Case Study: market entry strategy

- Selection of slides

1
 Objective of the collaboration

• Situation: ‘The Client’, global HVAC manufacturer would like to evaluate the
market potential for their products in Brazil.

• In this sense, the overall aim of the collaboration would be:

1. To help ‘The Client’ identify and evaluate the main opportunities for its
products in terms of positioning, revenue sources, geography and
channels
2. To help ‘The Client’ identify the best entry strategy
3. Develop entry strategy and business case

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 2
 Proposed methodology

BMC proposes a five step methodology

Definition
Product portfolio channel, Definition of
Analysis of the Brazilian
definition for manufacturing Business model
market
Brazil and after sale and Action Plan
strategy

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 3
 Example of output: analysis of competitive landscape

Positioning, market share and strategy of each competitor is different in the Brazilian market

Positioning and share by brand

High
ROS: 8-12% ROS: 10-15%

Compet1
Compet3
Compet6
Positioning

Compet4
Compet7

Compet2
Compet5

Compet8

ROS: 0-6% ROS: 6-10%

Low
0.1 0.2 0.5 1 2 2.5
Low High
Relative share

Source: Emerging markets information services, BMC estimates. Note: ROS=EBIT/Sales

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 4
 Example of output: positioning alternatives

To achieve the desired long-term positioning, the Client has 2 entry options:

The Client entry strategy: Positioning

High
ROS: 8-12% ROS: 10-15%
Positioning

Entry1 Haier

Entry2

ROS: 0-6% ROS: 6-10%

Low
0.1 0.2 0.5 1 2 2.5
Low High
Relative share
Source: BMC. Note: ROS=EBIT/Sales
This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 5
 Example of output: manufacturing options – gross margin entry 2

Gross margin for manufacturing options 1 and 2, following entry strategy 2 are negative for almost
the entire product range

Product series A Product series B Product series C

1. Import finished product

8.3% 3.7%
-1.1% -4.6%
-10.9% -12.1% -10.9% -8.1% -10.1%
-22.2% -17.1%
-25.3% -26.3% -27.0%

2. Assemble in AAA

3.7%
-0.2%
-9.1% -11.8%
-14.4% -18.6%
-24.1% -26.2% -26.6% -23.6%
-36.4% -37.5% -32.5%
-38.1%

3. Assemble in BBB

36.9% 33.7%
27.7% 24.4% 23.0% 27.3%
17.7% 17.1% 17.0% 18.3%
11.0% 10.3% 10.3% 12.1%

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 6
 Example of output: entry options – geographical approach

When it comes to the geographical approach, a three phased entry strategy is recommended…

Phase 1 Phase 2 Phase3

North (X) North (X) North (a)

North East (X) North East (a) North East (a)

Mid West (X) Mid West (X) Mid West (a)

South East (a) South East (a) South East (a)

South (a) South (a) South (a)

Market covered:
72-78%
Market covered:
85-90%
Market covered:
100%

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 7
 Example of output: business case – P&L

P&L (,000 USD)USD)

P&L (,000 2013
2013 2014
2014 20152015 2016 2016 2017 2017
2018 2018
Units Units
Sold Sold
(,000(,000 units)
units) 00 8 8 40 40 110 110 162 162162 162
Sales Sales 00 3,322
3,322 17,765
17,76548,45148,451
71,846 71,846
71,846 71,846
Cost
Cost of of Goods
Goods SoldSold 00 -2,680
-2,680 -14,323
-14,323-38,988-38,988
-57,720 -57,720
-57,720 -57,720
COGS Brazil
COGS Brazil 00 -2,680
-2,680 -14,323
-14,323 -38,988-38,988
-57,720 -57,720
-57,720 -57,720

