the Mabe; Learning to be a Multinational

the Mabe; Learning to be a Multinational Paper details: Give your review and recommendations after reading the "Mabe; Learning to be a Multinational" Case. Follow the case format. Minimum length - 2 single-spaced pages. S w 9B13M042 MABE: LEARNING TO BE A MULTINATIONAL Jose Luis Rivas and Luis Arciniega wrote this case solely to provide material for cl ass discussion. The authors do not intend t o illustrate either effective or ineffective handling of a manager ial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, stor age or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce material s, contact Ivey Publishing, Richard Ivey School of Bu siness Foundation, The Universi ty of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright © 2013, Richard Ivey School of Business Foundation Version: 2013-04-09 It was a sunny afternoon in March 2012, and Ramiro Perez, Mabe’s international vice-president, was wondering what to do about Mabe’s jo int venture (JV) in Russia. It ha d been the firm’s most difficult market entry in terms of return on time invested . The timing had certainly not helped, as the JV had occurred just before Lehman Brothers’ fall in the summer of 2008. Mabe had chosen Russia based on the premise that it was the “last frontier,” much like a Wild West gold-hunting opportunity in 19th century America. Backed by optimistic predictions of Russi a’s future, investment bankers and industry players contributed to fuelling this “wild frontier vision” of a vast territory boasting one of the world’s largest populations, a highly educated workforce, an unlimited supply of energy and natural resources, and a political regime favourable to business. It had all seem ed like a great idea — until the financial crises hit and the foundations of this last frontier started fa lling apart. Expanding Mabe to other Latin American countries and to Canada had been, to some extent, so natural and easy that Perez had a difficult time understanding how he could have done things differently when the company had entered Russia. Should Mabe have taken a more aggressive approach? Had Mabe become arrogant as a result of its past success? HISTORY Mabe was founded in 1946 by the Mabardi and Berrondo families. Although initially dedicated to building kitchen cabinets, in 1950, the company expande d to manufacture its first appliance, a stove. By 1968, the company had expanded its involvement in appliances and it began exporting fridges and stoves to Central America and the Caribbean. The first indus trial plant for manufacturing refrigerators was built in Queretaro, Mexico, in 1976, the same year the company began exporting to the United States. By 1980, Mabe was the market leader of stoves and refrigerato rs in Mexico. General Elec tric (GE) acquired 48 per cent of Mabe in a JV in 1987. As part of the JV deal, Mabe retained full management responsibility and would build gas stoves for the U.S. market, in ex change for receiving U.S. technology and technical advice. By virtue of this deal, GE had become Ma be’s main business partner and its largest customer. In 1989, Mabe acquired Easy, one of the industry’s ke y players, In 1990, Mabe opened a new stove plant spanning 1.5 million square feet in San Luis Potosi , Mexico. The production at this new plant would be mostly devoted to the U.S. market. Authorized for use only in the course International Business at Indiana University-Purdue University Indianapolis taught by Darrell Brown from Jan 13, 2014 to May 07, 2014. Use outside these parameters is a copyright violation. Page 2 9B13M042 In 1994, the company decided to embark on an ex pansion to Latin America, and Mabe’s mission was redefined to include the label “Leaders in Latin Am erica” with a focus in the Andean Pact countries — Venezuela, Colombia, Peru and Ecuador. Mabe ac quired appliances plants in Ecuador, Argentina and Colombia. In Venezuela, Mabe decided to compete using a GE plant and through a joint venture with Ceteco, a Dutch firm that already had a presence in the Latin American market . The purchased plant in Colombia was bought from Phillips. In Ecuador, Mabe est ablished a JV with the O rrantia family through their Durex brand. In Peru, a representati on office was opened to import appliances. In 1998, Mabe acquired the Spanish manufacturer Fa gor’s operations in Argentina. In 1999—2000 the U.S. Energy Department issued a regulation requiring energy consumption to be decreased by 30 per cent. When GE considered the investment required to sh ift its U.S. production plant, it decided instead to source from a new plant to be built in Celaya, Mexico . Thus, in 2000, a high-end refrigerator plant began its operations there. The output from this plan t would cover demand from both the domestic and international markets under the Mabe and GE brands . In 1994, a research and development (R&D) centre opened in the city of Queretaro, Mexico. The centr e’s main purpose was to decrease reliance on GE for R&D and to develop higher and more sophisticated technical skills to support GE’s technology team in its R&D and product development efforts. Another goal was the development of proprietary technology. Also in 2000, the San Luis Potosi plant was enlarg ed to accommodate the production of electric stoves for GE’s U.S. market. In 2002, Mabe entered Latin America’s main mark et through two acquisitions : Dako (GE’s operation in Brazil) and CCE appliances. By early 2003, more than a third of all gas and elect ric ranges and refrigerators sold in the United States had been manufactured in Mabe plants. Its side-by-side refrigerators could also be found in one of every four American homes. 1 In 2005, Mabe’s entered the only North American ma rket where it did not yet have a presence. Camco Canada was acquired, and with this acquisition, Mabe started exporting dishwashing machines and clothes dryers to the U.S. market. As part of Mabe’s internationaliza tion strategy, a brand portfolio was est ablished with the GE brand in the upper segment, Mabe in the middle and some regional br ands, such as Easy, Dako, Patrick and Durex, in the middle and lower segments. In 2008, Mabe acquired ATLAS Costa Rica, a manufactur er of refrigerators and stoves. That same year, two representation offices were opened: one in Ch ile and one in Russia. The main purpose of a representation office was to import appliances from ot her producing countries. In the case of Russia, because of the market’s importance and cultural dist ance, Mabe decided to open the representation office in a 50—50 deal with Spain’s Fagor. Due to the financial crisis, in 2008, GE consider ed selling its appliance business worldwide. Several bidders expressed interest, includi ng Mabe. In the end, however, GE’s board decided to keep the appliance business. In 2009, Mabe became Brazil’s second industry play er by acquiring Bosch’s Brazilian operations. With this acquisition, the Brazilian market also became Mabe’s number-two worldwide market, after the United States. The Mexican market at that time was approximately $650 million, 2 while the Brazilian 1 J. David Hunger, “U.S. Major Home Appliance Industry in 2002: Competition Becomes Gl obal,” in T. Wheelen and J. Hunger (eds.), Strategic Management and Business Poli cy, Prentice Hall, Upper Saddle River, NJ, 2003. 2 All currency amounts are expressed in U. S. dollars unless otherwise indicated. Authorized for use only in the course International Business at Indiana University-Purdue University Indianapolis taught by Darrell Brown from Jan 13, 2014 to May 07, 2014. Use outside these parameters is a copyright violation.