Is the manufacturer really a leader in South America?

Argentinian toy manufacturer
New answer on May 05, 2020
2 Answers
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Piotr
Premium
asked on May 03, 2020

At the beginning of the case, the description indicates that our customer is a market leader in South America. At the same time, we know that only 10% of international sales are sold in the markets different than the USA. Combining 50% market share in the country whose population is responsible for ~10% of the overall population of South America, indicates really intense fragmentation of the market. Shouldn't we also investigate the South American market, in order to grasp a chunk of it, due to such a vast fragmentation?

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Ian
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Content Creator
replied on May 04, 2020
BCG | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi Prior,

While it's not a bad thought, and may be something you bring up in Next Steps, don't forget the following reasons why you should not press for this during the case:

1) This is not the focus of the case - We're provided with a breakdown of products. So, go with that! We need to use the information that the client has, rather then spend a lot of time getting information we don't have (this applies to real life as well). There will always be unexplroed areas in a case (you have 30 minutes for a massive topic)...but you need to go where we have information

2) We are limited by our production capacity - We can't produce more! We're at full capacity. So, we don't really have the ability to play around a lot...i.e. find what we produce the best and where we currently sell it best, and optimise!

3) Our goal is (mostly) profit margins - This is something to clarify (i.e. how would we like to tradeoff margins w/ market share where needed), but, generally, a business would like to improve margins (i.e. profit) first. So, again, let's optimise for where we know we make the best margins

4) The S American market isn't good (for two reasons)-

a)Price competition - You say there's intense fragmentation. Isn't that a bad thing for margins? In economics, this is called monopolistic competition, and almost always indicates price competition. This means bad margins.

b) Trade isn't that great between S. American countries - Tarrifs, non-porous borders (have you ever flown between S. American countries? Flights are often more expensive than flying to the US), tough geography (mountains, jungles), poor infrastructure, and a low-income population, all mean we'd probably rather throw our goods on a ship (pretty cheap) and transport it to where people will pay more.

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Clara
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replied on May 05, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

It´s a good appreciation but honestly... is not really relevant. Not the focus of the case, so keep the eyes on the ball. Overload of info is also a embebbed test in the cases.

Cheers,

Clara

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Ian

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