An Argentinian toy manufacturer has 50% market share in Argentina and is the market leader in South America. However, its international market share is only 5%.
Their CEO wants you to brainstorm and structure potential ideas to increase the company’s profit margins and market share. The CEO also wants you to think about exploiting new revenue sources.
Since this is a candidate-led case, the candidate should drive the case from start to finish.
This case contains a business situation (new markets, production capacity, distribution channels) and calculation tasks (profit margin of products).
The information given allows the interviewer to challenge the interviewee with other questions that are not mentioned here.
Since the case is quite broad, the interviewee may arrive at a different recommendation. This is fine as long as the recommendation makes sense and the interviewee laid out a structure at the beginning of the case that was then followed.
Short Solution (Expand) (Collapse)
There are NO significant competitors in the region. However, imports could provide some competition. The interviewee should ask about the company’s product portfolio:
There are NO significant competitors in the region. However, imports could provide some competition.
The interviewee should ask about the company’s product portfolio:
The interviewee should ask about the percentage of products sold in local and international markets.
(The interviewee should realize that different average prices indicate that different market segments have different price points.)
After the interviewee has calculated the profit margin for each product, share Table 4 (profit margins).
Profit margin formula:
Profit margin Product 1 (sold locally):
Product 1 & 3 are more profitable locally. Product 2 is more profitable internationally.
The discussion should not take long as it is NOT the focus of this case.
- Factories are operating at full capacity.
- Production lines cannot be easily altered to produce different products. It will cost a lot to alter production lines.
- The only local distribution channels are specialized toyshops that our client owns. Products sold internationally are sold to big importers.
- 90% of international sales are to the U.S. market.
The factories are running at full capacity. Without significant investment, factories cannot easily change the production mix.
After calculating profit margins, we know that Products 1 & 3 are more profitable locally while Product 2 is more profitable internationally.
In order to maintain their leading position in the Argentinian market, the client could consider reducing its price to compete with Indian, Chinese and U.S. imports. Although this would reduce profit margins, the client’s market size could increase, thus increasing the client’s overall profitability.
The client should also consider partnering with Argentinian clients to develop new products and to establish new distribution channels (e.g.: franchising, selling at supermarkets, selling online) to increase their client base.
The client should ask the local Argentinian government to help its exports become more successful.
Ways the Argentinian government could help our client:
- International commerce chambers
- Customs tax partnerships
The client should also consider acquiring companies in more promising markets (e.g.: China and India) because their main export market, the U.S., is shrinking.
What are the risks of going after the expanding Chinese and Indian markets?
- Lack of experience in market
- Cultural differences
- Strong local competition
- Investment costs
What is the company’s total revenue?
If the interviewee solves the case very quickly, you can come up with more challenging questions to ask them.