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Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

APPLIED MANAGEMENT
LUCCHETTI
BACKGROUND OF THE COMPANY
The experience of Lucchetti, a Quienco subsidiary, as it expanded from its historically strong
domestic stronghold into Peru. Lucchetti, a pasta company, had grown to the point where there
was no room to expand in the Chilean market. The Peruvian market, however, looked extremely
promising. Thus, in 1996, Lucchetti Peru was born. By late 2003, however, the new state-of-the-art
pasta plant was being liquidated.
The management of the company was considering whether Lucchetti should leave the Peruvian
market altogether and absorb a $150 million write-off or, alternatively, to continue and build a new
plant to take advantage of what was left of the Lucchetti market share, despite the considerable
additional investment required.
ABOUT THE COMPANY
Lucchetti is a Chilean food producer specialized in pasta. During the last months of 1998 Lucchetti
initiated the steps to build a food production plant in the suburban district of Chorillos (a
municipality) in Lima.
MISSION
Lucchetti is committed to upholding our consumers well-being by providing every Peruvian the
highest quality product and by taking heed to the call of environment protectors.
VISION
To become the leading pasta company in South America.


Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

ORGANIZATIONAL STRUCTURE

QUIENCO ORGANIZATIONAL STRUCTURE

Leading diversification.
Seeking for opportunities to enter to new industry sectors.
KEY ASPECTS
POLITICAL
In 1990 Alberto Fujimori was elected president of the republic of Peru, he was re-elected in 1995, he
had made life difficult for domestic manufactures, workers, and the poor people, but in other hand
the economy of the country was growing and inflation was low in theses years.
Fujimori thus appeared to have a strong grasp on the political machinery so that any political risk of a
foray into Peru seemed minimal.
Corruption.
Discrimination between local and foreign companies.
Strong level of support to local producers.
LEGAL
In 1996 the central government in Lima was conducting some investigations, Mr. Gutierrez approved
the project the last day of his appointment in office and Lucchetti started to build the plant.
By mid 1999 Lucchetti was still building the plant (based on the mentioned approval) and some
environmental groups and politics presented a lawsuit against Lucchetti and Mr. Gutierrez.
By the end of August of the current year, a judicial order authorized Lucchetti to continue operations,
but the harm to the community was done. What in first moment was an operating decision in order
Luksic Group
82%
Financial
Services
Food and
Bevarge
telecom manufacturing
real estate and
hotel
adminsitration
Shareholders
9%
Chilean stock
exchanges 9%
Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

to optimize (and save) the use of water became in an "expensive" image problem for Lucchetti that
led to a decrease in the firm sales.
Problems with environmental impact.
Lawsuits.
TECHNOLOGICAL
The main players in the market were still offering lower quality pasta that was produced in older
production facilities.
The company has great levels of technology utilization.
ECONOMIC
Growing consumption rates.
High import tariffs.
Growing economy.
New investment opportunities.
STATISTICAL GRAPHICS
Investment Requirements






Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

Market Share






Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

Distribution Channels


BEGINNING OF THE CASE
1. Lucchetti is a Chilean food producer specialized in pasta. During the last months of 1998 Lucchetti
initiated the steps to build a food production plant in the suburban district of Chorillos in Lima.
2. The plant, that would serve the Peruvian market, produced pasta and had an activity schedule of 24/7
and was projected to be placed in a natural reserve called Pantanos de la Villa controlled by the
Peruvian government.
3. Lucchetti informed the investment included 1 million dollars to create artificial lagoon surrounding
the plant, which in fact were necessary for the plant provision of water.
4. The company informed to the press that the noise level of the plant and the danger of sub product
pollution were minimal and that the environment would not be affected.
5. The location of the plant was very attractive in terms of distribution and it also was an incentive for
government because it would be helpful to diminish the unemployment rate in Lima.
ENDING OF THE CASE
Right now, the plant is experimenting financial difficulties and the investment group is evaluating the
possibility of selling the assets. The negative long-term effects clearly overcome the short-term
savings in water consumption.
The lesson to be gleaned from this failed Peruvian venture remained unclear, but they wanted to
apply those lessons to future domestic and international expansion ventures.
IMPORTANT INFORMATION
The initial activities of Luksic group were related to the mining industry principally copper, the
countrys most important natural resource
Luksic group was located and operated originally in Chile
Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

