Mabe Learning to be a Multinational
This case talks about Mabe’s Joint Venture (JV) in Russia. Ramiro Perez, Mabe international Vice President is concerned about the JV given the difficulty faced so far in the market. Perez must determine if improving current strategies or implementing a new one is appropriate. Also, he must determine if the decision to start a JV with Fargo was the right partner or not. So, to do this, Perez must evaluate the outcomes of previous strategies and challenges faced and develop a solution based on this recommendation. Therefore, I believe this case is an evaluation case.
Mabe was founded in 1946 by the Moabardi and Berrondo families and has been able to establish itself since then by securing deals with the likes of General Electric, Fagor, Dako, CCE appliances, Camco Canada, ATLAS Costa Rica and some others. In 2009, Mabe became the second industry player in Brazil which saw the Brazilian market as Mabe’s second largest market worldwide after the United States. In 2012, Mabe became the largest appliance manufacturer in Latin America and embraced an important share of demand for the US market. Mabe’s JV with GE was an opportunity to learn and penetrate new markets whereas GE main interest was to reduce production costs.
In the early 2000s, observers predicted that the BRIC countries (Brazil, Russia, India and China) would overtake the largest industrialized countries in size by 2050. Russia had the highest land mass in the world, a GDP of $1.5 trillion in 2010 compared to $1.4, $2.2 and $5.7 trillion in India, Brazil and China respectively. Russia had a higher per capita income in 2010, a little higher than that of Brazil, doubling that of China and nine times more than that of India. Major cities in Russia experienced a consumer boom due to rising income of the middle class. Although Russia had more outward flow of FDIs, in 2011, the government established a $10 billion fund to encourage FDIs in the country. However, Russia has been struggling in terms of population and human capital. They experienced an extraordinary crisis of mortality due to cardiovascular deceases, injuries, accidents and suicide.
As part of the plan to enter into the Russian market, Mabe formed a JV with Spain’s Fargo. This helped reduce risks and leverage competitors’ capabilities. Both companies produced and imported their products, and this was an avenue to learn about the Russian market. Mabe adopted its customary ‘action learning’ policy to determine the type of products the new JV would import to meet the needs of the market. However, this team failed to identify the actual needs due to the diversified population of Russia. Consumers had different styles and patterns and required deeper research (to identify actual needs) later adopted by the team in 2012 rather than the limited mindset. Russia is a very unfriendly market for foreign investors and was very difficult operate although the appliance market was attractive due to its size and profitability.
Mabe currently has an advantage in its workforce and the decision to change its distribution channel and adjust the action learning team strategy has been beneficial to them. However, Perez should start manufacturing products locally in Russia to reduce costs and produce at a lesser price which could help increase its market share. Perez should also pay attention to other emerging markets and also do proper research before entering future markets.