Phase 1 - Bicker AG - Risk Takers Team

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Nana Akosua Owusu-Ansa's picture
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Slide 1

This is a presentation by the Group, Risk Takers, for the case of Bickers AG, who is looking to expand to the Latin American Markets.

 

Slide 2

For a large retailer, we anticipate that Bickers AG would have 5 major objectives and these are expansion into the new markets, cost optimization, management of supplier network, and delivery of unmatched customer experience, coupled with offering competitive pricing.

 

SLIDE 3

  • To make a decision regarding which market Bicker should enter, we decided to look at what their risk appetite was.
  • In order to do so, we analysed the political and B&E risks of the home market, the leading markets of Germany and the UK and the markets in which they had made significant investments in.
  • On comparing these with the seven countries in question we decided that Mexico, Brazil and Uruguay came closest to matching Bicker’s risk appetite.

 

SLIDE 4

  • From a macro perspective, Brazil and Mexico are highly populous nations while Uruguay is sparsely populated; which is an important factor for Bicker to consider
  • In terms of the current grocery retail market, Mexico is highly saturated.
  • The market in Brazil is dominated by three players, leaving room for another player to enter; similarly Uruguay has just two local grocery chains that dominate the market.

 

SLIDE 5

  • Through the CAGE Framework, we will be tackling just the Political and B&E risks for question one; however we will complete the framework by including the cultural and geographic risks in question three.
  • Starting off with the political advantages, both Mexico and Brazil have stable currencies; with Brazil further being a bottom outlier in terms of political violence. Uruguay on the other hand have shown strong and stable growth over 7 years with a low risk of electricity supply.
  • Going on to the B&E advantages, risk of employing workers is lower in all three countries while Mexico and Brazil are strong agrarian economies the scope of having an internal supply chain there is stronger.
  • Additionally, we looked at the Global Retail development Index developed by ATKearney and found that Uruguay is one of the most attractive developing markets for retail.
  • In the political disadvantages, a high crime rate was apparent in all three nations although Uruguay showed low levels of organized crime.
  • Furthermore, all three nations have high risks relating to their transport infrastructure; with electric supply being a high risk factor in Brazil and Mexico.
  • Finally, moving on to the B&E disadvantages the major issues with Mexico is that it has a saturated market and has stringent government regulations along with greater risks of high food prices.
  • Uruguay has a high inflation risk and has a disadvantage of not being a very large economy.
  • Brazil on the other hand has high risks relating to government regulation and custom procedures.

 

 

Slide 6

Having done a risk analysis in the risk room, it was essential that we perform a risk assessment to assess the relative importance of each risk to the organisation. A tool which came in handy was the TARA Model, which looks at the likelihood of occurrence of each risk and the impact that these risks would have on the achievement of Bicker’s goals.

The Risk Map as shown in the slide shows that risks such as Burden of Government Regulation are high enough to stifle achievement of the goals.

 

Slide 7

Subsequent to the risk assessment, we performed an alignment of these risks to the core objectives of Bickers AG. The objective of this exercise is to identify the areas that Bickers AG needs to focus on.

 

Slide 8

Having done these exercises, how do we mitigate these risks? The TARA Model recommends four main strategies, namely Transfer, Avoid, Reduce and Accept. In the case of Bickers AG, using an Avoid Strategy would mean reducing the risk to as low as reasonably possible.

The impact of all these strategies will be the reduction of risk levels to the current risk appetite of Bickers AG.

 

Slide 9

Zurich risk room does not answer all the questions about entering a new market definitively. These are the areas which we feel Bicker AG must consider before entering into new market. Mr. Pankaj Ghemawat talks about cultural factors in CAGE framework. Understanding consumer buyer behaviour which was one of the main factors why Tesco failed in USA and Walmart failed in Germany. Bicker AG needs to think of buyer behaviour of the consumers in Latin American Market. Festival seasons are specific in specific countries like carnival in Brazil etc. Bicker AG should think of changing their strategy during these seasons as there may be rise in sell of specific food products. Mr. Ghemawat also talks about geographical factors such as physical distance, time zone variation, climatic variation, and topography and country size. As explained in the gravity model of bilateral trade, size of the economy and distance matters during bilateral trade. Time zone variation can affect communication with the headquarters; country size can affect the transport and population distribution. Other than these factors Bicker AG should also think of break-even time in the business (Walmart took 15 years to breakeven in china). Zurich risk room does not cover specific value proposition scenarios in the business to give an example Aldi with low cost as the value proposition entered in Europe and Australian market and also Tesco failed in USA and China because of same value proposition as their competitors.

