Strategic Recommendation - Grupo Bimbo - Case Study Example

Case Study: BIMBO Table of Contents Executive Summary…………………………………………………………….………3 2. Introduction……………………………………………………………...….………….4 3. Issues……………………………………………………………………………..….…4 4. Ethics, Social and Sustainability Dimensions……………………………………...…..5 5. Analysis………………………………………………………………………..…..…...7 6. CAGE Analysis………………………………………………………………….…….10 7. Recommendations for Expansion in United States…………………………....……....11 8. Recommendations for Expansion in the New Market………………………...…..…..12 9. Recommendations to execute CSR…………………………………………….….….14 10. Conclusion………………………………………………………………………..…..15 Executive Summary Grupo Bimbo, a Mexican brand name, is well known for selling bread and other bakery and confectionary items all over the world. It is the second biggest bread company in the world. The company is operating in Mexico, United States, Europe, and Asia. The first part of the report talks about the issues faced by the company while expanding in different parts of world. It further talks about the ethical code conduct in the light of corporate social responsibility case. The second part of the report analyzes the challenges faced by the company while expanding in United States. Additionally, the report provides recommendations for effective expansion in United States and other parts of the world as well. In the end, recommendations are given to sustain effective activities of the company with respect corporate social responsibility. Case Study: BIMBO Introduction Group Bimbo, a Mexican brand of bakery items is a strong promoter of activities relating to corporate social responsibility (CSR). With respect to global expansion, the company acquired and merged with many companies in order to stimulate growth in the challenging environment. It is important to state that the company has been successful in achieving its business goals and staying focused on CSR. As CSR strategy is used to reduce poverty and address the problems of society, Bimbo partnered with FinComun that provides financial services and loans to people for opening up new shops. Bimbo takes care of its employees and never fires them. The company also pursued many social and environmental programs in relation to CSR such as Reforestation Mexico activities, degradable polyethylene wrapping, etc. (Rangan & Cuellar, 2009). However, the company continued to face issues in forming strategic alliances in different countries which had an adverse effect on its CSR activities. Thus, in this regard the report aims to analyze issues faced by the company and provides recommendations in order to meet the challenges and sustain growth and development globally. Issues Changing demand patterns of buyers One of the first challenges faced by the company was changing demand patterns of buyers and pricing by competitors based on low manufacturing costs. During the expansion, the company strived to become a highly profitable business in the United States and China, and this came as a challenge for them. Increase in competition There were increasing numbers of competitors and players in the market who were competing against the company through adopting different strategies. The bread industry is highly fragmented as consumers have different tastes, cultural backgrounds, and diet preferences that have an impact on bread consumption and profitability of businesses. Differences of labour relations in different Geographical locations The company was also affected by the geographical location as every region has distinct labour laws which affect the relations with workforce. The differences in regulatory framework in different locations provide has an effect on business while it undergoes registration and undertakes bankruptcy filing, etc. (Seigal, 2009). Tradeoffs in CSR The company strives to carry out its business practices by taking into consideration its corporate social responsibility using the global growth strategy. However, with respect to CSR, there are few possible trade-offs like differences in legal or political laws that may affect the company upon expansion in the global market. Ethics, Social and Sustainability Dimensions Bimbo has always been a promoter of Corporate Social Responsibility (CSR) since its establishment. The company’s reports indicate that even when the company was small it always looked after the wellbeing of its employees and stakeholders (Rangan & Cuellar, 2009). It operated with “enlightened” self-interest having a “visionary” leadership in order to shape society by positive social and market change (Rangan et al., 2012). In this regard, it has established relationships with stakeholders through interactions, partnership, and multi-organization alliances. It has helped the company to align its business objectives with the social goals and helped it lead the industry towards business excellence and remain profitable in the emerging markets. The following ethical issues are examined at the time of international expansion. Lack of Equal Employment Opportunity: First and foremost issue that the company needs to consider is that it must fulfil legal requirements of the target markets in terms of equal employment opportunity and to ensure uniformity in pay. The wages of employees in the parent country, Mexico should concur with United States, Latin America, and China to protect workers from unfair work practices. It is the primary goal of CSR. Secondly, working conditions of all employees need to stable, standardized, and acceptable in all overseas locations that would allow the company to expand successfully (Gonzalez-Perez & Leonard, 2013). Bimbo supports basic human rights practices. It is, therefore, important for a company to conduct its business in a way for the cause. It is suggested