Strategic Recommendation for Bimbo - Case Study Example

Case Study: BIMBO Case Study: BIMBO Introduction Bimbo, a Mexican brand is well known for selling bread and other bakery and confectionary items. The company has faced global challenges while expansion in United States and other parts of the world (Seigal, 2009). In order to recommend the strategic actions for the company, it is necessary to identify and critically analyze the company’s global challenges and opportunities for growth and development at the time of corporate social responsibility case. Global Challenges One of the first challenges faced by the company was changing demand patterns of the buyers and low manufacturing pricing power. During the expansion, the company strived to become a highly profitable business in United States and China, and this came as a challenge for them. There were increasing numbers of competitors and players who were competing through different strategies. The bread industry was highly fragmented as consumers have different tastes, cultural and diets that have an impact on bread consumption and profitability of the business. The company is also affected by the geographical location, labor relations and regulatory frameworks concerning business registration and bankruptcy filing, etc. (Seigal, 2009). Challenges in United States In order to judge the operations of Bimbo the importance of local environment and capability of subsidiaries is compared. In United States, the company is in “contributor” position as they focus on developing the products as per the requirement of the local market in terms of prices of their items and there is low bargaining power for distributors (Bartlett & Ghoshal, 2002). The only drawback was the problem of unionized truckers who pressurized the company for low costs. In United States, even though the company gained increased market share and acquired many companies in 1980’s like Pacific Pride Bakers and other small tortilla making companies they still faced issues in getting profitability (Seigal, 2009). The following CAGE (Ghemawat, 2013) analysis would provide an analysis of the challenges faced by the company; CAGE Analysis Cultural: The demand pattern is seen changing because people in United States are becoming more inclined towards low carbohydrate diet. In response to this issue, the company started to eliminate the use of Tran’s fats in their bakery products and replaced it with more grains. Administration: There is also the concentration of buyers who buy bread from grocery stores. These grocery stores constantly demand to lower the prices of bread and are stalking bulk bread items on shelves and when these items are not sold they are returned to the bread producer which result in loss. The second challenge of pricing power is affected due to high costs associated with the product manufacturing, costs of labors, health care and purchasing of raw materials (Seigal, 2009). From the beginning, the company was well- recognized brand name for Hispanics in United States but while operating as fast food business or private label sales, they generated fewer sales and no profitability. 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 goods. Moreover, many bulk orders were taken in the morning. However, with time, people were seen buying in the evening more often (Seigal, 2009). Geographic: In terms of geographical location, United States is situated at a place where global presence is felt and its gives an advantage to the company. Moreover, the market demand of United States is similar to Mexico (its home country) which makes their business practice sustainable (Seigal, 2009). Economic: The premium prices of the bread and other confectionary items are not seen as a problem in the United States market through economically labor costs (insurance and labor unions) are affecting the company. Though, the company had frequent meetings with the union heads in this regard but the business was still affected by unionized employees as the company had to bear the costs of health insurance, workmen compensation, etc. The company’s competitor Sara Lee in the other hand was seen expanding rapidly as they hired un-unionized employees (Seigal, 2009). Recommendations for Expansion in United States Increasing International Profitability In order to increase profitability in the International Business, it is important that the internationalization takes place. Internationalization is a process through which a company expands itself in other markets that results in increased market size and there are new markets where the company has to captivate new customers. Expansion that gives better returns on investments by making certain comprises and decisions regarding resource allocation are an important part of the internationalization process (Tallman, 2007, p.10). Product Development: With respect to expansion in United States, the company may establish more production plants and have strategic alliances with the suppliers and acquire other company. As the company is well known for its distribution network so this should be focused in the US market so that there are more contacts with the customers, and there are more growth opportunities that are based on the customer preferences. In order to meet the tastes of the local people in 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 very positive role in allowing freshness and meet dietary requirements as well. Premium Pricing: Prices can be made premium if the company succeeds to improve the quality of their goods so that they can target an elite market. Unionized Truckers: As unions have a proactive role in United States market this it is important that there is communication with them, and there are elements of corporate social responsibility incorporated so that employees are empowered to work effectively for the company. Challenges in South America In South America, the company earned more revenue but there were still few issues of cultural differences, which made it difficult for the company to expand itself. At Latin American countries, there was more competition seen in the market. For example in Brazil, the prices were too intense and in Peru the demand for bread items were low (Seigal, 2009). One of the mistakes the company made was that the company started to market its resources in small stores in Brazil and Argentina through the countries was dominated by large hypermarkets. There was also very limited number of sweet goods initially and due to increasingly need of sweet bakery items it affected the profitability margins. Mexican brand name “Bimbo” was also seen unacceptable to Brazilians. The language barriers faced by the company made it difficult for the company to sustain profitability. A.Diaz, Head of Grupo Bimbo working in Central and South American Division maintained that the company could only be successful in South America if they could mark their presence in Brazil. Although, it was difficult to retain profitability in Brazil but in order to remain competitive in Latin America capturing the market was necessary. Recommendation for Latin American Countries Control Costs: First and foremost, the company requires controlling costs by implementing a distribution strategy that is seen used in domestic market structure. This distribution strategy should be aimed to deal with large retailers directly and using operators that could supply the goods to the retailers. Introduction of new products: Revenue can be increased if the company focuses on introducing new confectionary items that satisfy the taste buds of the local tastes of the Brazilians. While entering into a new market, every company goes through a process a six stage process. As mentioned by Deresky (2006) first the company recognizes opportunities, conducts risk and competitive analysis and identifies the mode of entry. After entry, further development paths are identified, and coherent organizational control is sought so that there are sustainability and profitability in the business practices. The company could