Aceitera General Deheza (AGD) Case Study Analysis

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Introduction

A strategy lies in the identification process of a business’ objectives and the laying down of a clear and feasible plan of accomplishing the set goals. As such, the strategies laid down by the management of a company are highly dependent on the achievements the stakeholders want. Aceitera General Deheza (AGD) is a company founded in 1948 by an Argentinian known as Adria´n Urquı´a. The goals of Adria´n Urquı´a were clear and he strived to keep them afloat through the application of various business strategies. At first, the company begun as a small oil factory specialising in the indigenous industry, but as time passed by, circumstance and opportunities forced various changes in the business. The aim of Adria´n was to set up shop in the countryside and specialise in oil production and supply. Thus, his goals were clear and he worked diligently to attain them through various strategies. The following brief will be an elaborate report detailing means that AGD used in its growth from its inception to its successful years in the 21st century. The scope of the details will range from the business models applied in AGD to the theories and concepts related to strategic management. To increase the depth of the information in the details, the brief will explore different literature sources to add on to the analysis (Twarowska & Kąkol, 2013). The brief will also contain a detailed proposal of an international expansion strategy and the focus will be on product-market combinations, which will include market entry strategies.

Key Business Models Used by AGD

During the inception of the company, Adria´n saw it fit to specialize in the production of oil and his model was the basic strategic management. Upon the creation of the company, Adria´n ventured into a strategy that encompassed identification of opportunities and explored them with a goal of maximizing the profits. He sought to have an increased volume of production with an aim of cutting costs. In turn, the reduced costs led to increased margins, which was among the initial goals of the company. A basic strategic management model of doing business entails coining of the objectives, formulating a feasible means of attaining the goals, projecting sales, increasing the production volume and monitoring the progress. Once everything is running, the management keeps close tabs on the areas to improve in order to achieve the set goals. In the case of AGD, the company’s goals included dominating the oil industry and with time, it resolved to increase its production volumes. To achieve an increased volume of production and balance the economies of scale, Adria´n indulged high-levelled technology. In turn, logistics was optimized and production was kept as high as possible. The increased use of technology led to high volume production in the company, which was essential in the increment of margins through reduced costs. All these endeavours occurred prior to the year 1968 when the company hit a hurdle that saw its closure, but was brought back to the market later. Several factors led to its downfall, but the main players were a global increase in oilseed prices and the company’s failure in establishing a business strategy that would stand several commercial tests (Hoeffler & Keller, 2003).

Aceitera General Deheza (AGD) Case Study Analysis

At first, AGD had to restructure and formulate a new strategy that would increase its chances of acquiring increased sales. The strategy was to coin a feasible strategy before the other companies in the same industry. The target was the retail market where AGD aimed at increasing supply by using brands. Bringing new brands in the market is a feasible strategy used by several companies, both new and old. It creates opportunities to penetrate the market in an influential way. Other benefits of introducing a new brand in the retail section of an industry include enhancing the product’s recognition in the market. Based on various logistics such as packaging and advertisement, companies target to increase the chances of selling as many products as possible. Brand loyalty is yet another target aimed at by several companies and it is achieved when the product meets the demands of many clients. The target is for clients to attain a product that they would like to be associated with in their homes and other places. At this point, marketing is the key to getting the products recognized by the targeted customers. Once the niche has been identified, the company should aim at looking for the best outlets for the products. For example, supermarkets and other huge companies on the retail level are quite a preferable point of dispensing the products (Aspara, Lamberg, Laukia & Tikkanen, 2010).

Prior to 1985, and after AGD had reopened and resumed operations, it had restructured the strategy. Firstly, it improved the technology in the production process and manufactured its products in a unique way. Sequentially, the company specialised in selling bulk products that were produced using state-of-the-art technology. The essence was to capture many customers from both local and international scopes. Consequently, by 1985, AGD was a 100% focusing on international clients through exports. By this period, the only business AGD was indulging in was bulk production, which targeted international clients only (Harnish, 2010).

Concepts in Strategic Management

The period ranging from 1985 and 1999 involved uncertain economic shifts in Argentina, which highly affected the companies’ operations. At that point, different companies had to adjust their functionalities. AGD was among the first companies to take a step in adjusting their ways of operating in Argentina. In turn, this gave the company an edge over others and was soon a leading exporter of edible oils in Argentina. To escape the uncertainty of the Argentinian economy, AGD beefed up its logistics chains. The aim was to achieve cost-effectiveness in its operations in the country and around the globe.

