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S.A. Chupa Chups is a Spanish company, manufacturing and selling sweet products. Founded in 157 by Enrique Bernat, it has built its empire around one single product a lollipop. It now has manufacturing plants in five countries, many subsidiaries in distribution, trading, banking, marketing, confectionary machine manufacturing and insurance, and trades in 10 countries around the world.
In a first part, we will look deeper at the company, analysing its resources and capabilities and its core competencies, through a value chain. In the second part, we will see how did the company transfer and manage its competencies abroad in its international expansion.
1. S.A. Chupa Chups' competitive advantage
1.1. The company
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The company was founded on the idea of producing one new product the lollipop.
The product
Its particularity is to be on a stick. First made in wood, the stick is now made in plastic through a technologic process developed by the company. This plastic is safer and more resistant than any kind of wood.
The process technology
Chupa Chups bought a company in the metal-mechanic sector, in order to develop its own process technology. This company, called Confipack, developed the machinery to produce spherical sweets, a "hole puncher" to introduce the stick and the paper wrapping machine. The production then increased to 80 millions of lollipops a year.
Marketing and distribution
The product has been advertised through radio, television and point of sale publicity. This has been done from the beginning what conferred a really good and known image to the product.
Regarding the distribution system the company developed its own one.
Each sale representative travelled with its own supply of lollipop, executing the sale, delivery and cash settlement at the same time.
This distribution system allowed the rapid expansion of the product within Spain and made the company very successful.
Later in the 170s the sale and distribution network had grown several hundreds and the company reduced the staff to 8 people. The rest of the sales representatives now work for a wholly owned subsidiary Chupa Chups Diversificacion, which manage sales in Spain for Chupa Chups own and imported products.
Human resources aspects
The Executive Committee is composed of three family members and two other senior general managers.
It reported to the Board, composed entirely of family members.
There is no formal Board meeting, which is an advantage of gain of time when quick decisions need to be taken.
The staff of the company is very committed and highly motivated, thanks to
- Attention on recruiting "talented staff",
- Salaries above average,
- Employees involved in problem solving, having the confidence of the top.
The employees are very involved in the company and are ready to work hard for it.
Moreover, it is a family owned business, the atmosphere is friendly but energetic and all the personnel shares celebrations.
1.. Resources and capabilities analysis
To be successful, a company has to develop a sustainable competitive advantage. It comes both from the external environment (opportunities and threats) and from the internal one (resources and capabilities).
In this case study, we will concentrate mainly on the internal environment.
The competence-based model focuses on the resources and capabilities the firm need to develop that will be impossible for its competitors to imitate (DeWitt and Meyer).
The resources are what a firm has.
Tangible resources are
- Financial as we can see in appendix C and D, the sales of the company are very high and increase every year. Without any more information we can just suppose that the financial health of the company is good.
- Physical the company owns production plants in Spain and France, producing lollipops and other varieties of sweets, and around the world (China, Russia…)
- Organizational the decision system is informal and simple, enabling quick decision and easy reaching consensus. As the top management is very accessible, the information spreads better.
- Human the staffs are very motivated and highly committed to the company. The employees benefit of a lot of autonomy and confidence, good wages, involvement in problem solving, friendly and energetic atmosphere.
The company benefits of motivated people, working hard, carefully recruited. They can exchange staff between subsidiaries.
Intangible resources are
- Innovation the company was the first to develop a sweet on a stick. The lollipop is an innovative product. The plastic stick developed later is also an innovation as it was a new process technology.
- Technology thanks to the purchase of Confipack, the company benefits of production technologic process that increases its production levels. The proprietary process technology protects its from the competitors.
- Distribution The distribution company, Chupa Chups Diversificacion is very responsive to the demand and takes part of the rapid expansion of the brand.
- Reputation thanks to its good marketing, its innovative products, its original wrapping paper and the good quality of the product, the brand Chupa Chups is known all over the world.
Having identified the resources of the company, it is important to examine how does the company integrate them to achieve its objective the capabilities (what a firm does).
It is the unique combination of these capabilities that creates core competencies having strategic value and sometimes leading to a competitive advantage.
We will look at the company's capabilities through its Value Chain (M. Porter).
Support
FIRM INFRASTRUCTURE Simple hierarchy, informal meetings, easy decision taking, familial structure, accessible top management.
HUMAN RESOURCES MANAGEMENTTalented and motivated people, high commitment, involvement in decision taking, friendly atmosphere.
TECHNOLOGY Benefits from Confipack technology and from the proprietary process.
INNOVATIONVery innovative company.
INBOUND LOGISTICSNo information given. OPERATIONSHigh level of production, good quality of products. OUTBOUND LOGISTICSNo information given. MARKETING AND SALESGood advertising conferring a good reputation to the firm, good distribution system. SERVICESDistribution system conferring responsiveness and rapid expansion, privilege relationships with the customers.
Primary
The value chain brings to the fore where the value is added to the product and where is built the competitive advantage.
1.. Core competencies and competitive advantage
Core competencies are what delivers superior value to the customer, what a firm does that is strategically valuable.
Through the value chain, we can say that value is added in
- Production raw materials are transformed into a lollipop thanks to machineries developed by Confipack.
- Distribution the way the products are sold and delivered added value.
- Marketing the advertising adds value to the product as it creates the reputation of the brand in people's minds.
Of course, support activities add value to the product but on an indirect way.
Which of these activities represent the core competencies?
Barney states that core competencies need to be
- Valuable They help the company to exploit opportunities to create value to the customer,
- Rare they are possessed by few or any competitor,
- Costly and difficult to imitate other companies cannot develop them easily,
- Non-substitutable they do not have strategic equivalence.
