Countrymanager Case
Our board believes, ND I agree, that to generate the kind of growth needed to drive our stock price, we need to develop a market presence In Latin America. What I need from you Is an analysis of the markets In Latin America and a plan to enter the region.
You need to tell me where we should be, when we should be there, and how we will need to manage the business. I want us to be in at least one country in the region next year. The board feels that in the near term we need to be in one or more of the following countries: Argentina, Brazil, Chile, Mexico, Peru, and/or Venezuela. Alistair Brands Alistair Brands is a u. S. Based consumer products company that produces and sells ethical (prescription) pharmaceuticals, ETC (over-the-counter or nonprescription) drugs, and consumer products.
It is an $8. 9 billion firm that was formed in 1924 and competes with a variety of larger and smaller firms, depending on the product market. It has a number of leading brands in various product categories, including (In the ETC Dillon) Allured, the leading liquid cold remedy In the united States, and Seemed, a heartburn remedy soon to be converted from prescription to ETC status.
The consumer products division includes various types of packaged goods: hand and tatty soaps, laundry detergent, shampoo, toothpaste, shaving cream, etc. Over the years, it has expanded its product category width through internal new product development and acquisition of brands and companies. The company had been historically organized into three divisions (Ethical Pharmaceuticals, Consumer Products, and Internationally but recently reorganized into a global product management structure with three major delusions (Ethical Drugs, consumer Healthcare, and Consumer Products).
A group of category managers exists within each division. For example, the Consumer Healthcare division has an oral care étagère manager, a vision care category manager, etc. Most major brands also have their own brand manager who reports to the category manager. Under the new structure, each division Is responsible for Its own International operations and, to some extent at least, can pick the products and categories to pursue Internationally. The category managers meet regularly with their counterparts from other countries to coordinate the approach for managing the brands across world markets.
In addition, within the United States, the VSP for international operations from within ACH division meet on international strategy to develop synergies in production, exporting, country expertise, and so on.
Figure 1 Illustrates this organizational structure. I en countryman’s case?page Figure 1: Organizational Structure of Alistair Brands Ethical Drugs Consumer Healthcare Consumer Products Product Categories International Operations U. S. Operations Europe Oral Category Asia Toothpaste Latin America Finance Accounting Production MIS Country Management Country Analysis and Entry Decisions Latin America is a region of great potential.
With a population of approximately 450 lions, the region represents a population that is 50 percent larger than that of the United States and Canada.
The region has a history of having been politically unstable and has had many weak economies characterized by low growth, high inflation, and a reluctance to take tough economic actions to correct these problems. The dominant national language across Mexico and Central and South America is Spanish, except for Brazil, where the dominant language is Portuguese. Some portions of the population in many South American countries speak one or more native Indian languages.
A variety of trade enhancement actions have been struck in recent years. For example, Mexico was signatory of the NONFAT agreement, along with the United States and Canada. This agreement reduces trade barriers among the three countries and has encouraged a variety of companies to establish production in Mexico to take advantage of low labor costs and fairly seamless access to the United States and Canadian markets.
The NUMEROUS agreement provides similar linkages among the South American countries of Argentina, Brazil, Chile, Paraguay, and Uruguay, including association agreements (but not membership) with Bolivia.
I en Group AT Inner links Colloidal, Mexico, Ana Venezuela. I en Andean community links Bolivia, Colombia, Ecuador, Peru and Venezuela. Numerous bilateral agreements also exist. Say’s team had scoured the Internet for additional sources of data and had come across a site maintained by the CIA.
“Our tax dollars at work! ” Kay exclaimed. A summary of key information from this site appears in the Market Attractiveness Excel Spreadsheet. Tables 1 and 2 below compare economic and social characteristics of the home market and the scenario markets under consideration. Page 8?Countryman’s Student Guide
Table 1: Market Comparison on Basic Economic Characteristics Table 2: Market Comparison on Basic Social Characteristics Urban population % data from: www. BRB. Org/Daffier Population with access to safe water from: www.
Worldwide. Org Currency Exchange Rates The relative value of different currencies affects many of the decisions facing Kara team, as well as much of the data used in their analysis. For accounting purposes at Alligator’s corporate offices, revenues and costs are converted into US dollars (USED). Therefore, fluctuations in the exchange rate will affect consolidated reports directly.
However, pricing and budgets are set in local currency, so Say’s team must manage in the local culture and currency but remain aware of the effects of exchange rates.
Table 3 provides the current rates of exchange. The Countryman’s Case?Page 9 Table 3: Currency Exchange Rates * Example: it takes 0. 4945 USED to buy 1 BRB, or 49. 45 USED to buy 100 BRB. Currency conversions reference: (Date 1113/09) www.
