Mabe Was Founded in 1946

Introduction

MABE was founded in 1946 by the Mabardi and Berrondo families in Mexico, where they were initially dedicated to building kitchen cabinets. MABE has since transitioned into manufacturing and distributing kitchen appliances. Through various joint ventures and acquisitions, MABE has been able to expand their distribution throughout Latin America, the Caribbean, and North America. Some of their joint ventures include Fagor, Ceteco, Durex, and the most impactful and strongest joint venture pairing with General Electric. This allowed MABE to enter the US market and receive US technological innovation and advice. MABE has also had multiple acquisitions including Easy, Daka, CCE, Camco Canada, ATLAS, and Bosch Brazil enabling MABE to create a presence in virtually all of the markets within the western hemisphere. Just before the 2008 financial crisis, MABE formed a joint venture with Spain’s Fagor, and entered the Russian market.

Issue Identification

Ramiro Perez, MABE’s international vice-president must decide what future steps must be taken with regards to their business development in Russia. The main issue in this case is whether MABE should continue with their Spanish joint venture Fagor operating in Russia. MABE is unsure whether the investment in another country such as India or China would have been better spent, if Fagor was the best choice to create a joint venture with for Russian operations, if the joint venture should reduce its prices to increase market share, and if MABE should start manufacturing goods locally.

External Analysis

Porter’s Five Forces

Rivalry: High – The level of rivalry among household appliance producers is high. This is because there are many existing competitors in the market with MABE. The main local producers in Russia are Indesit, Electrolux, and Samsung, which combined to make up 43% of the market. Intense competition can make it difficult for market players to earn sustainable profits, making the market unattractive for MABE to compete in.

Buyer Power: High – Consumers in Russia have a high level of bargaining power because there are many brands and many models to choose from. Buyers shop based on model, specifications, and look for the best deal, leading companies to change the quality and/or price of their products. If buyers have a lot of power and can drive prices down it can make it difficult to earn sustainable profits, which would make the market unattractive to MABE.

Supplier Power: Low to Moderate – The suppliers in the appliance industry have a lower bargaining power. Buyers can refer to many suppliers and have the choice of where to shop and what products to purchase. If suppliers want to lower buyer power, they could unanimously raise the prices and quality of the products and monopolize so that buyers would not be able to differentiate the product based on price or quality. With supplier power being lower the market is unattractive.

Threats of New Entrants: Moderate to High – On a global level, the threat of new entrants is moderate, as it requires a vast amount of knowledge, technologies, resources and funding. In the Russian market, the threat of new entrants is considered high because the operating margin of the market is very high and new entrants would find that attractive, assuming the reward will outweigh the risks. In the Russian market specifically, the market is unattractive due to how new entrants can be attracted to the high operating margins, this may also cause existing market players to earn less profits to lower the threat.

Threats of Substitutes: Low – The threat of substitutes in the appliance industry is very low. This is because appliances such as refrigerators can not be substituted, as you cannot satisfy that need in any other way. As these appliances from all brands perform the same basic functions, MABE could create differentiation in their products to have a competitive advantage over other appliance brands. With the threat of substitutes being low, the market is attractive.

PESTEL / General Environment

Political- There is high involvement of the Russian government in decision making coupled with the arbitrariness in the application of laws and a complex tax system. The issue of corruption, lack of clear direction, and stability is a major factor for investors deciding to do business in Russia.

Economic- The recession of 2008 was a factor in the economic downfall of Russia. Although having the highest per capita income compared to countries like Brazil, other issues such as the low human capital, less structured financial system dominated by a single bank, and large outflows of private capital in 2009 could not be overlooked. Lack of a proper financial structure makes it difficult to operate a multinational company and a greater risk compared to Asian countries.

Social- Decline in population growth rate and age are an important factor affecting Russia and its human capital. Lack of human capital will make revenue generation a challenge. In addition, the cultural complexity such as low trust of outsiders, different employment policies, working conditions, and differences in attitudes of the young versus old demographic creates a challenging climate to foster unity and achieve a common goal.

Technological- The presence of industry rivals with similar technological know-how puts a pressure on MABE to be innovative with their products. Russia`s position in research and development has dropped therefore product innovation is necessary to stay competitive.

Environmental- The industry is known for enforcing the production of quality products that are efficient, environmentally friendly, and have lesser chances of polluting the environment with raw materials.

Legal- Although Russia supports foreign direct investment and provides an innovation program throughout the country, the presence of a corrupt law enforcement and judicial system signals a low credibility in applying and enforcing the law, contrary to previous countries where MABE had operated.

Cage Model

Summary of External Analysis: A clear analysis of the external environment suggests that penetrating the Russian market is a risky venture. Other administrative and cultural distances identified include low quality education in Russia, different working conditions, and employment policies. Other economic distances include different tax system, interest rates, varying demand for products, high employee wage due to inflation, weak capital markets, poor protection of intellectual property, and moderate economies of scale. All of