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AGD Case Study Analysis

AGD Case Study Analysis

AGD Case Study Analysis. A strategy involves identifying a business’s objectives and laying down a clear and feasible plan for accomplishing the set goals. As such, the procedure laid down by a company’s management highly depends on the achievements the stakeholders want. Aceite General Deheza (AGD) is a company founded in 1948 by an Argentinian known as Adriaan Urquı´a. The goals of Adriaan Urquı´a were clear, and he strived to keep them afloat through the application of various business strategies. At first, the company began as a small oil factory specializing in the indigenous industry, but as time passed, circumstances and opportunities forced various changes in the business. Adriaan aimed to set up a shop in the countryside and specialize in oil production and supply. Thus, his goals were clear, and he worked diligently to attain them through various strategies. The following brief will be a detailed report detailing the means that AGD used in its growth from its inception to its successful years in the 21st century. The scope of the details will range from the business models applied in AGD to the theories and concepts related to strategic management. To increase the depth of the information in the details, the brief will explore different literature sources to add to the analysis (Twarowska & Kąkol, 2013). The brief will also contain a detailed proposal of an international expansion strategy, and the focus will be on product-market combinations, including market entry strategies.

AGD Case Study Analysis: Key Business Models Used by AGD

During the company’s inception, Adriaan saw it fit to specialize in oil production, and his model was essential for strategic management. Upon the company’s creation, Adriaan ventured into a strategy that identified opportunities and explored them to maximize profits. He sought to have an increased volume of production to cut costs. The reduced expenses improved margins, among the company’s initial goals. A primary strategic management model of doing business entails coining objectives, formulating a feasible means of attaining the goals, projecting sales, increasing the production volume, and monitoring the progress. Once everything is running, the management keeps close tabs on the areas to improve to achieve the set goals. In the case of AGD, the company’s plans included dominating the oil industry, and with time, it resolved to increase its production volumes. Adriaan indulged in high-level technology to achieve an increased production volume and balance the economies of scale. Logistics were optimized, and production was kept as high as possible. The increased use of technology led to high-volume production in the company, which was essential in growing margins through reduced costs. All these endeavors occurred before 1968, when the company hit a hurdle that saw its closure but was brought back to the market later. Several factors led to its downfall, but the main players were a global increase in oilseed prices and the company’s failure to establish a business strategy that would stand several commercial tests (Hoeffler & Keller, 2003).

At first, AGD had to restructure and formulate a new strategy to increase its chances of acquiring increased sales. The plan was to coin a feasible approach before the other companies in the same industry. The target was the retail market, where AGD aimed at increasing supply by using brands. Bringing new brands into the market is a feasible strategy used by several new and old companies. It creates opportunities to penetrate the market in a meaningful way. Other benefits of introducing a new brand in the retail section of the industry include enhancing the product’s recognition in the market. Based on various logistics such as packaging and advertisement, companies target to increase the chances of selling as many products as possible. Brand loyalty is yet another target aimed at by several companies and is achieved when the product meets the demands of many clients. The target is for clients to attain a product they would like to be associated with in their homes and other places. At this point, marketing is the key to recognizing the products by the targeted customers. Once the niche has been identified, the company should look for the best outlets for the products. For example, supermarkets and other giant companies on the retail level are quite preferable points for dispensing the products (Aspara, Lamberg, Laukia & Tikkanen, 2010).

Before 1985, and after AGD had reopened and resumed operations, it restructured the strategy. Firstly, it improved the technology in the production process and uniquely manufactured its products. Sequentially, the company specializes in selling bulk products produced using state-of-the-art technology. The essence was to capture many customers from both local and international scopes. Consequently, by 1985, AGD was 100% focusing on international clients through exports. By this period, the only business AGD was indulging in was bulk production, which targeted international clients only (Harnish, 2010).

Concepts in Strategic Management

The period ranging from 1985 and 1999 involved uncertain economic shifts in Argentina, which highly affected the company’s operations. At that point, different companies had to adjust their functionalities. AGD was among the first companies to take a step in changing their ways of operating in Argentina. This gave the company an edge over others, and it was soon a leading exporter of edible oils in Argentina. AGD beefed up its logistics chains to escape the Argentinian economy’s uncertainty. The aim was to achieve cost-effectiveness in its operations in the country and around the globe.