And. Com/convert/classic World Toothpaste Market Current world toothpaste sales total approximately $10 billion. The largest country market for toothpaste is the United States, with $1. Billion spent during the past year.
Toothpaste is available in a number of sizes, delivery systems, textures (paste or gel), and formulations.
The basic toothpaste product is a paste or gel with flavoring and one or more active ingredients that provide specific benefits to consumers. A general description of these variations in the United States market is listed below. Not all companies produce all possible combinations. Table 4: Toothpaste Packaging and Formulation Variations Sizes (grams) Travel (25) Personal (75) Family (150) Delivery Systems Tube Pump Texture Paste Gel Formulations (Ingredient/Benefit) Basic contains fluoride for prevention of dental cavities.
Whiteness contains hydrogen peroxide for whitening and prevention of gingivitis.
Healthy contains Taking soda Tort tartar control. KIOSK contains special Tailoring to appeal to canceller In general, research identified four key segments of consumers defined by benefits sought: 1) 2) 3) 4) Basic/Economy: seeks cavity protection at a low price Whiteness: seeks whiter teeth Healthy teeth: seeks control of tartar and prevention of disease Taste/Kids: seeks a good tasting product to appeal to children Consumers purchase different formulations based on the benefits they seek and heir purchasing ability.
The benefit segments also link to demographics. For example, families with children Page 10?Countryman’s Student Guide often focus on decay prevention; young singles are typically more interested in whiteness; those in middle age are concerned with tartar and gingivitis; and children find taste of the toothpaste to be a primary feature. Similarly, other attributes may appeal differentially to different consumer groups.
For example, pump dispensers add convenience and may be a novelty for children but are more expensive to produce than tubes.
Also, single people might prefer the convenience of smaller package sizes, whereas families may prefer a larger package which is typically more economical on a cost per gram basis. Your R department may offer other SKU combinations as the simulation progresses. A number of firms produce and/or market toothpaste in the world market. Table 5 lists the five major producers of toothpaste for the world market, including Alistair Brands.
Not all global brands or global competitors will be represented in every market, and some markets might include brands produced by local firms.
These local brands may have a minor or major share of the market, depending on the country. Table 5: World Toothpaste Producers with Major Brands Company Name Alistair Brands B & B Healthcare Caromed Company Drills Corp. Veers Consumer World Sales (% of world market) 13 15 21 10 7 Brands Allspice Brittles Bianca Clean & White Aggregate Demarcate Vermeil Your Job as the first country manager for the new region is to determine which of the scenario countries recommended by the board is the most attractive for Allspice.
You are expected to build the Allspice business in one market and expand into two or ore other regional markets.
While you make these decisions, it may be helpful to review the information included in Table 6, which provides data on toothpaste sales by country, and Table 7, which lists producer market shares by country. For each market that you enter, you will need to determine Allele’s target market and positioning strategies, how to source products (via importing or local production), which products to launch, through which channels to distribute, pricing, advertising, and promotion.
As country manager, you are responsible for the performance of your operations, including revenues, market share, and profitability. Therefore, you must develop and implement strategies that are attractive to customers and profitable for Alistair Brands. Table 6: Manufacturer Toothpaste Sales by Country Market, last six years (Millions of USED) 5 4 3 2 Previous Current Sales per Country years years years years year year capita (USED) ago ago ago ago 133 141 149 154 133. 7 165.
3 4. 3 Argentina 425 443 460 470481. 1 507. 9 2. 56 Brazil 767982 85 66.
7 99. 8 6. 01 Chile 211 221 232 245 187. 1 229. 3 2.
09 Mexico 30 31 33 35 40. 5 44. 4 1. 51 Peru 27 262427 37. 0 37.
1. 38 Venezuela Note: Some fluctuations due more to currency exchange rates than underlying changes in demand Table 7: Competitive Market Shares (%) by Latin American Country Market Product Management Allspice is a key asset of Alistair Brands. It is one of the company’s highest recognition brands in the United States.
It is produced in the United States and in Germany for the United States and European markets, respectively. A large number of stock keeping units (SKU) are produced.
South Korean and Japanese manufacturers also produce Allspice under license for distribution and sales in Asia. There have been reformulations of the brand, but as of today, the product formulations are essentially the same across all markets for a given SKU (although there are slight differences in packaging and in the type and intensity of flavoring that are thought to reflect regional preferences).
Overall toothpaste market growth in the United States is very slow, matching the slow growth of the population, so that increases in sales of a brand are due to reductions in share of competitors. Much of the shift in market share in toothpaste has resulted from aggressive product development and formulation supported by promotion to create brand curiosity in the category. For example, product management has developed three line extensions of the Allspice brand for the United States market: Allspice Whitening, Allspice Tarter Control, and Allspice Kids.
