Doing business in the Americas
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Name: Claudia Angelica Chavez Robles | Registration: 2676193 |
Course title: Doing business in the Americas | Teacher’s name: Mariana Portillo Hoppenstedt |
Module: 3 | Activity: Assignment 7 |
Date: October 19 2015 | Team: - |
Bibliography: C.V., G. B. (s.f.). https://www.bimbo.com/en. Recuperado el 09 de 11 de 2015, de http://www.bimbobrasil.com.br/. |
Objective: The objective in this assignment is to choose a Mexican Multinational company that operates in any country of Latin America and make a search about the way the company enter the market.
Procedure: First of all I made a research and analyze all the information found so then I could put the most important information in the report, and comply with all the steps of the assignment.
Results:
- Select a Mexican multinational company with operations in another Latin American country, and research its story, the people involved in its expansion, and the business decisions it took along the way.
GRUPO BIMBO: The Company was created in 1945 by Don Lorenzo Servitje, Don Roberto Servitje, Jaime Jorba, Alfonso Velasco, Jaime Sendra and José T. Mata. Grupo Bimbo has more than 100 highly prestigious umbrella brands including: Bimbo, Marinela, Oroweat, Arnold, Brownberry, Thomas’, Sara Lee, Dempsters, New York Bakery, POM, Barcel, Entenmann’s, Tia Rosa, Mrs Baird’s, Ricolino, Pullman, Dulces Vero, Fargo, Plus Vita, Nutrella, Lactal and Bimbo Span. Under the leadership of Roberto Servitje, the company expanded to the U.S. and Central and South America between 1984 to 1997.
Grupo Bimbo manages over 10,000 products; outstanding among them are: loaf bread, sweet bread, pound cakes, buns, cakes, cookies, confectionery products, salty snacks, tortillas, tostadas and caramel candy among others. The products Grupo Bimbo produce outside Mexico, are baked products, pound cakes, buns and snacks, thus being the largest bakery in the world in terms of brand positioning, production volume and sales.
Doing business in Brazil: The company obtained market leadership in the region through a series of acquisitions, including its purchase of Vita, Brazil’s leading baker. Plus Vita operates four plants in Brazil, including two in Sao Paulo state, one in Rio de Janeiro and another in Recife. Plus Vita reported sales of $72.4 million last year, representing a 21% share of Brazil's industrial bread market. The company markets the Pullman, Plus Vita, Ana Maria, Muffs and Van Mill brands. Bimbo’s interest in the Brazilian bread market was mentioned several times in the past, as it would fit in its expansion strategy through Latin America. The Company thought that its expertise, combined with Plus Vita’s local knowledge and existing management resources, will improve Plus Vita’s performance and profitability in the future.
But Grupo Bimbo’s large fixed costs were not being covered by enough demand for Hispanic bread costs, the company found that consumption patterns for bread in South America varied widely by country and region.
Grupo Bimbo entered the Brazilian market assuming it was similar to the Mexican one, a very wrong assumption. Because they faced a lot of challenges through this process
- Highlight the pros and the cons of their experience in the foreign business environment, based on these criteria (select five): cost of capital, transparency and corruption, ease of doing business, procedures to start a business operation, bureaucracy, foreign investments, applicable tax rates, R&D incentives, human capital, and the local educational system.
Pros | Cons | |
R&D incentives | Brazil is a country with a large emerging economy whose companies have strong R&D capability, | They doesn’t knew how to apply in a right way their R&D incentives, because they were facing a new market. |
ease of doing business | This acquisition aligns with Grupo Bimbo’s strategy to consolidate its operations in the countries where it participates and provides the company with a more solid position to continue developing a profitable business in Brazil, by complementing its current operations in that country, | Lower per capita bread consumption |
human capital | It provides access to one of the regions with the greatest economic activity with over 25 million inhabitants. | Overall bread consumption is much lower in Brazil: Industrial bread consumption is three time less than in Mexico, 2.5 kg per capita vs 7.5 in Mexico. |
cost of capital | Mexican food group Grupo agreed to buy Brazilian bread firm Plus Vita from US agribusiness firm Bunge for $63.5 million. Plus Vita has 21% of the Brazilian packaged bread market, with 2000 sales of $72.4 million. | Intense competitive and relatively low demand push prices down. Intense competition and relatively low demand push prices down: industrial bread can be sold at only $ 1.50 per Kg in Brazil v. $1.90 in Mexico |
procedures to start a business operation | Bimbo has been trying to build its operations outside its core Mexican market for some time, and Brazil was the only market in Latin America where Bimbo didn't have a presence, international diversification does look like Bimbo's best bet. | Unsuitable distribution, targeting small shops, whereas 70% of sales happen in hypermarkets. |
- If you were the international manager of that company, would you continue your business operations in that foreign country, and why? If not, what other country would you choose, and what would made you take that decision?
Yes, but I will don’t expand further in Brazil because it will remain a marginal market but here are ways to resolve that issues.
RECOMMENDATIONS
- Improve revenue by offering new, different products, better suited to local taste.
- Make Brazil a knowledge and innovation lab for the rest of Latin America: Although hardly profitable, Brazil is a must market for any group that wants to have a presence in South America.
- Better R&D and market research: Develop a sound research methodology when wanting to enter a new market/region to fully understand the cultural, administrative, geographic, and economic differences.
Conclusion:
In conclusion the cultural differences between Brazil compared to Mexico is the biggest barrier. This is a predictable factor due to the fact that bread and many other pastries are very culturally different. Each culture has different eating habits and preferences.
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