Problems with Arcor

Problem with Arcor

Arcor’s home market is Argentina, a market that is currently recovering from financial crisis that devastated the economy as their currency went through inflation and was at times worthless. Arcor’s management had been very strategic with their planning and was able to survive the crisis but the affects of this did hit the company. Revenues fells from $650 million to $300 million in just a year. Arcor had a great dependence on their home market during this period. International revenues, however, were increasing. Even though Arcor was an international company, it had great dependence on their home market. Due to the financial crisis, Arcor was able to see that it was time for them to make Arcor truly international and remove dependence from their home market.  Arcor had planned to international with a very aggressive plan but since the devaluation of the peso, it had to put the plans on hold. Although the company was growing internationally from 1991 through 2001. Arcor was committed to an international strategy but had downfalls that delayed the process. Arcor needs to carefully pick which markets they would like to enter and which markets to further expand into. The four questions I choose to focus on in my case analysis are :

1. Which regions should Arcor prioritize? Why these regions?
2. Which means of internationalization is/are most appropriate to enter the regions identified in 1? Explain your choice.
3. On which products should Arcor focus in the regions that you identified in 1? Explain your choice.
4. What top three recommendations would you make to Luis Pagani for Arcor’s internationalization strategy? Please explain your rationale for each recommendation.

1) Arcor should prioritize in the following order: Latin America, United States, Europe then Asia.

Latin America: Arcor is already exporting 68% of their products into Latin America, but there is room to expand and conquer the market. There is not much cultural distance between the two markets and Arcor’s current products are enjoyed throughout Latin America, although minor adjustments would need to be made (Mexican’s enjoy spicier chocolates). Since the language is similar throughout Latin America, it would an advantage to Arcor in terms of communication. As for administrative distance, Arcor does have distribution capabilities in Latin America and also as commercial offices in key locations and also has production facilities which fits in Arcor overall strategy of vertical integration. By producing their own products such as coco, sugar, milk and cardboard they would have advantages and also do not have worry about high shipping costs. By having a solid base in Latin America also could create access into the rest of North America. As for economic distance, Latin America does seem to be financially sound, although Brazil did have a financial crisis so it is important for Arcor to carefully monitor the economically conditions of their potential markets as this can determine if the local people will have a demand for their products. The challenge Arcor faces in the Latin America market is the that the market is already dominated by two key players; a challenge that Arcor can face with the right marketing tools. Also an disadvantage to this would be that Arcor would be devoting their resources to a country that they already have a presnece in rather than expanding into markets with bigger opportunities

Europe: In the European market, Arcor would be starting from scratch since they currently only export into the market. Arcor planned on moving their head office to Barcelona, which may not the best idea since they currently do have any major ties which any European country. By moving the head office to Europe, Arcor would greatly increase the geographically distance between it’s home market and potential target markets such as United States and Latin America. Arcor’s mission is provide good quality for an affordable price; sometimes that European’s may not be interested in since they prefer premium products. If Arcor is really interested in the European market, they could consider a joint venture, this way they do not have bare a heavy financial burden if things do go wrong but would compromise on the degree of control in the organization. The advantages for Arcor outweigh the disadvantages that are present. Arcor currently has no experience in the European market, does not have suitable products for the market and the costs associated with this may out weigh the benefits. The investment that Arcor would be making would large and Europe already has an established market. A joint venture or licensing may be the way to go for Arcor in the European market.

United States is a very large market in which Arcor has started to have a presnece in. There is difference in culture with the home market and United States market but Arcor can adjust their products accordingly. Also difference in language could be barrier that Arcor is faced with.  With the strong presence, Arcor will be in an advantage to expand in the United States relative to Europe. Also North American consumers would value Arcor affordable products, compared to Europe since they prefer premium products. Arcor is already created ties with Wal Mart which has been successful. Arcor would not have this in Europe. Wal Mart is a huge distributor and would greatly help Arcor compete for market share. Arcor’s strategy to outsource with large companies is sufficient for the current conditions. Arcor could potentially work with other large companies such as Costco and other supermarkets.  In the long run, Arcor could brand their products differently but currently, by joining with supermarkets and distribution channels, Arcor can create a greater presence in the market. United States does have challenges are Arcor such as, cultural differences and established market, but relative to Europe, Arcor will have a easier time expanding in the United States. As for administrative distance, Arcor does have commercial office in Miami which creates a foundation for Arcor to build from.

Currently, Arcor does not have any production or products in Asia but it being a growing market; Arcor is unknown. It is opportunity Arcor could invest in. Also, because of vertical integration, Asia may be good market to produce in.  As for cultural distance, Arcor would have to be careful since the market is unknown to them. There is a not only a great geographically distance but also cultural distance between the markets. Since Asia has many developing countries, along with a huge market comes instability. Arcor does not have any admins connections with Asia. They do not have a physical location or ties with political figures, both are key for expansion in a new market. Arcor’s best bet would be to create a joint venture with a company that is suitable for the Asian market then eventually capture market share.