These line extensions focus on particular benefit and demographic segments. Page 12?Countryman’s Student Guide Thus, the United States market consists of 24 SKU of Allspice: Allspice (original): Allspice Whitening: Allspice Tartar Control: Allspice Kids: 6 SKU – 3 sizes, 1 delivery system, 2 textures, fluoride formulation 6 SKU – 3 sizes, 2 delivery systems, 2 sutures, fluoride plus sodium hypochlorite* 6 SKU – 3 sizes, 2 delivery systems, 2 textures, fluoride plus abrasive material* 6 SKU – 3 sizes, 2 delivery systems, 2 textures, fluoride plus special flavoring* * Not all combinations are available.
Management of Alistair Brands has made the decision that Latin American market entry is to be done using the existing SKU formulations. In addition to the question of what country or countries to enter, the country manager in Latin America must decide which of the Allspice versions to use In ten chosen market. I en usual approach Tort market entry In ten past NAS Eden to introduce only four of the 24 available SKU and review early performance before investing additional resources.
Portuguese or Spanish packaging (depending on country) is essential for consumer acceptance.
After initial entry into a regional market with a limited number of SSW, expansion in the region will likely proceed as follows: Periodically, market penetration and growth rates for each country manager will be reviewed. Based on achieving these goals, additional SKU may be introduced in the initial market. The pump delivery system is not available on SKU during initial racket entry, and may become an option later. After successful entry into one market, the country managers can expand their operations into other countries in a similar fashion.
The products can be the same as those marketed in the initial country, or they may be entirely different SKU.
Goals and objectives are likely to be set with your instructor at the beginning of the simulation. Your instructor may also provide guidance as to regional roll timeliness. Production Toothpaste manufacturing and delivery is reasonably flexible. Production may take place in any location throughout the world and be shipped to the ultimate estimation. Alternatively, production may be manufactured locally at a company- owned facility.
From the perspective of the subsidiary, product can be obtained by purchasing from the existing manufacturing division of the parent firm.
The parent firm charges a transfer price for the The Countryman’s Case?Page 13 product that is purchased by the subsidiary. The total amount (units x transfer price) appears as the cost of goods sold (COGS) in the subsidiary’s income statement. Estimates from the parent firm indicate that there is sufficient productive capacity in he existing plant to meet potential demand in the new region.
This may be a good short-term source of capacity, but unit costs are likely to be higher, and when combined with tariff and shipping considerations, overall cost will be significantly higher than a locally produced product. On the other hand, the existing plant offers reliable productive capacity and a historically stable currency. Another approach to obtain product is to produce the product locally.
If the subsidiary desires to do so (rather than purchase product from the existing facility), the corporation will approve alluding a single plant in one of the scenario countries under consideration.
However, building a plant and expanding its capacity are expected to take one year to complete and require some one-time upfront costs for design and construction. Unit costs are expected to be lower with local production after achieving reasonable volume. Table 8 shows some typical production costs associated with each size, delivery system, texture, and formulation level of toothpaste when produced in the exalting maturating plant. I en ease case Is a /5-gram tune AT Toulouse downstate that costs approximately $0.
50 to produce.
These costs incorporate labor and materials and also an allocation for manufacturing fixed costs. From the point of view of the country manager, these are COGS. Producing in a regional plant is advantageous, in part because certain labor and material costs are lower than in the existing facility. Table 9 shows the percentage reduction in COGS that can be expected when products are manufactured in a regional plant. These costs are based on 100 million units of cumulative production.
Note that there are also some fixed costs to consider which are estimated at $1 million for each 1 million units of capacity.
These costs are depreciated over a 10 year period, resulting in annual charges of approximately IIS$OHIO,OHO per million of production. Table 8: Approximate U. S. Manufacturing Costs By Component (Simulation Data) Component Size Description 25 gram (small) 75 gram (medium) 1 50 gram (large) Tube Pump Paste Gel Fluoride Hydrogen Peroxide Baking Soda Special Flavoring Cost – 20% -+ 20% -+ 15% – Delivery System Texture Formulation Page 14?Countryman’s Student Guide Table 9 Decrease in Manufacturing Costs (based on initial 100 million units of production) Argentina Approximate Cost reduction (relative to U.
S.
) 20% Brazil Chile 9% Mexico Peru 22% Venezuela 31% With production experience, COGS reductions are realized at any manufacturing plant? existing or regional facility. However, due to the already large volumes produced in the existing plant, this effect is likely to be negligible. With each doubling of cumulative production across all SKU (total volume) in new plants in the new region, it is expected that COGS will be reduced by approximately 6-10 percent. Location of manufacture has important implications for Allele’s overall costs as well as COGS. Three sources of costs exist.
