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Questions and Answers
Which strategy BEST exemplifies a company's effort to mitigate risk during economic downturns by diversifying its market presence?
Which strategy BEST exemplifies a company's effort to mitigate risk during economic downturns by diversifying its market presence?
- Reducing product lines to focus on core offerings and cut costs.
- Expanding into geographically diverse markets with varying economic cycles. (correct)
- Investing heavily in its existing domestic market to strengthen market share.
- Increasing reliance on a single, stable international market for exports.
Pingo Doce's initial expansion into Brazil was a successful venture that immediately established a strong foothold in the Latin American market.
Pingo Doce's initial expansion into Brazil was a successful venture that immediately established a strong foothold in the Latin American market.
False (B)
Briefly explain how mergers and acquisitions can lead to economies of scale.
Briefly explain how mergers and acquisitions can lead to economies of scale.
Mergers and acquisitions can create economies of scale by combining resources, streamlining operations, and eliminating redundancies, leading to lower average costs per unit.
The merger of Huntsman Corporation and Clariant aimed to achieve significant cost savings, estimated at $ ______ per year.
The merger of Huntsman Corporation and Clariant aimed to achieve significant cost savings, estimated at $ ______ per year.
Match the following companies with their strategic actions related to spreading risk or achieving economies of scale.
Match the following companies with their strategic actions related to spreading risk or achieving economies of scale.
Flashcards
Spreading Risk
Spreading Risk
Reducing risk by operating in multiple markets, so downturns in one area are offset by stability or growth in others.
Diversification
Diversification
Expanding into different markets or industries to reduce reliance on a single product or region.
Economies of Scale
Economies of Scale
Cost advantages gained by increasing production and spreading costs over a larger output.
Mergers and Acquisitions (M&A)
Mergers and Acquisitions (M&A)
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Cost Synergies
Cost Synergies
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Study Notes
- During economic downturns, even financially stable companies can encounter challenges.
- Businesses protect themselves from downturns by operating in diverse markets.
- These markets are less likely to be affected simultaneously.
Pingo Doce Example
- Pingo Doce is a Portuguese supermarket chain founded in 1980.
- In the 1990s it began expanding to diversify away from the Portuguese market.
- Its initial venture in Brazil failed, but its subsequent venture in Poland was successful.
- Instead of large stores, it focused on small, local shops.
- It acquired the discount chain Biedronka, now Poland's largest food retailer.
- In 2012, Pingo Doce began diversifying into Latin American growth markets due to struggles in the European market.
- In 2018, it announced the relaunch of its e-commerce operations.
- This came 15 years after a previous five-year attempt was shut down.
Economies of Scale
- Mergers and acquisitions are used to grow rapidly and reduce costs through economies of scale.
- In 2017, the Huntsman Corporation of the USA and Clariant of Switzerland merged in a $14 billion deal.
- The merger was projected to yield $400 million in annual cost savings.
- The chemical industry has seen numerous deals aimed at gaining scale and reducing costs.
- Recent deals include those between Dow Chemical and DuPont, and Bayer and Monsanto.
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Description
This case study explores how the Pingo Doce supermarket chain navigated economic downturns through strategic diversification. Starting in Portugal, Pingo Doce expanded into Brazil and Poland, adapting its business model for success. It further diversified into Latin America and e-commerce to sustain growth.