Through these criteria, we can identify four core competencies
Innovation and technology process Distribution system Human resources
Valuable The development of a new product and its production process created value for the customer. It adds value to the product and the customer, creating a special relationship. The competent and motivated personnel represent an obvious advantage for any company.
Rare They were the first to introduce the lollipop and they are still innovating. Their own company develops the machinery and benefit from a proprietary process. The partnerships the company has developed are unique. The company pays above-average salaries and has a familial and friendly atmosphere, what is pretty rare in any company.
Costly and difficult to imitate The technologic process was developed within the company, as the innovation, and another firm could not imitate it exactly, moreover with the proprietary process. Chupa Chups Diversificacion is a company with its own proprieties so cannot that be imitated. It comes from within the company, from its own specific values and cannot be imitated or substituted.
Non-substitutable Innovation cannot be substituted; it comes from the firm's specific knowledge. It comes from the firm's specific knowledge.
. Chupa Chups international strategy
.1. The international expansion
In 160, the company decided to expand abroad in order to grow faster.
It first began exporting to France, Germany and the United States, developing their distribution system with a partnership with a local manufacturer or distributor.
It then opened foreign commercial offices, first in Paris and New York, later in Bonn, London and Atlanta and a new manufacturing plant in France.
After having entered the Japanese market in 168, it decided targeting less developed countries Russia, China, India, Mexico and Brazil, following the same model in each country.
.. Management of international operations
Each subsidiary is embedded into the global procurement system and in Chupa Chups system of plant specialisation.
- Financial system the headquarters in Barcelona keep an important control on the subsidiaries, through financial reports, monthly reports, Profit and Loss and Balance Sheets information.
- Procurement system a central procurement system provides raw materials (excepted sugar and glucose) to every subsidiary, in order to ensure the production of Chupa Chups in a standard format.
- Plants specialisation Spanish and French plants produce the sophisticated products and export them to the others markets. All the plants produce the Chupa Chups Classic. The process technology is transferred gradually to the subsidiaries.
- Marketing a team of marketing managers from various nationalities develop the marketing plans. It is then a worldwide team.
- Distribution in key markets, Chupa Chups operates through its own distribution company (Chupa Chups Diversificacion). In the others markets, it develops a partnership with a distributor carefully selected.
- Advertising Chupa Chups works with an advertising agency in Spain but also with others abroad, more often medium and small agencies.
Campaigns are developed globally and the subsidiaries are allowed to adapt them locally if appropriate.
.. International strategy
Having seen how did the company expand to other markets, we can now analyse and define which strategy it adopted.
Goals and Means framework
To develop a worldwide advantage a company must achieve three strategic objectives Global scale efficiency, Multinational flexibility and Ability to learn from its international exposure.
They can be achieved through three means National differences, Scale economies and Scope economies.
- Global scale efficiency the company divides its production in five countries, so each site produces an important number of products. It allows the company to benefit from the experience, or learning effect, and thus from scale economies.
In France and Spain, it also produces different sorts of products. This joint production reduces the cost for the company because it shares investments and costs across the different production lines, what is source of scope economies.
By producing in less developed (and often low cost) countries the company would gain cost advantage. Chupa Chups mainly produce in Europe so does not benefit from national differences. But it starts producing in Russia and Brazil where costs (mainly labour costs) are lower.
- Multinational flexibility Chupa Chups produces in countries where cultures are really different Europe, Russia, China, Brazil (National differences). The three last countries expose the company to many risks, mainly economical and financial, that the company has succeeded to manage.
Regarding scale economies, the company just starts to produce in different countries, balancing scales with strategic and operational flexibility.
Finally, the company transfers its knowledge to its subsidiaries, share investments, what refers to the last mean scope economies.
- Learning As said previously, producing in a few numbers of plants allows the company to benefit from experience, cost reduction and innovation (scale economies).
It also shares learning across the different countries, markets and businesses (scope economies)
But regarding the organisational and managerial processes it tends to stay on the Spanish way of doing business so does not learn from national differences.
International strategy and conclusion
Following Bartlett and Ghoshal perspective, companies have the choice between three strategies
- Multidomestic strategy responsiveness to each local market
- Global strategy scale efficiency, focusing on one single global market
- Transnational strategy mix of both previous strategies
First of all, the company is not transnational, as it does not use every goals and means combination.
The company identifies only one global market, selling standardised products everywhere, use the same business strategy worldwide, with only some minor adaptations lo local markets when necessary, locates its plants to benefit from economies of scale or proximity to emergent markets, uses global suppliers, coordinates its marketing worldwide, with minor adaptations to local need.
The structure of the company is a centralized global business management, with control from home country. So we can say that their strategy is rather global.
But in the same time it makes few adaptations to the product, the advertising and the distribution, leaves some autonomy to the subsidiaries, what makes it quite responsive to the market.
As a conclusion, no companies are totally local or totally global. Chupa Chups is rather global, but it tends to be quite sensitive to both dimensions global integration and local responsiveness.
Transnational is not exactly the word to use there, even if I think that the company tends to become more transnational because it brings together advantages of both classical strategies.
On my point of view, this company has a multifocal strategy, trying to have advantages from global and multidomestic strategies at the same time, but not being transnational yet.
REFERENCING
Transnational Management Text, Cases, and Readings in Cross Border Management McGraw-Hill International Editions (000)
International Business Management Courses Philip Ryans
Stratgie d'entreprise, Chaine de valeur et avantage concurrentiel, French Courses
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