As already noted, COGS reflects manufacturing costs and is affected by production volume. In addition, the subsidiary needs to consider international shipping costs (SC) between the manufacturing plant and the served market, and import taxes and duties in certain cross-border situations. Weight (volume), distance, and mode of shipment affect shipping costs. With regard to mode of shipment, container ships embarking from Miami are used to ship products from the United States to Latin American locations. Container shipments embarking from Cancan are used to ship products from Mexico to South American markets.
Within
South America, trucks are used primarily to ship products across borders and from ports to destinations. Table 10 provides per unit costs for shipping toothpaste from various manufacturing locations, assuming the usual shipping mode for each origin – destination combination. Table 10: International Shipping Rates (per unit – medium size – based on 20′ containers) Notes: Rates include documentation fee ($200), insurance, and inland trucking ($600) Rates Tort grams e an Peru are estimate EAI Rate per gram = / 16 ounces The Countryman’s Case?Page 1 5 Circumstances vary on a country-by-country basis with respect to cross-border taxes ND duties.
No import duties or tariffs are incurred within regional trading blocs, such as shipping products between the United States and Mexico (because of NONFAT) or between Argentina, Brazil and Chile (because of NUMEROUS). Where import costs are incurred, they are determined based on the value of the imported good, where value = CIFS (COGS + Insurance + Freight (SC)) as shown in Table 11. Table 11: Tariffs, Duties, and Fees as a Percentage of CIFS These different sources of costs (COGS, experience effect, shipping, and tariffs) interact to affect the total cost basis for the firm.
For a company selling in a particular scenario market: 1) Existing (home) production only = High cost (high COGS + high shipping/tariffs) 2) Low volume regional production = Medium cost (high COGS + low shipping/tariffs) 3) High volume regional production = Low cost (low COGS + low shipping/tariffs) To summarize the production issues, the country manager must determine not only which markets to serve and which SKU to offer, but also where to locate a regional production facility (if desired).
A major tradeoff is between lower per unit manufacturing costs from plants operating at high capacity versus lower hipping costs by producing in or close to served markets. A second tradeoff can involve decreasing production costs with higher volume versus increasing duties, taxes, and tariffs because of border crossings. The production decision affects not only the initial market entry, but also subsequent expansion into a second regional market. For example, a plant serving Just one country may not achieve low COGS due to relatively low volume.
But when the plant begins producing for a second regional market, higher volume and capacity utilization may yield lower COGS that are realized in the initial and the new markets. Page 16?Countryman’s Student Guide Distribution Domestic. Toothpaste is sold through a variety of retail outlets in the United States. Grocery stores (e. G.
Kroger), drug stores (e. G. Rite Aid), mass merchandisers (e. G. Wall- Mart), convenience stores (e.
G. 7-11), and other outlets (warehouse clubs, etc. ) all sell toothpaste.
Increasing concentration in most of these classes of retail outlets means that Alistair distributes directly to many national accounts. In fact, approximately 70 percent of Allspice volume goes directly to the various retail accounts. There are still, over, a number of smaller local or regional stores that require the use of an indirect channel via wholesalers.
Figure 2 offers a visual representation of direct versus indirect distribution. Figure 2: Distribution Structure – Direct vs.. Through Wholesaler (Indirect) Direct Manufacturer Manufacturer windowless Retailer Customer Customer International.
The type of retailer that stocks toothpaste varies by country.
In general, there are fewer types of retailers carrying toothpaste than are found in the United States. Also, while there is increasing consolidation of retailing globally, it is seasonable to generalize that there is less concentration in most of the rest of the world compared with the United States. That is particularly true in developing markets where traditional “mom and pop” retailing remains the norm. Distribution channels in Latin America have been grouped historically as traditional, self-serve, and hypermarket.
Traditional channels are small, independent stores or open market areas almost exclusively served by wholesalers (indirect distribution).
Self-serve is a more developed store where customers serve themselves, but that typically offers a arrow line of merchandise. These may be independent or part of a regional chain but are almost all locally owned. Convenience stores and grocery stores would fall in this category. Hypermarkets are a new style of channel that is found primarily in cities.
These are usually large stores with a wide variety of goods and typically purchase items directly from the manufacturer (direct distribution). Many of the hypermarket chains are foreign owned or allied with a global distributor, such as Walter or Careful.
A fourth type of distribution channel is emerging around the concept of home delivery. Home delivery of household products and groceries is more common in Latin America than in the United States, which points to the possibility of a website-based channel of distribution once a higher percentage of the population has access to the internet.
Tables 12, 13, and 14 provide retail channel data for each country. The Countryman’s Case?Page 17 Recent conversations with key retail accounts suggest that brands to carry, along with allocation of shelf space and facings, are affected by four key variables: product turnover, slotting allowances, sales force support, and advertising support. Hypermarkets and chain self-serves are more apt to focus on allowances as well as turnover, whereas traditional stores and independent self-serves seem to pay greater attention to sales force support.