 

Slide 10

Going back to the Cage Framework, Mexico and Brazil have the advantage of a wide coastal line that can be used to facilitate shipments by sea.  Again, it is seen that Uruguay has a good global peace ranking index (only 8 places below Netherlands) as well as a high urbanization rate and a good climate. Additionally, Brazil has a history of having been colonized by the home market (Netherlands) thus a potential to have similar laws and regulations.

In terms of other factors which appear unfavourable, Mexico and Brazil appear to have rather low global peace indices of 138 and 91 respectively. In terms of transport infrastructure ranking, Mexico and Brazil rank high with respect to the home market. Due diligence needs to be done to re-assess all disadvantageous cultural and geographical differences.

 

Slide 11

In addition to the cultural factors already mentioned, Hofstede identified certain cultural factors peculiar to specific countries. These are national cultural factors that determine the way the people behave, their values and beliefs. These national cultural factors are bound to subsequently affect organisational culture.

Key amongst the cultural factors identified by Hofstede that should the considered by Bicker AG is Power distance, Individualism and Uncertainty Avoidance. As seen from the graphs, these factors show a vast difference between the existing and the selected new markets. Understanding these differences is crucial for the right management styles and decisions.

 

Slide 12

Considering the opportunity for Bicker AG in Asian market we have come up with following countries. As you can see for all of the mentioned countries business and economic risk level is within the risk appetite of the Bicker AG. For Singapore, Hong Kong and UAE market even political risks are also within the risk tolerance. 

Summary

Through our analysis we think that risk room provides most of the information to start business in new country for a company however there are some aspects like cultural and geographical factors etc. of which company needs to think of while entering into new market.

 

 

 

References: 

REFERENCES

Berfield, Susan; 2013. Where Walmart Isn’t: Four Countries the Retailer can’t conquer. Bloomberg Report. Available at: http://www.bloomberg.com/bw/articles/2013-10-10/where-walmart-isnt-four-countries-the-retailer-cant-conquer

Tuttle, Brad; 2013. Tale of Two Supermarkets: Why Fresh & Easy Flopped and Fairway Flies High. Time Magazine Report. Available at: http://business.time.com/2013/04/18/tale-of-two-supermarkets-why-fresh-easy-flopped-and-fairway-flies-high/

Global Competitiveness Report 2014-2015, Overall Transport Infrastructure Rankings. Compiled by The World Economic Forum. Available at: http://reports.weforum.org/global-competitiveness-report-2014-2015/rankings/

Corstjens, Marcel and Lal, Rajiv; 2012. Retail doesn’t cross borders: Here’s why and what to do about it. Harvard Business Review. Available at: https://hbr.org/2012/04/retail-doesnt-cross-borders-heres-why-and-what-to-do-about-it

Doing Business Rankings; 2015. Compiled by The World Bank. Available at: http://www.doingbusiness.org/rankings

Zurich Risk Room, Bicker AB Case Study. Available at: http://challenge.zrronline.com/scenario/1

Global Retail Development Index; 2014. ATKearney. Available at: http://www.atkearney.co.uk/documents/10192/4600212/Full+Steam+Ahead+for+Global+Retailers-+2014+Global+Retail+Development+In....pdf/6f55a59b-e855-4236-96cb-464c2ca01e91

http://geert-hofstede.com/

Country Report, 2014. Grocery Retailers in Mexico. Euromonitor International. Available at: http://www.euromonitor.com/grocery-retailers-in-mexico/report

Ghemawat, Pankaj; 2007. Redefining Global Strategy. Harvard Business School Publishing Corporation.

BRIC Spotlight; 2012. Retail Sector in Brazil. Available at: thomaswhite.com

Country Report, 2014. Grocery Retailers in Uruguay. Euromonitor International. Available at: http://www.euromonitor.com/retailing-in-uruguay/report