Nov 22, 2018 in Analysis

Executive Summary

This report covers the business strategy and the social responsibility of Mexico’s largest baking companies Grupo Bimbo which is going to become world’s largest food company as well as the enterprise which offers the best products and service to its customers worldwide. The dilemma of whether to choose the domination on the domestic market or an international expansion is the main issue, which will be observed in this paper. In general, the entire report is a recommendation for the company about the future expansion and growth basing on the data presented in the articles by Kasturi Rangan, Garcia-Cuellar and Jordan Siegel from Harvard Business School. In addition, the graphs and charts are included to show the company’s performance in some areas.

Introduction

Grupo Bimbo is a Mexico based company specializing in baking. Being founded in the beginning of the 20th century the company grew from a small bakery to a large family owned enterprise with a broad range of 5000 different products as well as many brands belonging to the business enterprise handled by Servitje family. The main issue of the Grupo Bimbo for today is joining the international market beyond both American continents and retaining its dominance in the domestic market and nearby states such as USA and Brazil. One of the most attractive but quite complicated markets where Bimbo is going to start its business is China: hundreds millions of potential consumers on the one hand and strong governmental control on the other hand. The same dilemma is with the other possible markets, since cultural diversity and tastes of people around the world play a very important role. In addition, the outstanding treatment toward the company’s employees and the social responsibility programs must be also modified in order to suit the foreign countries with their mentality and traditions. This paper covers all these issues and offers recommendations for the company: to expand the foreign market or develop their activities in the other places and operate in already familiar states.

Problem Definition & Analysis

In the article by Kasturi-Rangan and Garcia-Cuellar it is easy to see that Grupo Bimbo is one of the most successful baking companies in both Latin and North America, which expanded the range of their products from the ordinary bread, buns and cakes to candies and numerous variants of salty snacks. Moreover, the popularity of food and snacks produced by Bimbo is so great that the only companies that can outdistance Bimbo are the world leaders of food and snack industry such as the Coca-Cola Corp. and PepsiCo. The most incredible detail is that the two companies mentioned are global leaders operating much more years than Bimbo and are obviously better known abroad than the Mexican baking enterprise, but even despite this fact Bimbo became a very serious competitor for those business “dinosaurs” of the global level. Today, the company offers more than 5000 different items under its brands, which gained the enormous popularity in the domestic market as well as the nearby countries. In addition, Grupo Bimbo gained its popularity not only due to their high quality products and outstanding services, but also for their superior social responsibility programs. Such programs include building schools for workers’ children, saving forests in the home country, Mexico, providing free courses for the company’s employees (such as English language proficiency classes and Business classes) and even making enormous contribution to the improvement and development of Mexican medical infrastructure, which thanks to Bimbo went far ahead. All the efforts made by the company’s founders and owners, Servitje family, require massive financial inputs, and the problem here is that Bimbo has a very special policy connected with its employees, social responsibility and budget management. According to the words of the company’s current chief Daniel Servitje even in the hardest times the company avoided firing their employees and cutting the CSR budget. The last peculiarity makes Grupo Bimbo one of the most incredible companies, which makes almost impossible things: it is difficult to name at least one more company which saved its positions in hard periods without firing any employees and refusing to make the CSR budget less.

The data from the Grupo Bimbo annual report (2013) shows that the company’s capital investment reached the mark of $543 million, while operating income increased by 42 per cent comparing to the previous period. The net sales grew by 1.7 per cent comparing to the year 2012 to 176,041 million pesos, which clearly shows the firm organic growth of the local currencies around all the regions where the company operates. As for 2012 Bimbo operates 144 factories in 19 countries. As it is not hard to see Grupo Bimbo is a firmly standing successful business entity, which has great chances for further success, and the table from the Bimbo’s annual report showing the increase in net profit between the years 2012 and 2013 in Figure 1 clearly shows it.

Fig. 1 Grupo Bimbo net income in 2012 - 2013

Net Income

2012

2013

% Change

 

2,431

4,778

96,5

Net Majority Income

2012

2013

 

 

2,028

4,404

>100

Earnings per share

0.43

0.94

>100

Total Assets

137.140

134.727

-1.8%

Total Liabilities

90.082

86.944

-3.5%

Shareholders’ Equity

47.058

47.783

1.5%

Total Debt/EBITDA

3.0X

2.3X

-

Net Debt/Stockholders’ equity

0.80

0.79

-

Return on Assets (ROA)

1.5%

3.3%

-

Return on Equity (ROE)

