MARKETING STRATEGY

CASE: ZUCAMOR S.A: global Competition in Argentina

Submitted by:

MBA II sec- C

M.Ali Javaid Sarah Nadeem Ayesha Farzand Ali Abbasi Anum Altaf Waqar Bhutta

INTRODUCTION Zucamor S.A. engages in the production of container paper grades and corrugated packaging for products in various market segments, including Industry, Food, Beverage, Fruit and Vegetable. The company exports corrugated boxes to bordering countries, such as Chile, Uruguay and Bolivia. Zucamor S.A. was founded in 1951 and is based in Ranelagh, Argentina. Q1. Describe the evolution of Zucamor and its business strategy particularly after the opening of the Argentine economy in 1992-93. Ans: Zucamor was founded in 1951 by four friends .In 1990, the first generation owners and founders decided to retire simultaneously and make way for the next generation. In 1992, the company faced a transition of management where Gustavo Herrero assumed the responsibility of Managing Director. After taking over, Herrero enforced new rules of operations and management which were in compliance with the state laws endorsing himself as a responsible corporate citizen. He set in motion a program to improve quality, productivity and plant utilization. The business strategy of Zucamor can be explained comprehensively by breaking it down into different components. SCOPE Zucamor was the only overseas venture of Union Camp and was a fully integrated paper and container producer. As far as the business development strategy is concerned Zucamor was a producer of two main products with not much emphasis on product diversification namely paper and corrugated box containers. As far as market diversification is concerned, Zucamor is currently catering to industry, food, beverage, fruit and vegetable. The company exports corrugated boxes to bordering countries, such as Chile, Uruguay and Bolivia. GOALS AND OBJECTIVES The corporate goals and objectives translated into the objectives for the two areas of operations i.e paper and box manufacturing and involved the emphasis on value enhancement as well as competitive pricing for category 1,2 and category 3 customers respectively and plans to build on this dual strategy in the long run as well. As soon as Herrero became the MD he stressed on the need to be quality conscious, productivity improvement and effective plant utilization to gain full benefits from the efficient handling of manufacturing operations.

RESOURCE ALLOCATION The two major resources that a firm has are its financial and human resources and these should be allocated properly at the right place and right time in an organization. As far as Zucamor is concerned it allocates more of its financial resources to the paper operations as it is a capital intensive manufacturing and the human resources are more stressed upon in the corrugated boxes manufacturing as it is a labor intensive operation. Over the years, the proper handling of both the resources reaped benefits and profits for the organization as can be clearly seen from the exhibits 5A and 5B. The successful implementation of the resource allocation shows that Zucamor s paper production and box shipment volumes kept rising after 1992 and fell slightly in 1996 owing to paper prices crash but still remained far above the previous years. Zucamor has the largest sales force in the industry and are most experienced with good relationships with their customers and thus realize the need to tap into this unique strength. SOURCES OF COMPETITIVE ADVANTAGE The industry was facing competition from major players and was capitalizing on its value enhancement concept by focusing on qualitative quantitative and general attributes and that is why was able to have 15% share in the paper industry and 12% share in box industry by improving throughput and quality at the same time. Zucamor was able to improve productivity and improve quality and as a result receive ISO 9001 and improved profits after 1992 under the management of Herrero. Apart from this their major strength was the customer loyal base that they were able to satisfy because of the inventory breakdown costs that they used to bear along with the shipment costs and also by completely satisfying their customers by focusing on their order entirely. The best example of which is Avon. SOURCES OF SYNERGY As already mentioned the Zucamor understood that in order to be a quality producer they will have to collaborate with global players and as a result of that signed a contract with union camp. After that they were able to squeeze out all the costs in the plant and were eventually able to pass it on to customers in the form of value enhancement. Also the performance improved dramatically and gained new opportunities to serve the global market. The productivity improved and absenteeism reduced thereby resulting in an increase in quality.

