Globally, the confectionary industry is a highly competitive
industry and attractive in the emerging and developed markets, Wherein North
America and Western Europe accounted for over two-thirds of sales. The
manufacturing sectors are usually located near suppliers. Industry has high
transportation cost because of bulky raw materials. Chocolate and candy
manufacturing is a complicated process which requires automated heavy machinery
which increases investment. The consumers are more prices conscious in the
emerging markets because of the low income whereas in these budding countries,
for e.g. US and U.K. they are more brand sensitive. The confectionary industry
has many constraints due to consumer’s different tastes and preferences in
different regions.
Argentine
confectionery manufacturer, Arcor Group, was already Latin America's leading
candy producer and an exporter to over 100 countries. It wanted to be known for:
“Good quality at affordable price”. Most of the domestic sales were from candy
and chocolates, cookies brought around 25% of the sales individually. It was
slowly moving out of the big cities and entering the interiors. As Argentina
was facing problems because of suppliers, it started producing on its own. It
started investing more so that their products reached the market, however,
unlike competitors spent less on marketing.
By
the end of 1990, it planned to expand in various international markets. The Argentina
crisis did not only force them to rethink about global expansion but also about
their domestic agenda. Foreign investors were losing confidence in the Argentinean
market because of economic crisis and they started to withdraw funds. Arcor was
able to fight with the external environment, however with time its sales fell
drastically. Sales declined by 40% as compared to the previous year which made
them rethink whether they should continue to produce at pre crisis levels.
Arcor brought in changes according to their competitors, though these changes
were costly, these were brought about to help the company understand the
consumer behaviour. They further tightened the regulations for their retailers.
At
the end of 2002, the crisis began subsiding and business was recovering. Post
crisis Arcor restructured its international division adding more employees and catered
to newer markets. Arcor was then analyzing how to become global with production
facilities and distribution networks in various regions, such as North America,
Europe, and Asia. Luis Pagani, vice president, Arcor began exploring various
routes his company could follow. International plans excited him but he couldn’t
ignore the crisis. Thus, he decided to maintain contacts with the global
partners so that no opportunity is left unturned.
The
company could explore options of globalising by either entering the Mexican
market, where it can easily understand the US market, however the supplier
network is well managed there which is a constraint for Arcor. They could
locally tie up with the distributors and offer them to enter in markets where
Arcor has a dominant share such as Latin America.
The
Company could also consider the option of entering the untapped Asian market
having non premium segments, price sensitive customers and where it can easily
establish a good distribution network however competitor’s presence may prove
to be a barrier for the company.
As
there are pros and cons of entering any market, the company would have to
carefully explore each opportunity and threat so that in the long run it can
prove to be dominant players.
Contributed by:-
Ambika Mathur
Section C
Strategic Management
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