Grupo Bimbo continuous expansion with an ambition to become one of the five-largest bakers in the world, while the company’s performance in existing foreign markets should be improved so fore made profitable and keep company away from financial hazard due to acquiring losses and lack of substantial profit from foreign markets.
Almost 70% of Grupo Bimbo’s sales came from Mexico, where the company had built a 90% market share in the packaged bread segment, the business was very profitable and the company operated in growing market.
However, the investments in U.S. and Latin America, where markets were highly competitive, have not been profitable. According Grupo Bimbo’s global strategy – to become one of the five-largest bakers in the world – it had launched a series of strategic initiatives to make foreign operations successful. In March/April, it had purchased the Beijing Panrico Food Processing Center that had already established operations in China.
Sub-problems•Grupo Bimbo should adapt its distribution networks to each country’s differences (union’s pressure in U.S., inexperienced independent operators in Brazil, modifying China’s distribution structure to rely on bicycles). Because of nature of the products (fresh bread), Grupo Bimbo must service stores directly, on a daily basis. This places tremendous demands on the distribution network to guarantee uninterrupted, fresh product deliveries. The wide geographical spread of the business created by Bimbo’s rapid international expansion called for complicated logistical planning to keep the business functioning efficiently.
•Very different markets in Mexico, the United States, Latin America and China required distinct ways of operating activities and price setting standards. While 80% of Mexico sales still were through ‘mom and pop’ stores, allowing to control where, when, how and for what price products were sold, 80% of the sales in U.S. and 70% in Latin America transpire through large supermarkets. The power of supermarkets as a main chain of the product distribution in domestic Mexica`s, as well as Brazil and Argentina markets increases their bargaining power was very high. The company should find the best practices how to customize the relationships with these large chains in newly established market in China.
•Differences in cultures and in markets among multinational Bimbo divisions. One of them is a cultural difference in human resource management in South America- “even basic phrases such as -I’ll do it right way- in Spanish needed to be adjusted based on individual countries”. Even in Latin America countries in addition to the language differences there are differences in their consumption of manufactured-produced bread- “Artisanal bread is king, with neighborhood bakeries making baguettes and French bread”. In U.S. very important difference in bread consumption is based on popularity the fad and low- carbohydrates diets. Grupo Bimbo should adapt its product assortment to these differences through new products launches, favorable and efficient sales mix and strong volumes.
“In Mexico, our company has been very successful, and success typically leads to rigidity and makes it difficult to see changes in the environment. We should reflect on our current situation while keeping everything open for change.”Three Dimensions of Distance:Three Dimensions of Distance according Bimbo’s operations in Chinese market:•Cultural Distance – The Chinese language is a very important issue what should be taken into account. The different local needs and tastes of Chinese’s customers.
Grupo Bimbo should develop products for local tastes. Bimbo has very successful product position- tortillas, which is not chosen by Chinese experts for Chinese markets. Grupo Bimbo saw promise in the Chinese market for ongoing expansion of its packaged breads, buns, croissants, and sweet rolls, using store promotion and university and school road shows. The way of doing business – focus on achieving trust with people, including how you can be trusted by them. However, the two years studies of China in the pre-acquisition research phase was done by hired team of Chinese immigrants living in Mexico, but not local Chinese residents. It could result in the wrong understanding off Chinese market.
•Geographic Distance – China is geographically far from Mexico, what could influence such business sides: control and strategic business development. Different infrastructure approaches, for example employees in China were riding bicycles to transport the products and manage the shelf space, for example, in the America products were transported by trucks. Speaking about the size of the market – The Grupo Bimbo overestimated the size of the market, as says in the case, the large proximate market the company could serve. The size doesn’t’ guarantee the prognoses sales.
•Economic Distance – diverse work organization approaches. Human resources side, the 775 employees acquired with the purchase of Beijing Panrico, their different work style. Bimbo successes in improving the manufacturing productivity – they made the operational upgrades in standards. Economic Distances: Chinese Bimbo Company served a regional area of 40 million people, its 186 routes were linked by a combination of trucks and bicycles and all that is maintained by only 775 employees. It was able to access over 4000 points of sale, what was too small figure for the served population number. Grupo Bimbo should expand the distribution network and improve efficiencies. Previously the Chinese plant’s company had left the local employees “largely on their own”. Grupo Bimbo should improve productivity of the plant by operational changes.
If Grupo Bimbo would like to become a leader in Chinese market, the priority should be Cultural Distances. As the company acquired the plant in order to make the production process locally and already established changes in production process to make it more efficient- that’s mean The Grupo Bimbo goes for Multi-domestic strategy (low costs, high localization).
As we see from the Exhibit 7, the Panrico Group, bought by Grupo Bimbo, market share was only 0,1%. But in the same time the artisanal bread has 53,8% of market share. Such a high figure shows us that Chinese do not like the industrial- manufacturing bread. It is similar to people preference in South America.
To realize this strategy successfully, it has to set the priority for dealing with cultural differences due to it is most important as it served the bases for choosing the right products based on the Chinese consumer demands and tastes, as well as language barriers according local employees and suppliers.
harward business school. by jordan siegel march 23 2007