that a company may unknowingly engage in discrimination and might not recognize basic freedom and rights of individuals that may be considered as the culmination of ethical practices. Thus, a deeper market analysis and observing human rights practice is a must for the company in order to expand in the global market successfully (Gonzalez-Perez & Leonard, 2013). Lack of ethical mode of payments and environmental legislation: In order to remain ethical when expanding, it is necessary that the company ensure that payments made or received by the business are secured or obtained legally. The company should restrain from taking payments as gifts or make decisions that could be susceptible to unethical practice and violation under law (Gonzalez-Perez & Leonard, 2013). Most of the countries lack environmental legislation that supports elimination or reduction of pollution. Many companies discharge harmful substances that could be hazardous to the human health. Thus, when expanding its business the company needs to be sure that it does not discharge harmful materials in the environment that could affect the general population (Gonzalez-Perez & Leonard, 2013). Analysis In order to understand the above-mentioned issues, it is important that there is a balance between the local market and international growth. There are many frameworks that can provide an insight for ethical consideration during expansion in the international market. According to Albert Moran (2013), there has to be the right balance between standardization and localization. Having standardization means that Bimbo needs to use the same product, service and cost-saving strategies to have a unified brand identity. Adapting a standardized growth strategy can lead to a rationalized product that meets the demands of local and international consumers. Fig.1: Strategies for Market Expansion Figure 1 shows that during market expansion, it is essential to have the right balance, the degree of concentration or diversification on the basis of standardization and localization (having relevance of local networks) to extend in new market. In this regard, to have the right balance of standardization and localization, it is important that internationalization takes place. Internationalization is a process through which a company expands in other markets allowing it to have access to a larger market size and captivate new customers. Expansion that gives better returns on investments by making certain compromises and decisions regarding resource allocation is an important part of the internationalization process (Tallman, 2007, p.10). Fig 2: Approach to Internationalization The figure 2 shows the process of internationalization. First, it requires world readiness to promote products in a new market with localization that meets the demands of local people. In the second step, it requires globalization and localization (product meeting the needs of local people) at the new country so people can accept the new product or the service. In Bimbo’s case, the company can make effective use of internalization by creating a brand image in the new market before expansion and then modifying their bread items according to the demands of the locals so that they are accepted by the local population. With respect to CSR, the dual exchange theory can be used as a theoretical framework that can emphasize on having social action coordination, being based on social norms (Fig 3). A corporation where interests of public and private bodies are safeguarded through legal mechanisms can manage social and economic trade-offs while expansion (Bobby Banerjee, 2009). Fig 3: CSR Framework During the process of expansion, the business practice needs to identify the level of modernization that could help in the economic development of any country. For example, in Latin American countries, there are many social and cultural problems. These social problems are due to poverty, poor education, and other housing and health issues. In these societies, the discourse of effective corporate responsibility is required. Often it becomes difficult to address diverse problems associated with the market. In such situations, ethical issues may be overlooked, and they may not be prioritized that affects the implementation of an effective CSR process. In United States, the only drawback that the company faced was the unionized truckers who pressurized the company for low costs of operations. Even though the company gained an increased market share and acquired many companies in the 1980s such as Pacific Pride Bakers and other small tortilla making companies, it still faced issues related to its profitability (Seigal, 2009). CAGE analysis identifies cultural, administrative, geographic and economic differences that help the country create international strategies for growth and development (Ghemawat, 2013). The following CAGE framework provides an analysis of the challenges faced by the company. CAGE Analysis Cultural: The demand pattern is seen to be changing because people in the United States are becoming more inclined towards low carbohydrate diet. People have become diet conscious and their cultural set-up is seen changing as they prefer healthier food like whole wheat bread or bran bread intake in place of white bread and artificial sweeteners. Thus, in response to this cultural change, the company started to eliminate the use of trans-fats in its bakery products and replaced them with grains to meet the needs of American people. Administrative: There is also a concentration of customers who buy bread from grocery stores. These grocery stores are constantly demanding to lower the prices of bread and stock bread items on shelves in bulk, and when these items are not sold they are returned to the bread