The key sectors of Chilean economy were metal processing, electric power distribution, general
manufacturing, shipping, fishing, etc...
Between 1970 and 1973 the activities were restricted in Chile, the Luksic group expanded into
Argentina, Colombia and Brazil.
Luksic owned approximately the 82.4% of the shares of Quienco
Quienco strategy is to create value for shareholders through the acquisition and active
management of a diversified group of complementary businesses.
Principal competitor of Lucchetti in Peru was La Fabril.
2% of Peruvian GDP was flour, cookies, crackers, pasta, edible oils and margarines.
Creating and implementing an ethical code in Peru is at a very initial stage, and the government over
the years has imposed rules to try to create an ethical environment unfortunately obtaining negative
results.
Large Private Corporations are beginning to create and divulge an ethical code as a way to obtain a
healthier business environment in Peru.
Victim of Discrimination and Arbitrary decisions.
KEY PROBLEM
Should the company leave the Peruvian Market all together and absorb a $150 million write-off or
should it continue and build a new plant to take advantage of what is left of the Lucchetti market
share even thought it would require a significant amount of investment?
Should they have to maintain its position as Chiles leading diversified company in the industrial and
service sector, to strengthen the value creation potential of its existing businesses, and to continue
expanding into the southern cone region and Brazil while seeking opportunities for entry into new
complementary products or industry sectors?
LABELING
Strengths:

Diversification: expanded in several other industries.
New structure simplified control.
Management experience.
Strengths of the products.
Location of the facilities.
The approach to international expansion is managed and gradual.
Establish an immediate foreign presence via acquisitions of existing local firms
Distribution networks.
Continuously launching new products.
Profits margins.
Quality.
Success in distributing and marketing in Argentina.
The first to receive both ISO 9002 and 14001 standards designation in Peru.
Experience.
Weaknesses:
Prices were set at close to parity with competing brands to generate exposure and volume.
Cost of importing pasta was so high compared to the introductory or launching prices.
Capacity to produce in the Chilean plant outstripped the demand in the Peruvian market.
Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

Depends on third parties for distribution.
High cost of importing pastas.
Decrease in sales.
Financial cost and extraordinary amortization of expenses.
Increasing operational expenses.
Opportunities:
Growth opportunities in the neighboring countries, like Argentina, Peru and Brazil.
In Peru only 10 percent of food was sold in supermarkets, majority of food sales were through small
neighborhood mom-and-pop stores.
Peruvian pasta was generally made of flour rather than from the higher-quality semolina.
Competition was only beginning to offer packaged pasta.
Better margins by offering pastas marketed at the higher ranges of the price spectrum.
Development of its own distribution capabilities.
Several local mayors in other parts of Lima offered to allow Lucchetti to relocate to their districts at
preferential prices with favorable tax terms.
Greater spending power.
Relocation.
Partnerships.
Threats:
Competition upgrades some of its plants in order to raise the quality and lower costs, using much of
the same equipment and technology of Lucchetti.
Aggressive competitive pricing in Peru.
Competitors distribution.
Peruvian government increased import duty tariff to 20% and additional 5% on wheat derivative
products, exacerbating the need to build domestic production.
Despite of the ISO 9002 and 14001 certification for their new plant in Peru, several attempts were
made by the government of Lima opposing the construction of their plant.
Discrimination between local and foreign companies.
Environmental impact.
Competition:
Its main competitor in Chile had a similar percentage of market share.
Smaller manufacturers and pasta importers.
Competitors also decided to enter Peru.
Competition was only beginning to offer packaged pasta.
The main players were still offering lower quality pasta that was produced in older production
facilities.
Industry:
Activities of the private sector of Chile were restricted.
Peruvian pasta market appeared to be ripe for harvesting
Peruvian pasta was generally made of flour rather than from the higher-quality semolina.
Just Lucchetti was being restricted, when other plants in the city that have problems werent
punished.
In Peru only 10 percent of food was sold in supermarkets, majority of food sales were through small
neighborhood mom-and-pop stores.
Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

