1: Latin America Case
Latin America Case —13—
The CountryManager Case: Latin America
AY PASAH, HEAD OF THE CONSUMER HEALTHCARE DIVISION of Allstar Brands, looked across
the table at her category and brand managers. She had a determined look. "Our sales in our
traditional markets of Western Europe, North America, and Australia are performing well. But
these markets are mature with lots of competition and aging, slow growing populations. On the other
hand, we've been too slow in developing our business in the newly emergent economies around the
world, such as the BRIC nations (Brazil, Russia, India and China). Our board believes, and I agree, that to
generate the kind of growth needed to drive our stock price, we need to develop a stronger market
presence in these types of countries. Our plans will be rolled out on a regional basis, with Latin America
and Asia being the first two regions to consider. What I need from you is an analysis of these regional
markets and a plan of entry. You need to tell me where we should be, when we should be there, and
how we will need to manage the business. I want us to be in at least one country in the region next year.
Each of you has been assigned one of these regions and I’ve provided you with some background
information to get you started."
Allstar Brands is a multi-national consumer products company that produces and sells ethical
(prescription) pharmaceuticals, OTC (over-the-counter or nonprescription) drugs, and consumer
products. It is an $8.9 billion firm that was formed in 1924 and competes with a variety of larger and
smaller firms, depending on the product market. It has a number of leading brands in various product
categories, including (in the OTC division) Allround, the leading liquid cold remedy in North America, and
Zemlef, a heartburn remedy soon to be converted from prescription to OTC status. The consumer
products division includes various types of packaged goods: hand and beauty soaps, laundry detergent,
shampoo, toothpaste, shaving cream, etc. Over the years, it has expanded its product category width
through internal new product development and acquisition of brands and companies around the globe.
The company had been historically organized into three divisions (Ethical Pharmaceuticals, Consumer
Products, and International), but recently reorganized into a global product management structure with
three major divisions (Ethical Drugs, Consumer Healthcare, and Consumer Products). A group of category
managers exists within each division. For example, the Consumer Healthcare division has an oral care
category manager, a vision care category manager, etc. Most major brands also have their own brand
manager who reports to the category manager. Under the new structure, each division is responsible for
its own international operations and, to some extent at least, can pick the products and categories to
pursue internationally. The country managers are responsible for the selection and marketing of
products in a particular country. Figure 1 illustrates this organizational structure.
—14— CountryManager Student Manual
Figure 1: Organizational Structure of Allstar Brands
World Toothpaste Market
Current world toothpaste sales total approximately $20 billion. The largest country market for
toothpaste is the United States, with $3.4 billion spent during the past year. A number of firms produce
and/or market toothpaste in the world market. Table 1 lists the five major producers of toothpaste for
the world market, including Allstar Brands. Not all global brands or global competitors will be
represented in every market, and some markets might include brands produced by local firms. These
local brands may have a minor or major share of the market, depending on the country.
Table 1: World Toothpaste Producers with Major Brands
(% of world market)
B & B Healthcare
Clean & White
Toothpaste is available in a number of sizes, delivery systems, textures (paste or gel), and formulations.
The basic toothpaste product is a paste or gel with flavoring and one or more active ingredients that
provide specific benefits to consumers. Research has identified four key consumer segments in markets
around the world based on benefits sought:
1) Economy: basic cavity protection at a low price
2) White: seeks whiter teeth
3) Healthy: tartar control and disease prevention for healthy teeth
4) Kids: seeks a good tasting product that appeals to children
Latin America Case —15—
Consumers purchase different formulations based on the benefits they seek and their purchasing ability.
The benefit segments also link to demographics. For example, families with children often focus on decay
prevention; young singles are typically more interested in whiteness; those in middle age are concerned
with tartar and gingivitis; and children find taste of the toothpaste to be a primary feature. Similarly, the
appeal of certain attributes may differ among consumer groups. For example, pump dispensers add
convenience and may be a novelty for children but are more expensive to produce than tubes. Also,
single people might prefer the convenience of smaller package sizes, whereas families may prefer a
larger package which is typically more economical on a cost per gram basis.
A general description of these variations in the United States market is listed below. Not all companies
produce all possible combinations.
Table 2: Toothpaste Packaging and Formulation Variations
Economy is a basic formulation for prevention of dental cavities.
White formulation contains hydrogen peroxide for whitening and
prevention of gingivitis.
Descriptions (Benefit /Ingredient)*
Healthy contains baking soda for tartar control.
