International Expansion

Case Study

Current
Scenario

Problem
Statement

Information
Required

Product:
Cooky Monster, a confectionary product
Brandbury's biggest product brand
Revenue share:
Contribution to Confectionary revenue:
50%
Contribution to total revenue: $0.4Bn
(20%_$20 Bn)
The product has high brand recall

Market:

Current market: US -Matured market

Characterised by low levels of growth
&stagnant sales levels

Company portfolio:

Business units:
1. Confectionary (40% revenue share)
2. Beverages
3. Dairy
4. Biscuits
Total Revenue: $20 Bn

Sourcing
Strategy

Expansion
Strategy

Procurement Costs:
Supply side costs for key items are rising
Cocoa from SA, Sugar from Brazil, and Peanuts
from Argentina

Manufacturing:
Currently only 1 plant in Ohio at full capacity
utilisation

Considerations for Expansion:

Parameters:
1. Sustainable Demand
2.High growth potential
Possible locations:
1. South America
2. Asia-Pacific
Operations-Capacity Expansion:
1. Expand current plant in Ohio
2. Other alternatives
(Purchase and modify or build new plant)

Current
Scenario

Problem
Statement

Information
Required

Sourcing
Strategy

This problem can be divided into

2 parts:

Expansion
Strategy

Information
Current
Problem
Scenario
Statement
For analysing
expansion optionsRequired
Capacity expansion costs for current plant; cost
of capital
Investment required for setting up of a new
plant
Local market size and competition in potential
locations
Cost of licencing, partnering, & acquisitions in
new market
Legal, trade, and business regulations for
probable locations
Economic, political, cultural, and business
environment in potential locations
For domestic profitability analyses
Sales data and demand characteristics for
Cooky Monster and its substitutes in the market
Freight costs, variable costs and unusual
expenses
Market conditions: competitor product
information, price sensitivity of such products

Sourcing
Strategy

Expansion
Strategy

For determining feasibility of alternative

sourcing strategies
Competitors supply data for supply
consolidation
Raw material price volatility data for price
hedging
Open booking of raw materials for cost
structure optimisation
Key cost drivers for raw materials
Raw material consumption data for demand
management
For determining sourcing locations
Sourcing information including procurement
costs, quantity, quality from existing locations
Past price, production, and quality trends for
each location
Export and customs regulations applicable in
each case
Government policies regarding the materials to
be sources

Current
Scenario

Problem
Statement

Information
Required

Sourcing
Strategy

Expansion
Strategy

Sugar Market
Cocoa Market
Major producers
Central America: Brazil and
Ecuador
o Within Latin America, only Peru and
Ecuador have sufficiently low labour
costs to support commercial
production
West Africa: Ghana, Nigeria and
Cote D'Ivore
o An ageing Labour force and land use
shift out of cacao have put pressure
on production and pricing of Cocoa
Aisa: Malaysia and Indonesia
o Here cocoa is a relatively new crop,
are becoming increasingly important
growing areas

Alternative

Major Producers
India, China, Thailand, U.S., &
Mexico
Important consideration:
Governments issues export
subsidies, minimum fair prices and
ethanol mandates to support the
local.
India: Due high input costs for sugar
millers, sugar prices in India are high
US & Europe: Sugar Substitute: The
sugar from beet or from cane is
99.95% identical and is cheaper to
produce.
Thailand & China: Due to the
positive effect of low freight costs on
sugar prices these sources can be
attractive if Brandbury expands in
sourcingAPAC
strategies for reducing

Peanuts Market
Major Producers
United States, Sudan, Senegal, &
Brazil
India : In case of APAC expansion it
might prove to be a good option due
to low freight costs
It is one of the world's largest
producer of peanuts but a high
portion is consumed
domestically
China:
It is one of the most rapidly
growing exporters of Peanuts
but Issues related to quality
have surface in the past

RM supply costs

Supply side price controlling mechanisms

Demand management

Better practices like adjusting for seasonality & other variations by demand pooling can reduce overall supply costs

Contract Based
Price Hedging
Cost Structure Optimisation

Deploy hedging strategies and instruments to determine desired price fluctuations risk exposure. Structure customer
contracts intelligently to enable timely pass-through of raw material price fluctuations and risks to your customers
Company's negotiating position can be boosted by achieving far greater transparency, RM cost structures should be
checked in tandem with existing strategic suppliers and potential new suppliers and compared against benchmarks

Competitive Bidding

This method forces suppliers to compete and consequently the purchaser will gain better "value for money"

Supply Consolidation

Consolidation within the industry is likely to provide more bargaining power to the purchasers

Current
Scenario

Problem
Statement

Information
Required

Sourcing
Strategy

Expansion
Strategy

Analysis using tools like PESTEL and CAGE to prioritize which countries to enter based on strategic complexity to be done

International expansion: Possible entry strategies

Type of Entry
Exporting
Licensing and
Franchising
Partnering and
Strategic Alliance
Acquisition

Advantages

Disadvantages

Fast entry, low risk

Shared costs reduce investment, reduced risk, seen as

local entity

Low control, low local knowledge, potential negative environmental impact

of transportation
Less control, licensee may become a competitor, legal and regulatory
environment (IP and contract law) must be sound
Higher cost than exporting, licensing, or franchising; integration problems
between two corporate cultures

Fast entry; known, established operations

High cost, integration issues with home office

Fast entry, low cost, low risk

Greenfield Venture Gain local market knowledge; insider who employs locals; High cost, high risk due to unknowns, slow entry due to setup time
(New subsidiary) max. control

Long term strategy for globalisation: Shifting from Phase 1 to Phase 3 as growth occurs
Dimension

Phase 1: Export Model

Market Reach The home market dominates sales; foreign

sales are made through representative offices
and third parties
Operations The company has a strong national supply chain
with international distribution

Phase 2: Regionalise Model

The company has an active presence in

several major markets outside the home
region, often with local partners
An increasing proportion of production
and supply is localised in new regions;
quality
systems are evolved
Procurement Commodities and manufacturing services are
The company actively sources in newly
procured from low-cost countries
targeted regions and partners with local
companies
Operating
The company uses a radial structure a
The company increases collaboration,
Model
dominant hub with multiple spokes representing both internally and with external

Phase 3: Originate Model

The company adapts its market approach for each
region, and may make long term structural
commitments to partnership
The company manages a global footprint and
uses total landed cost to determine sourcing,
production, and distribution locations
The company manages a global tiered partner
network
The company understands and leverages multiple
operating