Being a company operating on an international level, AGD had to strengthen its logistics chains. Specializing in exporting edible oils by selling bulk products to various global markets requires solid and functional supply chains. As such, AGD had to have an effective channel for supplying bulk goods around the globe. There are several merits associated with strong logistics chains. Several factors are bound to affect the supply chains, especially for companies involved in exporting goods. In this case, AGD was highly involved in shipping edible oils, which means that it was positively affected by various factors. Risk and compliance are significant factors affecting exporting companies (Moen, Bolstad, Pedersen & Bakås, 2010). The risk of sending goods several miles away is high because of the uncertainties that exist in the transit routes. For example, shipping can be delayed or the quality compromised during the transportation process (Wang, Walker & Redmond, 2007). Therefore, the companies must formulate means to get their goods to the customers in good shape, guaranteeing customer acceptance. The demand on an international level is high, and quality has to be maintained for a company to succeed in the market. As such, the companies involved in exporting goods need to mind their customers’ demands. Competition is high on the international platform, and companies must identify clients, comprehend their needs, and satisfy them. As much as the global market is vast, it is required for companies to comply with the rules set to control the functionality of each international company. The cultural differences and varying market logistics can be the root of problems for companies striving to comply with the different specifics. The bigger the market, the larger the variations and compliance requirements companies must follow. At the same time, they need to watch their moves to ensure that they do not compromise their quality and supply quantity.

As aforementioned, companies operating on a global scale do it with the help of different supply chains. Therefore, the management has to establish a supply chain execution convergence strategy aimed at helping the company achieve its goals. She is orchestrating and synchronizing the involved processes of delivering the goods from the production plants to the global clients. The basic processes involved include transportation and warehousing after production. All the functions must be executed meticulously to maintain the quality and quantity of all the goods produced. A company should also recognize the need to keep everything running per the stakeholders’ expectations. Converging and operating all the supply chain logistics is essential in keeping the management in harmony with the market demands. Cost-effectiveness is critical to a company because several organizations aim at increasing revenues and margins. Controlling the entire organization’s supply chain logistics avoids unwanted costs and wastage (Cheng, 2011).

In 1995, AGD pointed out n area of concern that aimed at revolutionizing the company’s management. The company took the initiative to check into its governance structure to improve it. A company’s governance is the engine propelling it to success and must be adjusted accordingly to keep its plan afloat. The management is the primary source of decisions made in a company. As such, the administration has to be structured appropriately to handle the leadership role in the company in an essential way. The main functionality of the company’s management team is to delegate authority in the establishment. The management is formed to lead the company (Oh & Contractor, 2013. The leaders must make crucial decisions to steer the company to success. Therefore, the formation of the management team is essential and often composed of directors who are the company’s pioneers. On the contrary, the company has its founders as stakeholders and employee directors. Thus, the board of directors leads the company and makes every crucial decision about the functionality of all the sectors in the establishment.

Once a company has been formed and objectively established, the management must formulate feasible policies. Following the formulation of the guidelines, the administration must work and control every individual in the company. Among the main agendas of leadership is to implement the policies accordingly and ensure that everyone in the company is working towards its goals. He manages employees through essential sectors of the organization, such as the human resource is the work of the management. Additionally, the control ensures accountability in the company for the essence of success. By the time Adriana died in 1996, he had passed on valuable knowledge and management tips to his successors, that continued to work for AGD positively.

During the 1990s, AGD developed a feasible strategy in its business that led to decreased costs in its operations. It adopted a plan named origination, which was highly concerned with the production process. AGD specializes solely in producing and retailing edible oil on an international platform. Its primary concern was acquiring the seeds, transportation, and crushing. Before the strategy changes, AGD depended on intermediaries who supplied the company with raw materials. The supply by intermediaries was a source of the problems associated with the company’s closure in 1968. Hence, in the 1990s, the directors were adamant about seeking a change in the head of edible oil seeds. To sustain the company’s demands, the management decided to extend its chain of supplies on the production side. It set up several grain collection stations and purchase points around Argentina. The aim was to acquire the raw material from the farmers instead of relying on intermediaries. This strategy was a way of evading market price shifts since the company had plenty of supplies of the raw material (Hatum, 2011).

To enhance the logistics chain, AGD integrated a transport mode to ease the transfer of raw materials and products. The integration process involved indulging AGD into a partnership with other companies to take over more than 4000 kilometers of railway in Argentina. To add to its transport channel, AGD acquired a port meant to make supply easy. The enhanced transport system in the logistics chain of AGD opened up opportunities for other businesses. It helped AGD establish a purchase and export cereal business that saw its revenues escalate and network enhanced worldwide. In the course of increasing revenue and growing the company, AGD also established an Agro-product Department that dealt with agrochemicals and seeds. At that point, AGD started using another strategy in its operations, diversification.

AGD was a grown company by 1996, and it required a change in the structure because of the diversity it was experiencing. Before the change, the company’s directors were still the top managers. Business and support units were set up in the company to help in running the company. In this new structure, the company delegated responsibilities to everyone in the organization. Managers within the lower levels of the business structure had more authority than last time, which meant that directors were relieved of some duties. Restructuring a company is a considerable step intended to change how things are done in the establishment. The usual way of executing responsibilities in a company can distract the organization and restrain it from exploring better options. However, when a company restructures its operations, it is bound to increase the chances of better performance in its industry. For example, giving lower-level managers more power makes decision-making more straightforward. As such, the decisions are made faster, which enhances operations because the support staff members need not wait for a directive from the top managers.

