Podcast
Questions and Answers
Explain how diversifying into new markets can help a company like Pingo Doce® manage risk during economic downturns.
Explain how diversifying into new markets can help a company like Pingo Doce® manage risk during economic downturns.
Diversifying into new markets reduces risk by ensuring that economic downturns in one market do not critically affect the overall health of the company. When one market is struggling, profits from another may offset those losses.
What does 'economies of scale' mean, and how did the merger between Huntsman Corporation® and Clariant® aim to achieve this?
What does 'economies of scale' mean, and how did the merger between Huntsman Corporation® and Clariant® aim to achieve this?
Economies of scale refers to reduced costs per unit that arise from increased total output of goods and services. The merger between Huntsman Corporation® and Clariant® intended to achieve economies of scale by becoming larger, thus allowing them to spread costs over a larger output, and reduce operating expenses.
Why might a company choose to focus on smaller, local shops rather than large stores when expanding into a new market?
Why might a company choose to focus on smaller, local shops rather than large stores when expanding into a new market?
A company might focus on smaller, local shops to better cater to local preferences, reduce initial investment costs, and integrate more easily into the existing market structure. Smaller stores require less capital investment than larger ones.
What are some potential reasons Pingo Doce® decided to relaunch its e-commerce operations after initially closing them down after 5 years?
What are some potential reasons Pingo Doce® decided to relaunch its e-commerce operations after initially closing them down after 5 years?
How can spreading risk via diversification and exploiting economies of scale provide a company a competitive advantage?
How can spreading risk via diversification and exploiting economies of scale provide a company a competitive advantage?
Flashcards
Spreading Risk
Spreading Risk
Locating in multiple markets to mitigate the impact of economic downturns in any single market.
Diversification
Diversification
Expanding into different markets or industries to reduce reliance on a single product or region.
Pingo Doce
Pingo Doce
The Portuguese supermarket chain that expanded to Poland to diversify its market.
Economies of Scale
Economies of Scale
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Mergers and Acquisitions (M&A)
Mergers and Acquisitions (M&A)
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Study Notes
Spreading Risk
- During economic downturns, firms can face difficulties, even with strong balance sheets.
- Firms protect themselves from downturns by locating in markets where these risks are less likely.
- The goal is to find markets where downturns do not occur at the same time as in the home market.
- Pingo Doce, a Portuguese supermarket chain founded in 1980, began expanding in the 1990s.
- Expansion aimed to diversify away from the Portuguese market.
- A first venture in Brazil failed, however a second one in Poland succeeded.
- Pingo Doce focused on small, local shops instead of huge stores.
- They bought the discount chain Biedronka, now Poland's biggest food retailer.
- In 2012, Pingo Doce looked to diversify away from the struggling European market.
- They began expanding into the growth markets of Latin America.
- In 2018, they announced a relaunch of e-commerce operations.
- This was 15 years after a previous five-year attempt was closed down.
Economies of Scale
- Mergers and acquisitions help firms grow to reduce costs through economies of scale.
- In 2017, Huntsman Corporation of the USA and Clariant of Switzerland merged in a $14 billion deal.
- The merged company expected to achieve cost savings of $400 million per year.
- The chemicals industry sees many deals as rivals seek to gain scale and cut costs.
- Recent transactions include deals between Dow Chemical and DuPont, and Bayer and Monsanto.
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Description
Firms protect against economic downturns by diversifying into markets with uncorrelated risks. Pingo Doce, a Portuguese supermarket chain, expanded into Brazil and Poland to reduce reliance on its home market. They also expanded to Latin America.