producer, which results in a loss for the company. The second challenge related to the pricing of products is the high costs associated with manufacturing including costs of labour, health care, and raw materials (Seigal, 2009). From the beginning, the company was a well-recognised brand name for Hispanics in the United States. However, the company generated fewer sales and no profitability by operating as a fast food business or private label sales company. The company also faced challenges due to the increase of negotiation power of unions in California, Oregon, and Colorado. These unions continuously aimed to reduce the price of the company’s goods. In order achieve this, bulk orders were made in the morning whereas consumers were observed buying more in the evening (Seigal, 2009). Geographic: In terms of the geographical location, the United States has a geographical placement where global presence is felt and its gives many advantages to a company. The country has the means to overcome topographical challenges and arable land to establish plants that supplies good quantities of bakery items in different states. Thus, geographically the country promises ongoing growth for the company. Moreover, the demand patterns in the United States are similar to Mexico (its home country), which made the company’s business practice sustainable (Seigal, 2009). Economic: The premium pricing of bread and other confectionary items is not seen as a problem in the US market as labour costs (insurance and labour unions) are high and understood to affect companies’ business economically. In this regard, the company had frequent meetings with the union heads. However, the business remained affected by unionized employees and the company had to bear the costs of health insurance, workmen compensation, etc. Recommendations for Expansion in United States Product Development: With respect to expansion in the United States, a company can establish more production plants and has strategic alliances with the suppliers and acquire other companies. The company is well known for its distribution network, and it should focus to make contacts with its existing and new customers in the US. It could help the company to create more growth opportunities based on the customer preferences. In order to meet the tastes of the local people in the United States, the company needs to modify and make improvements in their items by introducing low carbohydrate products and set diet trends that can meet the needs of the market. In this regard, technology can play a positive role in allowing freshness and meet dietary requirements as well. Premium Pricing: Prices can be charged at a premium level if the company can improve and sustain the quality of their bread products. The basic purpose of introducing premium pricing in United States is to cater an elite class who shall be charged extra as the quality of the products would remain commendable and unique for the group. The premium pricing would be based on utmost quality of products as well as service including take away and free delivery so that the product is successful in the market. Increase labour relations: As unions have a proactive role in the United States it is important to have strong communication with them with respect to their needs and expectations. By being focus on improving relations with labour unions, the company shall be able to promote elements of Corporate Social Responsibility (CSR). Furthermore, it shall help integrate legal framework of labour unions with company’s policy which would eventually empower the employees to work effectively for the company. In short, if the company serves to satisfy the needs of the labour, they shall in return work proactively for the company Recommendations while expanding in a New Market While entering into a new market, every company goes through a six-stage process. As highlighted by Deresky (2006), the company initially recognizes opportunities, conducts risk evaluation and competitive analysis, and then identifies the mode of entry. After entry, further development paths are identified, and coherent organizational control is sought so that there could be sustainability and profitability in the business practices. The company could conduct market research and analysis and draw knowledgeable conclusions to increase sales through effective marketing. Bimbo should adopt the following recommendations while expansion. Control Costs: First and foremost, the company requires controlling costs by implementing a distribution strategy in the market structure. The distribution strategy should be aimed at dealing with large retailers directly and using distribution operators that could supply the company’s goods to the retailers in an effective way. It is also important to state that the start-up costs or initial investment while entering in the new market can be more as the company would require marketing tactics to initiate sales but at the same time the company needs to remain cost effective and execute foreign exchange management so that they are able to cope in case there are losses curtailed by the company. Introduction of new products: Revenues can be increased if the company focuses on introducing new confectionary items that satisfy the local tastes of the new markets. In other words, it can be said that through introduction of new and innovative products, the company shall be able to target more customers as people are naturally inclined to buy and experience new varieties so Bimbo, being a recognized brand name shall be able to increase its clientele. Adaptability: It is necessary that the company introduces new product but remain adaptive of the life styles of people in the new environment as every region has distinct buying and eating