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Case Study: market entry strategy

- Selection of slides

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

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 3

Proposed methodology

BMC proposes a five step methodology

Analysis of the Brazilian market

Product portfolio definition for

Brazil

Definition channel,

manufacturing and after sale

strategy

Definition of Business model and Action Plan

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

0.1 0.2 0.5 1 2 2.5

Compet1

Compet2

Compet3

Compet4

Compet5

Compet6

Compet7

Compet8

Low

Po

sit

ion

ing

High

Positioning and share by brand

Relative share High Low

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

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

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

Example of output: analysis of competitive landscape

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

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

0.1 0.2 0.5 1 2 2.5

Haier

The Client entry strategy: Positioning

Po

sit

ion

ing

Relative share

High

Low

High Low

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

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

Source: BMC. Note: ROS=EBIT/Sales

Example of output: positioning alternatives

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

Entry1

Entry2

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

-22.2% -25.3% -26.3%-17.1%

-27.0%

-10.9% -12.1% -10.9%-1.1%

-8.1% -10.1%-4.6%

8.3% 3.7%

-36.4% -38.1% -37.5%

-24.1%-32.5%

-26.2% -26.6% -23.6%

-9.1%-14.4% -18.6%

-11.8%

3.7%

-0.2%

11.0% 10.3% 10.3%17.7%

12.1%17.1% 17.0% 18.3%

27.7% 24.4% 23.0% 27.3%36.9% 33.7%

1. Import finished product

2. Assemble in AAA

3. Assemble in BBB

Product series A Product series B Product series C

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

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

Phase 1 Phase 2 Phase3

North (X) North East (X) Mid West (X) South East (a)

South (a)

Market covered: 72-78%

Market covered: 85-90%

Market covered: 100%

North (X) North East (a)

Mid West (X) South East (a)

South (a)

North (a)

North East (a)

Mid West (a)

South East (a)

South (a)

Example of output: entry options – geographical approach

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

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 – P&L

P&L (,000 USD) 2013 2014 2015 2016 2017 2018

Units Sold (,000 units) 0 8 40 110 162 162

Sales 0 3,322 17,765 48,451 71,846 71,846

Cost of Goods Sold 0 -2,680 -14,323 -38,988 -57,720 -57,720COGS Brazil 0 -2,680 -14,323 -38,988 -57,720 -57,720

Gross Margin 0 642 3,442 9,462 14,126 14,126

Gross Margin (%) 19.3% 19.4% 19.5% 19.7% 19.7%

SG&A -537 -5,297 -5,759 -7,035 -7,523 -7,523Operations -41 -520 -833 -842 -850 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

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%

Depreciation -300 -300 -300 -300

EBIT -537 -4,655 -2,617 2,127 6,303 6,303

Corporate tax 0 0 0 0 -156 -1,576

NOPAT -537 -4,655 -2,617 2,127 6,147 4,727

P&L (,000 USD) 2013 2014 2015 2016 2017 2018

Units Sold (,000 units) 0 8 40 110 162 162

Sales 0 3,322 17,765 48,451 71,846 71,846

Cost of Goods Sold 0 -2,680 -14,323 -38,988 -57,720 -57,720COGS Brazil 0 -2,680 -14,323 -38,988 -57,720 -57,720

Gross Margin 0 642 3,442 9,462 14,126 14,126

Gross Margin (%) 19.3% 19.4% 19.5% 19.7% 19.7%

SG&A -537 -5,297 -5,759 -7,035 -7,523 -7,523Operations -41 -520 -833 -842 -850 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

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%

Depreciation -300 -300 -300 -300

EBIT -537 -4,655 -2,617 2,127 6,303 6,303

Corporate tax 0 0 0 0 -156 -1,576

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 9

Example of output: business case – balance sheet

BS (,000 USD) 2013 2014 2015 2016 2017 2018

Assets 0 5,506 11,042 23,003 26,117 25,817

Fixed Assets 0 3,000 2,700 2,400 2,100 1,800Facility & machinery 3,000 3,000 3,000 3,000 3,000

Depreciation 0 0 -300 -600 -900 -1,200

Current Assets 0 2,506 8,342 20,603 24,017 24,017Inventory 0 1,952 6,369 15,220 18,030 18,030

Raw material 0 965 2,628 5,836 5,836 5,836

Work in progress 0 585 1,592 3,535 3,535 3,535

Finished products 0 402 2,148 5,848 8,658 8,658

Debtors 0 554 1,974 5,383 5,987 5,987

Cash 0 0 0 0 0 0

Liabilities and Equity 0 5,506 11,042 23,003 26,117 25,817

Equity -537 -5,191 -7,808 -5,681 467 5,194Capital 0 0 0 0 0 0

Retained earnings 0 -537 -5,191 -7,808 -5,681 467

Current year earnings -537 -4,655 -2,617 2,127 6,147 4,727

Financial liabilities 537 10,697 18,850 28,684 25,650 20,623Group 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

P&L (,000 USD) 2013 2014 2015 2016 2017 2018

Units Sold (,000 units) 0 8 40 110 162 162

Sales 0 3,322 17,765 48,451 71,846 71,846

Cost of Goods Sold 0 -2,680 -14,323 -38,988 -57,720 -57,720COGS Brazil 0 -2,680 -14,323 -38,988 -57,720 -57,720

Gross Margin 0 642 3,442 9,462 14,126 14,126

Gross Margin (%) 19.3% 19.4% 19.5% 19.7% 19.7%

SG&A -537 -5,297 -5,759 -7,035 -7,523 -7,523Operations -41 -520 -833 -842 -850 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

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%

Depreciation -300 -300 -300 -300

EBIT -537 -4,655 -2,617 2,127 6,303 6,303

Corporate tax 0 0 0 0 -156 -1,576

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 10

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

Deliverables

The outcome of the study included the following deliverables:

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

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

Project outcome

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