Arcor is an Argentine confectionary company that analyzed expanding internationally. It had success in Latin America, especially Brazil, but faced challenges in Asia due to lack of cultural understanding. For Europe and North America, high transportation costs and tariffs presented obstacles. Arcor overcame these by opening offices in key markets to directly control operations, customizing products for each region, and investing in major brands and marketing. These strategies helped revenues from Asia and Europe grow over 400% from 2002 to 2012.

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
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.

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
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

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