portfolio of

subsidiaries and activities

abroad?

which are the

internationalization

processes more used when

they go abroad?

Page 9: The Latin American International Management Strategy: The Food Industry Case

Rank

2013Company Country Industry

Sales 2012 (million

USD)

Number of

countries

% Foreign Sales

2012

% Human Resources

abroad 2012

1 CEMEX MX cement 15.196,6 50 77 69

2 JBS BR food 34.856,9 15 84 56

3 BRIGHTSTARUSA/

BOtelecom 4.448,6 46 55 67

4 TENARIS AR steel 10.834,0 11 86 74

5 MX multisector 13.053,1 17 60 28

6 LATAM CL/BR airlines 13.379,6 16 57 25

7 IMPSA AR energy 1.442,8 30 67 50

8 TELMEX MX telecom 10.109,2 8 96 91

8 AJEGROUP PE beverage 1.666,7 16 80 78

10 TERNIUM AR steel 8.734,7 10 74 70

11 ODEBRECHT BR construction 49.892,9 35 42 31

12 BIMBO MX food 13.353,4 19 46 40

… … … … … … … …

20 BR food 11.227,9 21 35 42

30 GRUMA MX food 4.960,5 18 66 63

34 NUTRESA CO food 2.950,6 15 23 23

43 CMI GT food 2.247,2 12 75 77

50 ARCOR AR food 3.500,0 16 15 35

Ranking Multilatinas 2013

Methodology

Page 10: The Latin American International Management Strategy: The Food Industry Case

Literature Review1

2

3

4

5

The Emerging Economies and the increasing importance of Latin America in World GDP

Methodology

Case Studies

Results

6 Conclusions

CONTENTS

Page 11: The Latin American International Management Strategy: The Food Industry Case

90

420

1070 1003

745 801947

1301

1541

1879

22722167

2600

29233074

0

500

1000

1500

2000

2500

3000

3500

1950 1960 1990 2000 2001 2002 2013 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sales

Arcor: the ability to grow during economic crisis

Latin American countries borrow huge sums of money from international creditors for industrialization

After a second bout of hyperinflation, Argentina adopts the crawling peg. Brazil devaluates its currency.

Argentinean default

End of fixed exchange rate

Rising industrial demand causes

a short-lived energy crisis

Subprime crisis

European sovereign debt crisis

The US supreme court decides to suspend the Argentinean bonds’ payments. This decision led to a new default in 2014.

Arcor is born in an inland

province

A multiproduct company with a national coverage. Exports begun.

Danone and Arcor’sjoint-venture to create

Bagley Latam

Acquisition of La

Campagnola

Manufacture of products together with Bimbo

Co-branding agreement with The Coca-Cola Company

Changes in Consolidated sales 1950-2012 (Millions USD)

Source: Kosacoff (2002)

Arcor is the one which uses all kinds of internationalization processes

Page 12: The Latin American International Management Strategy: The Food Industry Case

Bimbo and Gruma: the NAFTA connection

Bread (2014) $1.667.000

Acquisitions1977: Mission Foods1996: Albuquerque Tortilla$8.800.000Casa de Oro Foods$20.000.000

Joint VentureArcher Daniels Midland

Acquisitions1986: Wonder Bread1992: Orbit Finer Foods1993: La Fronteriza, FabilaFoods, Bimar Foods1995: C&C, La Tapatia, Tia Rosa Texas1992: Orbit Finer Foods

1996: Pacif Pride Bakery1998: Molino Cereal FoodsMrs. Baird’s Bakeries1999: Four S2002: Oroweat – Webber’sGeorge Weston$610.000.000 2009: Weston Foods

$2.380.000.000 2011: Sara Lee Fresh Bakery$959.000.0002013: Beefsteak $31.900.000

Joint VentureMrs. Baird’sWrigley

Global leader in the baking industry;

Brand recognition with over 100 prestigious brands;

Diversified portfolio diversified by regions and brands;

One of the world’s largest and most complex distribution

networks, with over 52.000 routes;

Solid cash flow generation and market shares: conservative

financial approach;

Talented management team: an employee champion.