General Environment
Peruvian Government had attempted to make foreign investment attractive by allowing foreign
investment returns to be taxed at the same rate that was initially made.
No discrimination between local and foreign investors.
Peru had a basically sound and growing economy.
The Fujishock had made life difficult for domestic manufacturers, workers, and the poor, but on the
other hand, the economy was growing and inflation was low.
External environment factors.
POTENTIAL ALTERNATIVES
Strategic Alliances
o Too costly, time consuming and could generate cultural friction.
o Improve efficiency.
Invest in new markets
o Loss of the Peruvian investment
o High debt
o New opportunities
Create competitive advantages by internal investments
o High cost
o Time consuming
o Gain market share
o Improve profitability
PORTER ANALYSIS
Bargaining Power of Buyers (HIGH)
Because of the availability of substitutes and similar products offered by the competitors.

Bargaining Power of Suppliers (HIGH)
Because currently they require importing the product so it is becoming expensive.

Threats of New Entrants (LOW)
Because it is needed a lot of investment to enter in this industry, its difficult to meet the actual
demand and quality levels.

Threats of Substitute Products (HIGH)
Because there are competitors offering the similar products, that also invest to improve the quality
and had reach a significant percentage of market share.

Rivalry (HIGH)
Because it is a really competitive industry, competitors have experience and have reach important
percentage of market share.


Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

MATRIX ANALYSIS
TOWS Matrix
Strengths:
1. Experience
2. Quality
3. Management
4. Distribution Network
5. Technology
6. Brand recognition
7. Leadership in neighboring
countries

Weakness:
1. Prices
2. High cost of importing
3. Market Share
4. Depends on third parties for
distribution
5. Financial cost and
extraordinary amortization
of expenses/ Debt
6. Decreasing Reputation
Opportunities:
1. Competitors are late
movers.
2. Technology
3. Growing economy
4. Relocation
5. Partnerships
6. Consumption rate
7. New investments

SO Strategies:
1. Use expertise and internal
capabilities to take advantage of
market development.
2. Consider the possibility of
relocation.
3. Implement a marketing strategy
to increase margin profits.
4. Partnerships among strong
related companies.
WO Strategies:
1. Acquire distributors to reduce
distribution costs or develop own
distribution capabilities.
2. Consider the relocation, to
reduce operating costs and take
advantage of the favorable terms
3. Invest in community activities.
Threats:
1. Upgrades of
competitors plants
2. Aggressive
competitive pricing
3. Government policies/
Political Influence
4. Attempts to the
company/ Adverse
publicity
5. Competitors
distribution
6. Technology
ST Strategies:
1. Create differentiated products.
2. Develop the distribution
network.
3. Invest in marketing strategies to
gain market.
4. Horizontal Integration/Strategic
Alliances.
WT Strategies:
1. Increase marketing strategies to
attract customers and increase
the sales.
2. Take actions against the
attempts that have been made to
the company.
3. Invest in distribution systems.



SWOT/TOWS
1. Increase marketing strategies to attract customers and increase the sales.
2. Acquire distributors to reduce distribution costs or develop own distribution capabilities.
3. Partnerships among strong related companies.
4. Invest in community activities to improve reputation and create good legislative relationships.

Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

IFE MATRIX
Key Internal Factors Weight Raiting Score
Strengths
Experience 0.05 4 0.20
Quality/Premium Brand 0.10 4 0.40
Management 0.04 3 0.12
Distribution Network 0.05 4 0.20
Technology 0.10 4 0.40
Brand Recognition 0.07 4 0.28
Leadership in neighboring countries 0.10 4 0.40
Weaknesses
Prices 0.10 2 0.20
High cost of importing 0.10 2 0.20
Depends on third parties for distribution 0.08 3 0.24
Market Share 0.10 2 0.20
Financial costs 0.06 1 0.06
Reputation 0.05 2 0.10
Total 100/100 3.00
EFE MATRIX
Key External Factors Weight Raiting Score
Opportunities
Technology 0.08 4 0.32
Competition were later movers 0.08 4 0.32
Growing consumption rates 0.08 4 0.32
Growing economy 0.08 4 0.32
Relocation 0.08 3 0.24
Partnerships 0.12 3 0.36
New investments 0.08 4 0.32
Threats
Upgrades of competitors plants 0.05 3 0.15
Aggressive competitive pricing 0.05 3 0.15
Government policies 0.10 1 0.10
Attempts to the company/ Adverse publicity 0.10 2 0.20
Competitors distribution 0.02 2 0.04
Competition Peruvian Leadership 0.08 2 0.16
Total 100/100 3.00
THE INTERNAL EXTERNAL MATRIX
Internal Score

E
x
t
e
r
n
a
l

S
c
o
r
e



4.0
Strong
3.0
Average
2.0
Weak
1.0
High
3.0 to 4.0

3.0
I
Grow
II
And
III
Build
Med.
2.0 to 2.99

2.0
IV
Hold
V
And
VI
Maintain
Low
1.0 to 1.99

1.0
VII
Harvest
VII
Or
IX
Divest
Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

Y-AXIS= 1,56-3.71=-2,15
X-AXIS= -2,57+5.28=2.72

Strong Company that needs to implement grow and build strategies and take advantage of existing
opportunities and on the other hand minimize the effects of threats. To minimize the threats such as
the decreasing reputation the company should implement new marketing strategies, to take advantage
of the opportunities such as new investments or available technology the company should create
partnerships by using vertical or horizontal integrations.
SPACE MATRIX





INTERNAL STRATEGIC POSITION EXTERNAL STRATEGIC POSITION
YAXIS FINANCIAL STRENGHT
(+2) Profitability
(+1) Gross Margins
(+1) Import Costs
(+2) Risk
(+3) Financial Position
(+1) ROE
(+1) Net Income
(+1) Cash Flow
(+2) Debt

Average= 1,56
ENVIRONMENTAL STABILITY
(-5) Competitive Pressure
(-5) Competition Prices
(-1) Growing economy
(-5) Political Risk
(-3) Foreign Investment
(-1)Growing Demand
(-6) Import duty tariffs



Average= -3,71
XAXIS COMPETITIVE ADVANTAGE
(-2) Expertise
(-5)Market Share
(-2) Efficient Systems
(-1) Product Quality
(-1) Technology
(-5) Presence
(-2) Distribution Networks



Average= -2.57
INDUSTRY STRENGHT
(+5) Profit potential
(+5) Resource utilization
(+6) Productivity
(+6) Quality Appreciation
(+5) Consumption rates
(+5) Growth Potential
(+5) Technology



Average= 5.29
Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.


The Company should pursue competitive strategies in order to penetrate the Peruvian market, the tools
that can be use to achieve success can be: Forward Integration (acquiring distributors), Horizontal
Integration (become stronger by join with the competition), investment in new marketing strategies to
gain market share and ameliorate the reputation. Competitive Strategies focus on being better than the
competition in every possible way, offer unique value to customers and be always one step ahead.

ALTERNATIVES
1. Partnerships with local distributors and related companies.
a. Build competitive advantages
b. Growth and development
c. Gain market share
d. Improve profitability
e. Time consuming
f. High cost
2. Relocation of Peruvian Facilities.
a. More opportunities
b. Avoid political and legal problems
c. High cost
3. Build and maintain good local community relations.
a. Avoid political and legal problems
b. Costly
c. More support to local producers


Esthela Naranjo C., Mara Cabello Morales and Bellakarina Solrzano P.

SUMMARY
As it is a company with a high attractiveness and a strong competitive position, our recommendation for the
company is to look for well-establish and strong companies in order to build partnerships among distributors,
suppliers or competitor, this strategic alliances would help the company to:
Diversify the risk
Grow and develop
consolidate its position and become stronger
Overcome governmental attempt
Improve profitability and market share