patterns. Thus, the company should be flexible, adaptive to meet the requirements of the new market. Promotional Schemes: While expansion, the company should carry out different promotional campaigns or schemes in order to market its products and generate sales. These promotional schemes can be in the form of free confectionary items for a particular period or free bread deliveries etc. Maintaining Standards and Technology: The Company should maintain high quality of products and use technology and innovative ways to maintain freshness and longer shelf life. The combination of technology and international standards in retail industry promises ongoing growth as it helps them increase their portfolio and acquire new brands through various applications that have the means to manage growth in the new environments. CSR: The Company is already an active member of CSR but they need to keep this focused intact, educate customers about health related issues and western-style items. If the company works for the well-being of the people and society in general then they shall be able to gain support from their customers which would help them in expansion. Recommendations to execute CSR In order to sustain CSR practices, it is important to recognize social and cultural differences between local and international markets. In this regard, a good starting point would be to take a look at CSR practices of new markets and analyse CSR on religious, social and ethnic grounds through their principles and legal frameworks. Furthermore, it is essential to manifest the self-established perception of CSR in the market. The self-established perception relates to the core values and principles through which Bimbo operates. Bimbo has always contributed towards society by giving back something and addressing the social issues (Gonzalez-Perez & Leonard, 2013). There are different versions of CSR, which may either help any company promote unity amongst individuals affected by the business or set them apart. It is important that the company is aware of the legal policies of the new country and employees, and their families should be provided access to health care, education, and means to reduce poverty. For United States, CSR issues for consideration may be different because the company has to focus on labour relations. However, in other countries such as Brazil, there are other issues like security and language barriers that the company would need to focus to sustain ethical practices (Tench & Sun, 2014). Fig: 4: CSR Elements As an advocate of CSR, Bimbo is required to gain trust of its employees, as well as, other stakeholders like society and environment (Fig 4) by remaining transparent and clear about its goals. Tench (2014, p.32) suggested that when trust diminishes, people start asking for transparency. If people fail to see good quality of goods or services then, they will stop relying on the company. Therefore, transparency and ethical work practices in the form of assurance or support are required in order to establish a feeling of trust (Tench & Sun, 2014). During mergers or acquisitions, every company needs to determine if leadership style and characteristics should be focused or promoting CSR activities. In the case of Bimbo, while integrating the company’s CSR practices it is essential that there are few motivations for instance; products promotions schemes, having control over labour costs and to be “recognized” in the market. These motivating factors can help CSR activities to be integrated with the acquired firms. Conclusion After examining the case study of Bimbo, it can be concluded that as a Mexican brand and promoter of CSR the company faced many global challenges while expanding in United States, Latin American countries, and China. Thus, by keeping in view CSR practices, it is recommended to introduce new products or modify them to meet the changing needs of the market. Furthermore, the company is required to use promotional schemes and ethical means of expansion by focusing on fair and equal treatment of employees, using fair means of fund raising, promoting human rights, and working to minimize pollution in the national and international markets. These ethical considerations would help the company to understand and comprehend socio-economic and cultural differences between local and international markets and operate effectively. List of References Bartlett, C.A. & Ghoshal, S., 2002. Managing Across Borders: The Transnational Solution. Harvard: Harvard Business Press. Bobby Banerjee, S. 2009. Corporate Social Responsibility: The Good, the Bad and the Ugly. Northampton: Edward Elgar Publishing. Deresky, H., 2006. International Management: Managing Across Borders And Cultures, 5/E. New Delhi: Pearson Education India. Ghemawat, P., 2013. Redefining Global Strategy: Crossing Borders in A World Where Differences Still Matter. Harvard: Harvard Business Press. Gonzalez-Perez, M.-A. & Leonard, L., 2013. International Business, Sustainability and Corporate Social Responsibility. New York: Emerald Group Publishing. Hill, C. & Jones, G., 2008. Essentials of Strategic Management. Mason: Cengage Learning. Moran, A., & Keane, M. 2013. Cultural Adaptation - Moran and Kea. London: Routledge. Rangan, K., Chase, L.A. & Karim, S., 2012. Why Every Company Needs. Harvard Business School. Rangan, K.V. & Cuellar, R.G., 2009. Grupo Bimbo: f and Social Responsibility. Harvard Business School. Seigal, J., 2009. Groupe Bimbo. Sydney: Harvard Business Press University of South Wales. Tallman, S.B., 2007. A New Generation in International Strategic Management. Cheltenham: Edward Elgar Publishing. Tench, R. & Sun, W., 2014. Communicating Corporate Social Responsibility: Perspectives and Practice. New York: Emerald Group Publishing. Read More