Kids contains special flavorings to appeal to children.
*All formulations contain fluoride.
Latin America is a region of great potential. Its population of over 500 million is 50 percent larger than
that of the United States and Canada combined. The region has a history of having been politically
unstable and has had many weak economies characterized by low growth, high inflation, and a
reluctance to take tough economic actions to correct these problems. The dominant national language
across Mexico and Central and South America is Spanish, except for Brazil, where the primary language
is Portuguese. Some portions of the population in many South American countries speak one or more
native Indian languages.
Kay’s team scoured the Internet for additional sources of data and came across a site maintained by the
CIA. "Our tax dollars at work!" Kay exclaimed. Tables 3 and 4 (shown next) compare economic and social
characteristics of the home market and the scenario markets under consideration.
—16— CountryManager Student Manual
Table 3: Market Comparison on Economic Considerations*
**Purchasing Power Parity
*Source: CIA World Factbook 2014
Table 4: Market Comparison on Social Characteristics*
Pop. in 3
Safe Water /1000 births
*Source: CIA World Factbook 2014
A variety of trade enhancement actions have been struck in recent years. For example, Mexico was
signatory of the NAFTA agreement, along with the United States and Canada. This agreement reduces
trade barriers among the three countries and has encouraged a variety of companies to establish
production in Mexico to take advantage of low labor costs and fairly seamless access to the United States
and Canadian markets. The MERCOSUR agreement provides similar linkages among the South American
countries of Argentina, Brazil, Paraguay, and Uruguay, including association agreements (but not
membership) with Bolivia and Chile. The Andean Community links Bolivia, Colombia, Ecuador, and Peru.
Most recently, Mexico, Colombia, Peru and Chile formed the Pacific Alliance. Numerous bilateral
agreements also exist.
Latin America Case —17—
Toothpaste sales in the region have been growing in recent years. The trends by country are shown in
the table below. Amounts in the table are shown in dollars.
Table 5: Manufacturer Toothpaste Sales by Country Market, last six years (Millions of $)
Although the numbers in the table show the underlying change in demand, some fluctuations are caused
by changes in currency exchange rates. The relative value of different currencies affects many of the
decisions facing Kay's team, as well as the data used in their analysis. For accounting purposes at Allstar’s
corporate offices, revenues and costs are converted into dollars. Therefore, fluctuations in the exchange
rate will affect consolidated reports directly. However, pricing and spending budgets are set in local
currency, so Kay’s team must manage in the local culture and currency but remain aware of the effects
of exchange rates. Table 6 shows the current rate of exchange for each country in the region.
Table 6: Currency Exchange Rates
The Latin American markets have traditionally been served by local and regional companies, but global
competitors have already begun entering the region. The next table shows total manufacturer sales in
each country, with competitive market share:
—18— CountryManager Student Manual
Table 7: Competitive Market Shares (%)
Your job as the first country manager for the region is to determine which of the scenario countries
recommended by Kay's team is the most attractive for Allsmile. You are expected to build the Allsmile
business in one market and expand into two or more other regional markets. For each market that you
enter, you will need to determine Allsmile’s target market and positioning strategies, products to launch,
production location, channels of distribution, pricing, advertising, and promotion. As country manager,
you are responsible for the performance of your operations, including revenues, market share, and
profitability. Therefore, you must develop and implement strategies that are attractive to customers and
profitable for Allstar Brands.
Allsmile is a key asset of Allstar Brands. It is one of the company’s most recognized brands in the United
States. It is produced in the United States, Germany, and Australia for the North American, European,
and Australia / New Zealand markets, respectively. A large number of stock keeping units (SKUs) are
produced. There have been reformulations of the brand, but as of today, the product formulations are
essentially the same across all markets for a given SKU (although there are slight differences in packaging
and in the type and intensity of flavoring that are thought to reflect regional preferences).
Overall toothpaste market growth in the more mature markets such as the United States, Western
Europe, and Australia, is very slow, matching the slow growth of the population, so that increases in
sales of a brand are due to reductions in share of competitors. Much of the shift in market share in
toothpaste has resulted from aggressive product development and reformulation supported by
promotion to create interest in the brand. For example, product management has developed three line
extensions of the original Allsmile brand for the United States market: Allsmile Whitening, Allsmile Tarter
Control, and Allsmile Kids. These line extensions focus on particular benefit and demographic segments.