4.3%

9.2%

-

The current decision of the entity’s board of directors to penetrate the market beyond America and even to join China is rather brave one but on the other hand, it is rather risky. If Europeans have similar tastes in bread and baked products, the Asians like absolutely other sort of bread and are not used to the “western standard bread.” The article “Baking Bread in China….” (2010) proves that. According to this article Chinese people do not eat the bread which we got used to eat every day, since baking is absolutely not typical for a Chinese cuisine and as a result the proper ovens in most households and food industry plants are missing. Chinese people other way round prefer the bread made of rice flour and steamed bread such as traditional Chinese mantou, youtiao, and wotou described in the article “Steamed Bread in China”. The technology of making such bread, which is tremendously different from baking the traditional wheat bread, is not the only issue the company will have to face with in China. The article “Bread-Sandwich Bread” one more confirmation of the fact that the bread made by western standards is not enjoyed in China: the popular toast bread, which many Americans and Europeans use for sandwiches and toasts, is extremely hard to find in China. Moreover, it has a special name there since Chinese people do not consider it to be a hundred per cent bread.Such is the difference between the western and traditional Chinese baking. Certainly, it is not hard to learn the technology of making a new product, but the current policies of the Chinese government towards the foreign businesses are the biggest problem. Simpson in his article (2010) shows that after the three decades of the “warm welcome” made by Chinese government, the attitude towards the foreign business moguls became much worse. For instance, instead of VIP status given to the foreign companies in past today’s treatment towards the companies from abroad changed with countless limitations, restrictions, and even the imprisonment of the working staff of a foreign company. It happened with the employees of the Chinese section of the Rio Tinto company and the decision to pull out Google corporation away from China due to issues connected with censorship standards of the communist party of the PRC, which rules the country for more than 80 years. Such environment is not business-friendly since such policies and restrictions leave almost no chances for successful start in China. It is not necessary to be a business expert to understand that even a large number of potential consumers are not worth to start business right now: the current political situation and the current laws which are present in China are not favorable enough to start business at the moment. The board of directors at Grupo Bimbo ought, at least, to wait with the decision to start running business in China until the better times or to leave this idea, since other way round the probability of the loss of great sums of money is very high. Otherwise, it would be a very good decision to expand the Bimbo’s activities on the rest of Europe, and the biggest success for Mexican baking company is expected in the Great Britain. To confirm those words, it is enough to look through several articles about the bread in Great Britain such as the one by Haegen. It proves that this country not only makes awful bread but also has a strong deficit in baked products of a good quality . In addition, the British government treats much friendlier to the business entities from abroad, which makes the operation in this country much more calm and comfortable, which in its turn will influence the business success only favorably. Moreover, taking into account the fact that Britain has almost no high quality baking products, Bimbo will quickly become not only beloved brand among the local inhabitants but has all chances to quickly become a dominating baking company on the British isles. This factor is extremely strong argument for joining the market of the Great Britain.

 
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The situation in the other European countries is also quite positive and promises a comfortable and successful operation. Moreover, in some details baking bread, cakes, buns and other stuff of such sort is much less problematic in the European Union at least due to the reason that Europeans are not as preoccupied with the problem of the presence of gluten in the products as Americans. The reason of such trend, according to Heinemann, is that Europeans are not anxious about gluten, which causes almost a panic among Americans, who have a kind of fear of gluten as a reason of digestive distress and other stomach diseases. In general, Europeans have almost no gluten intolerance as well as the anxiety about other ingredients, which usually made American companies to spend large sums of money in order to find a safe substitute of some components which people refuse to consume due to some anxiety or ethical, religious, and others reasons. It is unwise to forget about the fact that the company still wishes to run its charity and social responsibility products, which undoubtedly became the reason of even wider public appreciation than the company could achieve by only baking bread and making candies and snacks of a high quality. Moreover, Europe offers the opportunities to start even more new social responsibility programs which thanks to many similarities between the American and European business standards (anyway, the difference is not so dramatic as between the American and Asian or Arab business traditions and mentality, since both Europe and America belong to Western world). All these factors show that Grupo Bimbo ought to bet on the European market, which although has not so many consumers (the population of China is much more than the population of Europe). However, on the other hand, it is much more business friendly.

Recommendations

The recommendations for Grupo Bimbo will be to bet on the European Market as the easiest one for the expansion and to freeze the plans on entering the Chinese market until better times or probably to leave this idea. The reasons of such recommendations are the next:

1. Due to extremely strict policies towards the foreign business entities and political course of the Chinese government entering the market of PRC is too risky and has rather poor chances for success;

2. The dramatic difference in culture between Western and Asian civilizations will require enormous resources to adapt the factories and the range of products for a Chinese market. In its turn, it will threaten the social responsibility programs and even the stability on the domestic market, since such strategy will take away too much money and efforts from those important elements of the company’s operation;

3. Otherwise, the similarities existing between Europeans and Americans and comparatively similar tastes and mentality will require much less resources to establish new plants in Europe. At the same time, it will help to gain success and reputation much faster.

4. In addition, the absence of the anxiety towards many ingredients in the baking products in Europe will make the production much easier and less costly, which in its turn will save a lot of time for making necessary documents such as licenses and certificates.

5. Finally, due to benefits of European market comparing to Chinese or other Asian markets there will be no threat for the social responsibility programs, which play such an important role in the life of Grupo Bimbo.

6. Lastly, it is easy to see that the risk of joining the European market is minimal due to similar tastes in baking products of Europeans comparing to Americans, which is quite positive for the development of business and gaining new customers.

Looking through everything mentioned, one can conclude that Grupo Bimbo ought to change its course if it wishes to both expand abroad and to save all its socially oriented programs as well as to stay being dominating company at the domestic market. The choice of European market will help to achieve two goals at once: to expand abroad and to stay on the position of the leading domestic baking and snack manufacturer. Although the wish to join the Chinese market is much braver and it promises enormous profits due to huge population, but the and risk and is so high that it makes all those possible benefits to be not worthwhile, especially taking into account rather serious issues which are absolutely unavoidable such as difference in preferences. The best option is choosing the European market, which having much less possible profit offers much more tolerant standards and a very small risk together with superior perspectives thanks to a large number of commonalities in tastes of Europeans and Americans. Judging by the mentioned factors, the outcome is quite predictable and is quite positive for the company.

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