To facilitate the restructuring process of AGD, a new human resource department was formed whose primary job was to implement the changes. At first, it was not an easy process to accomplish, but as time passed, the new HRM managed to convince every manager in the company to adopt a new structure. In turn, this separated the board from the company’s direct management, and supervisors were scrapped from the system. The move intended to create a chance for the managers to interact with the subordinate members of the company. Following the founder’s death in 1996, the company made tremendous structural changes. Separating the board from some of the company’s responsibilities gave the top management a chance to divide the remaining duties. For example, one of the members was entrusted with overseeing the company’s purchasing unit. In turn, delegating significant tasks to the board members made operations easy in the company. It is clear that AGD began its operations as a simple factory producing edible oil, but by 2001, it had undergone several transformations. By 2000, Argentina faced an economic crisis that saw several companies suffer. However, AMD’s diversification in its operations gave it the tools to evade some of the detrimental effects of economic degradation. For instance, specializing in the export business helped AGD evade tax retentions from the government for products sold in the local market in bulk (Vermeulen, 2001).

An International Expansion Strategy

Based on the AGD analysis, a company needs to formulate a viable strategy. In the case of the intention to expand business and operations to international grounds, a company needs to identify a feasible plan to follow. The following is a probable expansion strategy that shows that a company extends its operations from local to international markets. The initial step involves developing a rationale behind expanding an already existing business. Some of the targets a company can attain through the expansion strategy include increasing revenue and margins. Overcoming competition from the industry is another reason a company may venture into the international arena.

An existing business already has ongoing production strategies, and its products are known. Once they venture into the international market, they should have a clear marketing strategy. It is essential to have a feasible way of netting clients and determining methods of meeting their demands. An international market is quite complex, and companies venturing into it should have an entry strategy. Indeed, marketing is necessary for increasing the popularity of the products. At this point, the company decides on the system to acquire a market for its products. A company can market its products and provide an outlet through several channels. It all depends on the company’s management and the decisions they make.

Joint ventures are a channel through which a company can use to operate in the international market. Under this venture, the company partners with another establishment, preferably in another country. Once two or more companies agree to work together, they often form another company. Export and import are the main channels to get goods from the leading company to other countries. Therefore, acquiring the most appropriate and risk-free routes for exporting the goods is necessary. Strategic alliances can also open up a way for a company to venture into the international market. The next step the company needs to take is developing new products and extensively marketing them. At this point, it establishes transparent networks in the global market to grow product brands. Sustaining the products in the international market is the next step required of the company, which is done in several ways (Zheka, n.d). For instance, a company can expand the existing brands by producing better ones that suit different regional customers. Therefore, it is conclusive that a company needs to identify a niche for its products, establish a feasible channel to use, and sustain brands in the market.

 

References

Twarowska, K. & Kąkol, M., 2013. International business strategy – reasons and forms of expansion into foreign markets [Online] (updated 21 Jun. 2013) Available at: <http://www.toknowpress.net/ISBN/978-961-6914-02-4/papers/ML13-349.pdf> [Accessed 28 Apr. 2014].

Harnish, V., 2010. 5 strategies for global expansion markets [Online] (updated 14 Jul. 2010) Available at: <http://money.cnn.com/2010/07/13/smallbusiness/strategies_global_expansion.fortune/> [Accessed 28 Apr. 2014].

Hoeffler, S. & Keller, K. L., 2003. The marketing advantages of strong brands [Online] (updated 20 Jan. 2010) Available at: <http://www.iseg.utl.pt/aula/cad1196/2003_Hoeffler_Keller_MktAdvantagesStrongBrands_JBM_10-6.pdf> [Accessed 28 Apr. 2014].

Aspara, J., Lamberg, J., Laukia, A. & Tikkanen, H., 2010. Strategic management of business model transformation: lessons From Nokia. Journal of Management Decision, 49(4) pp. 622 – 647.

Wang, C., Walker, E. & Redmond, J., 2007. Explaining the lack of strategic planning in SMEs: The importance of owner motivation. International Journal of Organisational Behaviour, 12(1) pp. 1-16.  

Cheng, G., 2011. Market expansion and grand strategy of rising powers. The Chinese Journal of International Politics, 4 pp. 405–446.

Oh, C. H. & Contractor, F., 2013. A regional perspective on global expansion strategies: reconsidering the three-stage paradigm. British Journal of Management. 25 pp. S42–S59.

Moen, Ø., Bolstad, A., Pedersen, V. & Bakås, O., 2010. International market expansion strategies for high-tech firms: Examining the importance of different partner selection criteria when forming strategic alliances. International Journal of Business and Management, 5(1) pp. 20-30.

Hatum, A., 2011. The transformation process of AGD, Argentina. Emerald Emerging Markets Case Studies, 1 (1) pp. 1-12.

Vermeulen, F., 2001. Controlling international expansion. Business Strategy Review, 12(3) pp. 29-36.

Zheka, V., n.d. The impact of corporate governance practices on dynamic adjustment of capital structure of companies in Ukraine. Economic Education and Research Consortium, 8 (74) pp. 3-33.

 

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