conduct market research and analysis and draw knowledgeable conclusions to increase sales through marketing. Opportunities in Chinese Market In 2006, Bimbo decided to enter the Chinese Market, and the company enjoyed a good market share in major cities like Beijing, Hongwui and Mankatan (Seigal, 2009). In order to market their products and gain an increase in sale, the company introduced new variety and combinations that could satisfy the Chinese tastes. It can be said that the company learnt from its past mistakes and were able to promote their products through a strategy that enabled them to gather strong market share. Though the company had a well-established distribution network in China but they had more opportunities to increase profitability by gaining market in hyper chains while being aware of needs of customers relating to low carbohydrate diets. Recommendations to enter into a new market During the expansion, Bimbo has acquired many companies so these international strategic alliances, franchising, mergers, acquisitions, licensing. Also, joint ventures would help Bimbo make use of production and distribution facilities of the foreign market which can help in meeting the local requirement and strengthen competitiveness (Hill & Jones, 2008). In order to balance their local market while entering into any new market, Bimbo needs to focus on the following; Adaptability: To improve their products in order to meet the needs of the local people Promotional Schemes: To carry out promotional campaigns or schemes in order to market the products. Maintaining Standards and Technology: To maintain quality of products and use technology and innovation to maintain freshness and longer shelf life. CSR: To contribute towards the society and well-being of the people and educate customers regarding any health related issue and the western-style items of the company The following graph shall give the position of the Bimbo while it enters into a new market; Ethics, Social and Sustainability dimension Bimbo has always been a promoter of Corporate Social Responsibility since its establishment. It has been indicated that even when the company was small they always looked after the wellbeing of its employees and the stakeholders (Rangan & Cuellar, 2009). They were operating with “enlightened” self-interest having a “visionary” leadership in order to shape society and bring social and market change (Rangan et al., 2012). In this regard, they have established relationships with stakeholders through interactions, partnership and multi-organization alliances. It has helped them integrate their business objectives with the social goals and helped them lead the industry towards business excellence and remain profitable in the emerging markets. The company strives to carry out its business practices taking into consideration the corporate social responsibility using global growth strategy. With respect to CSR, there are few possible tradeoffs which may affect the company from expansion into a global market. However, it is important to state that the company has been successful in achieving its business goals while staying focused on CSR simultaneously. As CSR is used to reduce poverty and address the problems of the society Bimbo partnered with FinComun that provides financial services and loans to the people to open new shops. Bimbo took care of its employees and never fired any of them, and there were many social, environmental programs associated with CSR like Reforestation Mexico activities, degradable polyethylene wrapping, etc. (Rangan & Cuellar, 2009). While expansion globally, company needs to gather an understanding on the following ethical and social issues; Employment First and foremost, it is important that the company fulfills legal requirements in terms of wages of employees in order to have uniformity of 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 the employees need to stable, standardized and acceptable in all the overseas locations in order to expand successfully (Gonzalez-Perez & Leonard, 2013). Corruption While expanding, in order to remain ethical it is necessary that the company ensures that payments that are being done within the business are secured and are obtained legally and are free from any illegal practice. The company should restrain from taking payments as gifts and make decisions under any unethical practice as it violates the law and cannot promote CSR (Gonzalez-Perez & Leonard, 2013). Human Rights Bimbo supports basic human rights practices so while expansion the company needs to be certain that if they will be able to support the cause. Research indicates that a company may unknowingly engage in discrimination and might not recognize basic freedoms that may result in unethical practices. Thus, a market analysis and observing human rights practice is a must for the company in order to expand in global market (Gonzalez-Perez & Leonard, 2013). Pollution Most of the countries lack environmental legislation that supports elimination of pollution. Many companies discharge harmful substances that could be hazardous to the health. Thus, while expansion the company needs to be sure that they do not discharge harmful materials in the environment that could affect the general population (Gonzalez-Perez & Leonard, 2013). Social and Cultural Implications of Business In order to sustain CSR practices it is important to recognize social and cultural differences emerging in local and international markets. In this regard, a good starting point would be to take a look at CSR practices of new markets and analyze CSR in religious, social and ethnic grounds through their principles and legal framework. 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 Bimbo operate. Bimbo has always contributed towards giving back something to the society so the social cause of CSR addresses socio-economic needs of the country (Gonzalez-Perez & Leonard, 2013). During the expansion, business practice needs to identify the level of modernization required for the economic development of any country. For example in Latin American countries, there are more social and cultural problems existing in the country. These social problems are due to poverty, poor education and other housing and health issues so in these societies the discourse of effective corporate responsibility is required more. In the case when addressing these diverse problems becomes difficult then issues may be overlooked and not be prioritized thus affecting the implementation of effective CSR process. Moreover, there are different versions of CSR, which may either help any company instill unity or set them apart. It is important that the company is aware of the legal policies of the new country, have access to health care, education and have the means to reduce poverty. For United States, CSR maybe different because the company has to focus on labor relations, but there are security and language issues in Brazil so they would Bimbo be required to focus on these attributes (Tench & Sun, 2014). As an advocate of CSR, Bimbo is required to gain trust of the employees, as well as other stakeholders while remaining transparent and clear about their goals. As indicated by Tench (2014, p.32) as trust diminishes, people start asking for transparency. If people fail to see good quality of goods or services, they would stop relying on the company, so transparency in the form of assurance or support is required in order so that they establish a feeling of mutual trust. It shall in return give rise to ethical work practices (Tench & Sun, 2014). List of References Bartlett, C.A. & Ghoshal, S., 2002. Managing Across Borders: The Transnational Solution. Harvard: Harvard Business Press. Deresky, 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. Harward: 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. Rangan, K., Chase, L.A. & Karim, S., 2012. Why Every Company Needs. Harvard Business School. Rangan, K.V. & Cuellar, R.G., 2009. Grupo Bimbo: Growth 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