Q.2 Trace the action that led to Zucamors association with U.S paper giant Union Camp. Ans: Zucamor knew that in order to grow in the newly liberalized market environment and to become a world-class manufacturer, it would have to seek partnerships with global players. Union Camp on the other hand was looking to strengthen the growing and profitable segment of its packaging group to new markets abroad. In fact a key strategic element was to build their international presence in Latin America and the Pacific Rim. Argentina was a potential country and the political environment had also become stable. Zucamor wanted to be associated with Union Camp because it was a leading manufacturer of paper and packaging products and was ranked amongst the top 200 US industrial firms. Zucamors association with Union Camp can be attributed to several factors:y The first reason was a matter of co-incidence and luck. Zucamor signed a letter of intent with a South African firm when it found out that Union Camp had already signed a letter of intent with another local firm. Fortunately Union Camps agreement with the other company started coming apart at the due diligence stage. On the other hand the South African company wasnt interested in Zucamors idea. This opened a new opportunity for Zucamor and Union Camp to go into an agreement as both parties was now relieved of the commitment they had made. y A second reason for Zucamors association with Union Camp was the successfull conversation and meeting between Norm and Herrero.Later when Herrero met Craig McClelland,the CEO of Union Camp,they found out that both of them had studied at Harvard together and had memories to share.This bond of friendship and relation is also one of the reasons for the association of Zucamor with Union Camp. y The third reason for the association of Union Camp and Zucamor is that the objectives and strategies of both firms were aligned and compatible with each other. Zucamor fulfilled Union Camps expectation regarding equity control and management of their investment. Union camp also offered the best ballpark figure for investment. The fact that Zucamor had a recycled paper mill was not an obstacle for Union Camp. Union Camp also agreed to make cash transaction. On the other hand, Union Camps objective to strengthen their packaging group through expansion to new markets abroad was accomplished through Zucamor in Argentina.

Q.3: What were some of the critical challenges faced by the companys new management? Ans: Following are some of the critical challenges faced by the companys new management. y There was a collapse of worldwide paper prices in 1996 which affects the Zucamors operating profits. The decline in its operating profits was also attributed to the aggressive foreign entry in Argentina. y Political and Economic Climate were also changing. President Carlos Menem lifted all the restrictive and investment barriers which makes the entry of foreign investors in the country easy. y Policy makers were also thinking about the recreation of market economy through the elimination of controls on prices, wages and interest rates etc, so Zucamor has to compete in the market and it has to sell its products on the prevailing market price. y y To survive in high rate of inflation is also a critical challenge for Companys mew management. Tax collection systems were also improved due to which companies have to pay taxes for surviving in industry due to which Zucamor has to pay high amount of taxes which reduces the profits of the company. y y Small domestic manufacturers are also challenging them in delivery speed. They are old technology and large numbers of sales force staff which resulted in increase in their overheads. y They have to pay heavy amount of their income in the form of debt payments.

Q.4 Explain the impact of globalization and market commoditization. Discuss actions to put value back in the business. Because of political unrest and economic turmoil The Argentina went through radical changes and reforms which had a humongous effect on their operations and the strategies they were following. Restrictive trade and investment barriers were lifted and there was a new era of open trade and economy. To gain from synergies of globalization argentine peso was linked to U>S dollar and a three pronged reform program was introduced for the economy which had the following components 1. State Reform 2. Recreation of market economy 3. Investment and trade liberalization

Because of these reforms the paper industry was also impacted and thereby the competition had increased among the domestic firms. As for zucamor, its biggest competitor was cartacor. The top six players served about 44% of the market. Intense competition faced by the top company Cartocor brought multiple challenges to Zucamor to compete successfully on two major fronts which were quality and costs After argentina s economic liberalization in 1990, however many local box plants were able to import virgin fibre kraft liner board from paper rich brazil and U.S for about the same price as Zucamor. Also it posed a challenge for the recycled paper industry resulting in intense competition from around the world. This resulted in commoditization of Zucamor s product as everyone was able to produce a product as good in terms of quality and cost as Zucamor. In order to add value to the business, Zucamor can take the following steps: 1. Improving box making lines, making them modern and efficient with good product development and design capabilities as cartocor 2. Focusing on Quality to retain customers 3. Building on their unique strength that is a strong sales force 4. Reducing their overheads to become cost leaders and acquire greater market share.