Being a company operating on an international level, AGD had to strengthen its logistics chains. Specialising in exporting edible oils by selling bulk products to various markets in the world requires strong and functional chains of supply. As such, AGD had to have an effective channel of supplying the bulk goods around the globe. There are several merits associated with strong logistics chains. Several factors are bound to affect the supply chains, especially for companies involved in exporting goods. In this case, AGD was highly involved in exporting edible oils, which means that it was highly affected by various factors. Risk and compliance are two great factors affecting exporting companies (Moen, Bolstad, Pedersen & Bakås, 2010). The risk of sending goods over several miles away is high because of the uncertainties that exist in the transit routes. For example, shipping can be delayed or the quality compromised during the transportation process (Wang, Walker & Redmond, 2007). Therefore, the companies have to formulate means to get their goods to the customers in good shape, which guarantees acceptance by the customers. The demand on an international level is high and quality has to be maintained for a company to achieve success in the market. As such, the companies involved in exporting goods need to mind their customers’ demands. Competition is high on the international platform and companies need to identify clients, comprehend their needs and satisfy them. As much as the global market is vast, it is required for companies to comply with the rules set to control the functionality of each international company. The cultural differences and varying market logistics can be the root of problems for companies striving to comply with the varying specifics. The bigger the market, the larger the variations and compliance requirements that companies need to follow. At the same time, they need to watch their moves to ensure that they do not compromise their quality and supply quantity.

As aforementioned, companies operating on a global scale do it with the help of different chains of supply. Therefore, the management has to establish a supply chain execution convergence strategy aimed at helping the company achieve its goals. Orchestrating and synchronizing the involved processes of delivering the goods from the production plants to the global clients. The basic processes involved include transportation and warehousing after production. All the processes are to be executed meticulously to maintain quality and quantity of all the goods produced. A company should also recognize the need to keep everything running as per the stakeholders’ expectations. Converging and operating all the supply chain logistics is essential in keeping the management in harmony with the market demands. Cost-effectiveness is essential in a company because several organisations aim at increasing revenues and margins. Controlling the entire organisation’s supply chain logistics offers the opportunity to avoid cases of unwanted costs and wastage (Cheng, 2011).

In 1995, AGD pointed out at an area of concern that aimed at revolutionising the management of the company. The company took the initiative to check into its governance structure with the aim of improving it. A company’s governance is the engine propelling it to success and it has to be adjusted accordingly to keep its plan afloat. The management is the main source of decisions made in a company. As such, the management has to be properly structured to handle the leadership role in the company in an essential way. The main functionality of the company’s management team is to delegate authority in the establishment. The management is formed with the aim of leading the company (Oh & Contractor, 2013. The leaders are expected to make crucial decisions aimed at steering the company to success. Therefore, the formation of the management team is crucial and is often composed of directors who are the pioneers of the company. On the contrary, the company have its founders as stakeholders and employee directors. Thus, the board of directors leads the company and makes every crucial decision pertaining to the functionality of all the sectors in the establishment.

Once a company has been formed and its objective established, it is the duty of the management to formulate feasible policies. Following the formulation of the policies, it is the management’s duty to work and control every individual in the company. Among the main agendas of management is to implement the policies accordingly and ensure that everyone in the company is working towards its goals. Managing employees through essential sectors in the organisation such as the human resource is the work of the management. Additionally, the management ensures accountability in the company for the essence of success. By the time Adriana died, in 1996, he had passed on valuable knowledge and management tips to his successors that continued to work for AGD in a positive way.

During the 1990s, AGD developed a feasible strategy in its business that led to its decreased costs in its operations. It adopted a plan by the name origination, which was highly concerned with the production process. AGD specialised solely in the production and retailing of edible oil on an international platform. Its main concern was acquiring the seeds, their transportation and crushing process. Prior to the changes in the strategy, AGD was dependent on intermediaries who supplied the company with the raw materials. The supply by intermediaries was a source of the problems associated with the closure of the company in 1968. Hence, in the 1990s, the directors were adamant to seek a change of the source of the edible oil seeds. To sustain the company’s demands, the management decided to extend its chain of supplies on the production side. It set up several grain collection stations and purchase points around Argentina. The aim was to acquire the raw material from the farmers instead of relying on the intermediaries. This strategy was a way of evading market price shifts since the company had plenty of supplies of the raw material (Hatum, 2011).

To enhance the logistics chain, AGD integrated a transport mode aimed at easing the transfer of both the raw material and products. The integration process involved indulging AGD into a partnership with other companies to take over more than 4000 kilometres of railway in Argentina. To add to its transport channel, AGD acquired a port meant to make supply easy. The enhanced transport system in the logistics chain of AGD opened up opportunities for other businesses. It helped AGD establish a purchase and export cereal business that saw its revenues escalate and network enhanced all over the world. In the course of increasing revenue and growing the company, AGD also established an Agro-product Department that dealt with agrochemicals and seeds. It was at that point that AGD started using another strategy in its operations, diversification.

