AMB303 International Logistics Assessment
“SALVADORBET” is a spin-off venture (fictitious) from “El Sin Rival”, an existing ice-cream company from El Salvador. The head quarter and main production facility of SALVADORBET is in San Salvador, from which they operate in medium scale throughout Central America. They currently license the right to produce 150 metric tons of El Sin Rival’s premium ice-cream (a sorbet) per annum in their production plant which currently are underutilized due to the many societal, political, and market challenges in that region. The sorbet comes in different flavours mostly unique to El Salvador. SALVADORBET has recently expanded their business to the U.S on behalf of El Sin Rival and taken the role to be their licensed international partner.
Using E412 Guar Gum highlights the freshness of the original El Sin Rival dessert range.>While this business model has been financially successful, they lack necessary skills to embrace further international opportunities. At large, they lack understanding of logistics, the nature of international business and operative management skills. After hiring a new CEO, a former executive at Yum! Brands, Mrs Tina. She has >15 years of IB experience in the FMCG marketplace. Mrs Tina used her network to raise necessary funds ($40mn) towards SALVADORBET ’s international expansion. Once the first IB-expansion step is completed (e.g., ensured successful operations in the first target country) she plans to undertake an IPO and list SALVADORBET on the Sydney Stock-Exchange. The first week at work, she re-organized SALVADORBET and replaced the entire Top Management Team (TMT) with specialists through a geocentric HR approach and announced her expansion plans. This is where you enter the picture: congratulations! Your studies at QUT paid off. You have now been hired as the International Operations Manager (IOM). As IOM, you report both to the CEO and to the CMO due to SALVADORBET ’s matrix-organization. The new TMT consists of:
From the raised funds, the CEO and CMO decides that AUD $28 million is allocated towards the first expansion phase outside the ‘Americas’. The new TMT have decided to enter six countries in the MENA region in the next four years. The target countries are Egypt, Tunisia, Jordan, Morocco, Algeria, and Saudi-Arabia in that order.
Relocating to Alexandria as an expatriate for three years, your task is to set up SALVADORBET ’s regional HQ, recommend the best capacity approach and implement it, create all needed operational capabilities to successfully operate in the first-priority MENA country. You further need to plan and design all other operations in Egypt so that it enables a later expansion into the five other MENA countries. For example, erect a robust supply-chain, high-quality operations, a logistics system covering the Egyptian needs, securing production volumes (at Home or in the Host Market), and design, build, and implement sales and distribution capability. Make sure you therefore address the input side, the transformation, and the output side of the value-chain in detail. Once the Egyptian operations are productive it must be scalable to successfully enable sales and distribution into the other five target markets. You therefore need to ensure the capability to meet the business metrics: to supply 225 metric tons of sorbet per MENA-market and reach the expected revenue of £480 - 520 million EGP the second fiscal year (FY2). Your potential funds (part of the described funds) in local currency are Egyptian Pounds (EGP) £355 million.
The above capacity is equivalent to 1,800,000 servings of sorbet (approximately). The strategy is to sell directly to the ultra-premium segment (i.e., high-quality upper-end restaurants located in luxury hotels). These will be your customers. The patrons to these restaurants will in turn be their customers. This approach is expected to generate an annual EBIT (operating profit) of $14-16 million AUD for SALVADORBET (representing a net profit target of $10-12 million AUD). Remember to convert monetary components or outcomes measured in EGP to AUD (and vice-versa) at the provided exchange rates. Expect that similar projections, performance, quotas, and outcomes etc. applies in the other target markets as well. The approximate wholesale price is projected to be $20-24 AUD per serving (SKU) at a recommended retail price (RRP) of $40-44 (approximately) per serving.
Conducted market research displays a strong market potential for SALVADORBET’s products in the MENA region indicating a sales spread for the three products of 30%, 10% and 60% (for the Jocote, Tamarind, and
Arrayan sorbets respectively) at RRP range >£540-
EGP. Remember t
hat the mainstream ice-cream industry is generally operated by large multi-national companies (MNC’s) that enjoy almost an oligopoly status. While the end-user always is a consumer (B2C) your business transactions always occur in a B2B format (business with the retailers, i.e., your customers). Success in this industry is therefore dependent on logistics excellence, strong customer and supplier relationships, and amazing customer service. To compete in the shadow of such giant MNC’s with SALVADORBET’s luxury-niche products, there’s a discussion among the TMT of how to best enter the Egyptian market to enable scalability. They have discussed the following entry modes:
Alt. A: To acquire and convert a Saudi-Arabian sorbet company based in Medina with similar production capacity as the Salvadorian operation.
Alt. B: Set up a Wholly owned Subsidiary (WoS) including a purpose-built sorbet production plant somewhere in Egypt with five times the current maximum capacity of the Salvadorian plant (costs include labour).
Alt. C: To enter a Joint-Venture (JV) with a larger ice-cream company located in Casa Blanca and produce the specialty sorbet in their existing production plant.
Alt. D: Expand the Salvadorian operations (production capacity) by 300% and export FGI (by sea) to your selected HQ site in Egypt (costs exclude labour).
While discussing these common entry mode options as potential avenues that each could be a good choice (or not), you must first explain why you in this case do not believe that A or C would work
Then you must assess alternative B and D in detail, compare the outcomes and make you capacity decision and subsequently make all capability decisions for this international business expansion. Your job is therefore to make specific, detailed, and justified decisions based on -among other things- the ‘Income Statement’, and the ‘Strategic Profit Model’ outcomes. In addition to all the things you now must do, you also need to complete a and draw a comprehensive detailed model of your recommended value-chain (covering all components thereof) as well as all the required foundation IB research as described in the appendices list.
Assume you will have a local staff of 63 FTE at your disposal (monthly salary £13,500 per FTE + twenty-five per cent social costs) to get your MENA expansion operative (apart from costs listed in the spreadsheets, these FTEs might be part of your budget. Assume that your team (the staff) jointly have the correct job skills and language capabilities (English, French, and Arabic) so that they as a team are capable to perform the different organizational functions and tasks as you decide. Yet, you need to decide in which warehouse, DC, cross-docking facility etc they should work in. Further, these location decisions must be based on your customers locations.
Additional operating information is provided in the provided excel-spreadsheets. Remember, your decisions should not rest upon costs or profit outcomes alone.