Management of Allstar Brands has made the decision that Latin American market entry is to be done
using the most popular existing SKU formulations. For each market entered, the country manager in
Latin America must decide which of the 21 available Allsmile SKUs to use in the chosen market. Next is
a summary of the current choices. Note that the pump delivery system is not available at startup, though
those and other SKUs may become available as the simulation progresses.
Latin America Case —19—
Table 8: Allsmile Available SKUs
original fluoride formula
fluoride plus hydrogen peroxide
fluoride plus abrasive material
fluoride plus special flavoring
The usual approach for market entry in the past has been to introduce just four SKUs and review early
performance before investing additional resources. Appropriate language packaging (depending on
country) is essential for consumer acceptance.
Goals and objectives will be set with your instructor at the beginning of the simulation. Your instructor
may also provide guidance as to regional rollout timelines. After initial entry into a regional market with
a limited number of SKUs, expansion in the region will likely proceed as follows:
After successful entry into one market, the country managers can expand their operations into
other countries in a similar fashion. The products can be the same as those marketed in the
initial country, or they may be entirely different SKUs.
Periodically, market penetration and growth rates for each country will be reviewed. Based
on achieving these goals, additional SKUs may be introduced in each market.
Toothpaste manufacturing and delivery is reasonably flexible. Product can be sourced from existing
facilities in the home country, or can be manufactured locally at a company-owned facility. Location of
manufacture has important implications for Allsmile’s overall costs as well as COGS. Three sources of
costs exist: manufacturing costs dependent on plant location and production volume; international
shipping costs (ISC) based on the location of the manufacturing plant and the served market; import
taxes and duties in certain cross-border situations.
The parent firm charges a transfer price for product that is purchased by the subsidiary. The total amount
(units x transfer price) appears as the cost of goods sold (COGS) in the subsidiary's income statement.
Estimates from the parent firm indicate that there is sufficient productive capacity in the existing plant
to meet potential demand in the new region. This may be a good short-term source of capacity, but unit
costs are likely to be higher, and when combined with tariff and shipping considerations, overall cost will
be significantly higher than a locally produced product. On the other hand, the existing plant offers
reliable productive capacity and a historically stable currency.
Table 9 shows some typical production costs associated with each size, delivery system, texture, and
formulation level of toothpaste when produced in the existing manufacturing plant. The base case is a
75-gram tube of fluoride toothpaste that costs approximately $0.50 to produce. These costs incorporate
labor, materials, and an allocation for manufacturing fixed costs.
—20— CountryManager Student Manual
Table 9: Approximate Home Region Manufacturing Costs by Component
25 gram (small)
SIZE 75 gram (medium)
150 gram (large)
Another approach is to produce the product locally. If you desire to produce locally, the corporation will
approve building a single plant in one of the scenario countries under consideration. Building a plant or
expanding its capacity are expected to take one year to complete and requires some one-time upfront
costs for design and construction. Plant and capacity costs are estimated at $1 million for each 1 million
units of capacity, and capacity can be increased by up to 100 million units per period. These costs are
depreciated over a 10-year period, resulting in annual charges of approximately $100,000 per million
units of annual production.
Unit manufacturing costs are expected to be lower with local production after achieving reasonable
volume. Table 10 shows the percentage reduction in COGS (unit costs) that can be expected when
products are manufactured in a regional plant. These cost savings over home production are based on
100 million units of cumulative production in the local plant.
Table 10 Decrease in Manufacturing Costs (based on initial 100 million units of production)
Approximate Unit Cost Reduction
(relative to Home Market)
In addition to lower base costs, experience effects in the new plant in the region are expected to result
in cost reductions of 6-10 percent with each doubling of cumulative production. While there are
experience effects in the home plant as well, due to the already large volumes produced there, the effect
is likely to be negligible when sourcing from the home country.
Finally, be aware of the effects of inflation and exchange rates on manufacturing cost. The two tend to
be related, and will depend on the economic conditions in each country. While future changes in inflation
and exchange rates cannot be foreseen, current instabilities in a country can be an indicator of future
Size (weight/volume), distance, and mode of shipment affect shipping costs. With regard to mode of
shipment, container ships embarking from Miami are used to ship products from the United States to
Latin American locations. Container shipments embarking from Cancun are used to ship products from
Mexico to South American markets. Within particular contiguous regions, trucks are used primarily to
ship products across borders and from ports to destinations. Table 11 provides per unit costs for shipping
toothpaste from various manufacturing locations, assuming the us ...
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