AGD was a grown company by 1996 and it required a change in the structure because of the diversity it was experiencing. Prior to the change, the company’s directors were still the top managers. Business and support units were set up in the company to help in running the company. In this new structure, the company delegated responsibilities to everyone in the organisation. Managers within the lower levels of the business structure had more authority than prior times, which meant that directors were relieved of some duties. Restructuring a company is a huge step and it is meant to change the way things are done in the establishment. The normal way of executing duties in a company can distract the organisation and restrain it from exploring better options. However, when a company restructures its operations, it is bound to increase the chances of better performance in its industry. For example, giving lower level managers more power makes the decision making an easier process. As such, the decisions are made at a faster rate, which enhance operations because the support staff members need not wait for directive of the top managers.

In order to facilitate the restructuring process of AGD, a new human resource department was formed whose main job was to implement the changes. At first, it was not an easy process to accomplish, but as time passed, the new HRM managed to convince every manager in the company to adopt a new structure. In turn, this separated the board from direct management of the company and supervisors were scrapped from the system. The move intended to create a chance for the managers to interact with the subordinate members of the company. Following the death of the founder in 1996, the company had made tremendous structural changes. Separating the board from some of the company’s responsibilities gave the top most management the chance to divide the remaining duties. For example, one of the members was entrusted with the responsibility of overseeing the purchasing unit of the company. In turn, delegating major duties to the board members made operations easy to accomplish in the company. It is clear that AGD began its operations as a simple factory producing edible oil, but by 2001, it had undergone several transformations. By the year 2000, Argentina was facing an economic crisis that saw several companies suffer. However, AGD’s diversification in its operations gave it the tools to evade some of the detrimental effects of the economy degradation. For instance, specialising in the export business helped AGD evade tax retentions from the government for products sold in the local market in bulk (Vermeulen, 2001).

An International Expansion Strategy

Based on the AGD analysis, it is essential for a company to formulate a viable strategy. In the case of the intention to expand business and operations to the international grounds, a company needs to identify a feasible plan to follow. The following is a probable expansion strategy that can see to it that a company extends its operations from local to international markets. The initial step involves coming up with a rationale behind the expansion of an already existing business. Some of the targets a company can choose to attain through the expansion strategy include increasing both the revenue and margins. Overcoming competition from the industry is yet another reason why a company may decide to venture into the international arena.

An existing business already has on-going production strategies and their products are known. Once they decide to venture into the international market, they should have a clear marketing strategy. It is essential to have a feasible way of netting clients in addition to determining ways of meeting their demands. An international market is quite a difficult platform to operate on and companies venturing into it should have an entry strategy. Indeed, marketing is necessary for increasing the popularity of the products. At this point, the company decides to the strategy to use to acquire a market for its products. A company can market its products and provide an outlet for them through several channels. It all depends on the company’s management and the decisions they make.

Joint ventures are a channel through which a company can use to operate in the international market. Under this venture, the company enters a partnership with another establishment, preferably in another country. Once the two or more companies agree to work together, they often result to the formation of another company. Export and import are the main channels to get the goods from the main company to other countries. Therefore, it is necessary to acquire the most appropriate and risk free routes for exporting the goods. Strategic alliances can also open up a way for a company to venture into the international market. Coming up with the new products and extensively, marketing them is the next step the company needs to take. At this point, it establishes clear networks in the global market as a way of growing the product brands. Sustaining the products in the international market is the next step required of the company, which is done in several ways (Zheka, n.d). For instance, a company can choose to expand the existing brands by producing better ones that suit different regional customers. Therefore, it is conclusive that a company needs to identify a niche for its products, establish a feasible channel to use and a way of sustaining brands in the market.

References
  •  Twarowska, K. & Kąkol, M., 2013. International business strategy – reasons and forms of expansion into foreign markets [Online] (updated 21 Jun. 2013) Available at: <http://www.toknowpress.net/ISBN/978-961-6914-02-4/papers/ML13-349.pdf> [Accessed 28 Apr. 2014].
  • Harnish, V., 2010. 5 strategies for global expansion markets [Online] (updated 14 Jul. 2010) Available at: <http://money.cnn.com/2010/07/13/smallbusiness/strategies_global_expansion.fortune/> [Accessed 28 Apr. 2014].
  • Hoeffler, S. & Keller, K. L., 2003. The marketing advantages of strong brands [Online] (updated 20 Jan. 2010) Available at: <http://www.iseg.utl.pt/aula/cad1196/2003_Hoeffler_Keller_MktAdvantagesStrongBrands_JBM_10-6.pdf> [Accessed 28 Apr. 2014].
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