GrossGross Margin
Margin 00 642642 3,4423,442 9,462 9,46214,126 14,126 14,126 14,126
Gross Gross
MarginMargin
(%) (%) 19.3%
19.3% 19.4% 19.4% 19.5% 19.5%19.7% 19.7% 19.7% 19.7%
SG&ASG&A -537
-537 -5,297
-5,297 -5,759
-5,759 -7,035-7,035-7,523 -7,523
-7,523 -7,523
Operations
Operations -41
-41 -520-520 -833 -833 -842 -842 -850 -850 0 0
Selling expenses -117 -3,948 -3,262 -4,398 -4,737 0
Selling expenses -117 -3,948 -3,262 -4,398 -4,737 0
Administration and overhead -380 -828 -1,663 -1,795 -1,936 -60
Administration and overhead -380 -828 -1,663 -1,795 -1,936 -60
EBITDA -537 -4,655 -2,317 2,427 6,603 6,603
EBITDA -537 -4,655 -2,317 2,427 6,603 6,603
EBITDA (%) 0.0% -140.1% -13.0% 5.0% 9.2% 9.2%
EBITDA (%) 0.0% -140.1% -13.0% 5.0% 9.2% 9.2%
Depreciation -300 -300 -300 -300
Depreciation -300 -300 -300 -300
EBIT -537 -4,655 -2,617 2,127 6,303 6,303
EBIT -537 -4,655 -2,617 2,127 6,303 6,303
Corporate tax 0 0 0 0 -156 -1,576
Corporate tax 0 0 0 0 -156 -1,576
NOPAT -537 -4,655 -2,617 2,127 6,147 4,727
NOPAT -537 -4,655 -2,617 2,127 6,147 4,727

Source: BMC analysis

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 8
 Example of output: business case – balance sheet

P&LUSD)
BS (,000 (,000 USD) 2013
2013 2014
2014 20152015 2016 2016 2017 2018
2017 2018
AssetsUnits Sold (,000 units) 00 85,506 4011,042 110 23,003162 26,117
162 25,817
FixedSales
Assets 00 3,322
3,000 17,765
2,700 48,4512,40071,846 2,100
71,846 1,800
Facility & machinery 3,000 3,000
Cost of Goods Sold 0 -2,680 -14,323 -38,988 3,000-57,720 3,000
-57,720 3,000
Depreciation
COGS Brazil 00 -2,6800 -14,323-300 -38,988 -600-57,720 -900
-57,720 -1,200

Current Assets
Gross Margin 00 2,506 3,4428,342 9,46220,603
642 14,126 24,017
14,126 24,017
Inventory 0 1,952 6,369 15,220 18,030 18,030
Gross Margin (%) 19.3% 19.4% 19.5% 19.7% 19.7%
Raw material 0 965 2,628 5,836 5,836 5,836
SG&A
Work in progress
-537
0
-5,297
585
-5,7591,592 -7,035 3,535-7,523 3,535
-7,523 3,535
Operations -41 -520 -833 -842 -850 0
Finished products 0 402 2,148 5,848 8,658 8,658
Selling expenses -117 -3,948 -3,262 -4,398 -4,737 0
Debtors 0 554 1,974 5,383 5,987 5,987
Administration and overhead -380 -828 -1,663 -1,795 -1,936 -60
Cash 0 0 0 0 0 0
EBITDA -537 -4,655 -2,317 2,427 6,603 6,603
EBITDA (%) 0.0% -140.1% -13.0% 5.0% 9.2% 9.2%
Liabilities and Equity 0 5,506 11,042 23,003 26,117 25,817
EquityDepreciation -537 -5,191 -300-7,808 -300 -5,681-300 467-300 5,194
CapitalEBIT -537
0 -4,6550 -2,617 0 2,127 0 6,303 0 6,303 0
Retained earnings
Corporate tax 00 0-537 0 -5,191 0 -7,808 -156 -5,681
-1,576 467
Current year earnings -537 -4,655 -2,617 2,127 6,147 4,727
NOPAT -537 -4,655 -2,617 2,127 6,147 4,727
Financial liabilities 537 10,697 18,850 28,684 25,650 20,623
Group Loans 537 10,697 18,850 28,684 25,650 20,623

Creditors 0 0 0 0 0 0
Working Capital needs 0 2,506 8,342 20,603 24,017 24,017

Source: BMC analysis

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 9
 Deliverables

The outcome of the study included the following deliverables:

 Detailed analysis of the Brazilian market for HVAC

 Analysis of the Client‘s main competitors, in terms of:

 Product range, commercial network, services, pricing strategy…

 Definition of product portfolio and pricing strategy for different market entry positionings

 Evaluation of importing option compared to locally assembling or manufacturing options, in

terms of:

 Inital investment, tax regulation, profitability, timing

 Set up of potential scenario based target sales in 3-5 years

 Development of business plan, detailing resources needed, cash flow projections and ROI
projections

 Recommendation of best approach to enter the Brazilian market

 Development of action plans necessary to achieve the targets

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 10
 Project outcome

BMC helped The Client decide whether or not to proceed with the market
entry operation in Brazil and the best approach for it:

• Proving The Client the operation would be bring value to their

Corporation

• Presenting alternative brand positionings, with recommendations

regarding commercial strategy and manufacturing strategy

• Building up a business case valuating several scenarios and concrete

action plans for the targets set

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC 11
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