Gruma was founded after the discovery of arustic machine for grinding dry-cooked corn to bemade into tortillas on a business trip;

Mexican cuisine Intangible

Cultural Heritage by Unesco in

2010

It became the Tortilla King due to the acquisitions on border states andthe inexistance of recognized brands in the USA;

Gruma is selling corn chips and ingredients to the Asian supermarkets,convenience stores, and fast-food chains, adapting it to local tastes;

The Venezuelan experience ended dramatically in 2013

Page 13: The Latin American International Management Strategy: The Food Industry Case

21313340

6203

9616

15875

21014

16516

18750

0

5000

10000

15000

20000

25000

2000 2006 2007 2008 2009 2010 2011 2012 2013

Sales

JBS and Marfrig: the Brazilian National Champions

Source: Marfrig(2013)

Changes in Consolidated sales (Marfrig) 2000-2013 (Millions USD)

Marfrigis born

IPO islaunched

Acquisition ofMoy ParkAcquisition

of Quickfood

Acquisitionof Seara

Acquisition ofKeystone Foods

Creation of MarfrigBeef to unite

bovine industries inSouth America

Newacquisitions

in Brazil

JBS acquiresUSD 1,8 billion in

debt fromMarfrig to own Seara

BNDES injects

30 M BRL in JBS

JBS receivesthe money for

new acquisitionsand gives a

shareholder positionof 22% to BNDES

Page 14: The Latin American International Management Strategy: The Food Industry Case

Nutresa and Pollo Campero: Rising stars

Colombian’s illustrious unknown

• Nutresa started as a chocolate factory but became a food company;

• Joint-ventures:Bimbo Colombia: 40% shareholderposition;DKM: JV with Mitsubishi in order to distribute coffe amongst Asia;

• 70% of total sales still coming fromColombia;

• Nutresa never changes the original structure of an acquired company.

Guatemala’s Answer to Kentucky Fried Chicken

• The firm was born after a 2.000 chicken farm given to cover a debt

• The implementation of an HumanResources management abroad is vital;

• Franchising as a FOM: the way to expand globally;

• The importance of a win-winrelationship in a strategic Alliance: Walmart allowed the US expansion, Telepizza’s agreement didn’t work out;

• China’s internationalization failed dueto the misunderstanding of the Guanxi.

Page 15: The Latin American International Management Strategy: The Food Industry Case

Literature Review1

2

3

4

5

The Emerging Economies and the increasing importance of Latin America in World GDP

Methodology

Case Studies

Results

6 Conclusions

CONTENTS

Page 16: The Latin American International Management Strategy: The Food Industry Case

Results

Organizational reasons for expatriation

Multidivisional Structure

Global activities controland coordination

Development of a transnational mentality

Transmit national imageand representation for the subsidiaries

Transfer know-how andskills

Lack of local talent

Need for local responsiveness / Differentiation

Ne

ed

for

glo

bal

inte

grat

ion

/ C

oo

rdin

atio

n

Competitive Form Internal Network

Cooperative Form

Integration between divisions

Op

era

tio

ns

de

cen

tral

izat

ion

Page 17: The Latin American International Management Strategy: The Food Industry Case

Results

0

5

10

15

20

25

30

35

19701980

19902000

2010

02

2

1

0

0 1

17

35

41

1 25

500

0

13

6

15

2

00 1

7

4Nu

mb

er

of

Acq

uis

itio

ns

Year

Arcor Bimbo Gruma JBS Marfrig Nutresa

Acquisitions over the years (1970-2010)

Governmental support

Lesssupported

More Supported

Page 18: The Latin American International Management Strategy: The Food Industry Case

Results

International Strategies

Global Transnational

International Multidomestic

Need for local responsiveness / Differentiation

Ne

ed

for

glo

bal

inte

grat

ion

/ C

oo

rdin

atio

n

Page 19: The Latin American International Management Strategy: The Food Industry Case

Literature Review1

2

3

4

5

The Emerging Economies and the increasing importance of Latin America in World GDP

Methodology

Case Studies

Results

6 Conclusions

CONTENTS

Page 20: The Latin American International Management Strategy: The Food Industry Case

Conclusions

The international strategy closer to the reality of the investigatedcompanies, according to the Bartlett and Ghoshal’ matrix is theInternational;

The need for Responsiveness happens when the Latin Americanmultinationals begun to join the Asian markets;

Brazil is the most projecting economy to expand their firms worlwidedue to the BNDES support;

The Mexican firms are better prepared to internationalize in the USmarket due to the NAFTA connection;

History shows that these firms began to internationalize in the Hispanicmarkets following their natural clients;

Arcor and Bimbo became internationally competitive due to theirregional presence and niche specialization;

Page 21: The Latin American International Management Strategy: The Food Industry Case

Conclusions

All the investigated firms are joining the Chinese market, a platform tothe Middle East, India or Indonesia;

China signifies the need for responsiveness but also fierce competition;

A strategic alliance allows the expansion of a firm but should be used in awin-win relationship;

The food industry is characterized by small profit margins. Theirinternationalization shall look to reach economies of scale;

Despite being in the Stock Exchange, these companies remain generallyfamily-based;

Although their internationalization may be interesting, these firms arestill an attractive target for acquisitions.

Page 22: The Latin American International Management Strategy: The Food Industry Case

THE END

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