x continent ikea case study
TRANSCRIPT
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Leveraging CSR to Drive Growth
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Executive Summary
How can Patrimonio Hoy secure capital to expand Mexican operations?
Key Question
Hypothesis
Patrimonio Hoy will leverage itsexisting capabilities and create new
opportunities to realize domestic scale
Hypothesis
I. IncentivizeDistributors
II. SecureSustainable
Partnerships
III. NewProduct
Offering
2
20% increase inprofits over 3 years
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I. Cementing Distributor RelationshipsIncreasing CEMEXs direct sales to
distributors
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PH
CustomersDistributors
Patrimonio Hoy (PH)
connects low-incomecustomers to distributors
that sell Cemex and
complementary home
construction materials
PH sales on average
account for 30% of
distributors overall
volume
PH has potential to
increase distributor
volume between 5 and 50%
Current Situation
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Distributors buy CEMEX cement forlower than market price
Distributors will in turn solely supplyCemex cement and agree to volumeand sales requirements
Distributors receive support from PHand CEMEX based on customerfeedback
Increasing switching costs will incentivizedistributors to solely supply Cemex
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Cemex-Distributor Agreement
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Original price of cement: MXN 123/bag
Quantity
Price
New Initiative Impact
6
Cemex price with 6%margin
MXN 130/bag
Cemex price with 3%discount to distributors
MXN 170/bag
30%3%
PH sales revenue
increases by 26%---
CEMEX cement sales
revenue increases
by 9%
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II. External Sources of CapitalLeveraging partnerships to secure
funding
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CSR Profit Generating
Current sources of capital are non-sustainable: CEMEX Inter-American Development Bank
(financing) GTX (eco-friendly products)
Positions Patrimonio Hoy closer to CSR
end of the spectrum
Customers
Patrimonio Hoy
CEMEX(Cement,Concrete)
ComplementaryGoods
Patrimonio Hoy incurs cost
to provide service that
increases sales to producers
of steel, molding
Current Capital Sources are Non-Sustainable
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Involve the suppliers of complementary goods
Share operating costs; both companies will realizetremendous market share gains
Cost Split:
Companies:
70% 30%100%
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Current Capital Sources are Non-Sustainable
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Yearly operating costs per cell: 415.000 $
Villaceros investment per cell: 100.000 $
Villaceros potential revenues:1.200.000 MXN
3.600 MXN800 Families 2.880.000 MXN
30% of 12.000 MXN
Potential ROI: > 200%
A Cost/Benefit Analysis
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III. New Product OfferingsCapitalizing on existing framework
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Weekly Income
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PH 100Pesos/Wk
OutcompeteTandas
Access to PHservices and
support
Cannot buy non-durable goods
Improveresource
utilization
Sell throughnew and existing
cells with IBDfunding
PH 100: A Competitive Alternative toTandas
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Samebenefit asaverageutilization
Reachbroaderconsumer
base
Moreefficientlycapturesdemand
Price Avg. Weeks to Complete
PH 220 MXN 220/week 40
PH 100 MXN 100/week 70
Six hundred families in my
neighborhood could benefit
from a lower-priced
program. El Colli, OfficeManager
I dont have a PH220 scale project.
I cant afford a
PH 220 scale
project.
Results of PH100 Implementation
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Consideration of External FactorsComparing Past Success with
Future Potential
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InformalHou
singSegmentisRelativelyStable
Peso Economic Crisis of 1994 Loss
CEMEX (50%)
Informal Segment (15%)
C
onservativeApproachtoExpansion 800
100Market
Potential
Annual
Expansion
Low
DefaultRecord
98.5%
On
Time
Late Fees
Lower Credit
Risk Mitigation Strategy
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Strengths Weaknesses
Opportunities Threats
Build closer distribution network
Market penetration
Capitalize on existing framework
to bring initiative to scale
Matriarchal society
Government relationship
Need CEMEX
Dependency on outside capital
Low price elasticity of demand
Boost CEMEX sales Beat competitors for share in
under-served low income auto-
construction market
Strengthen customer relationship
Loss of external partnerships Competition because of cautious
expansion
Few repeat projects per
customer
Trained workforce
SWOT Analysis
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Executive Summary
How can Patrimonio Hoy secure capital to expand Mexican operations?
Key Question
Hypothesis
Patrimonio Hoy will leverage itsexisting capabilities and create new
opportunities to realize domestic scale
Hypothesis
I. IncentivizeDistributors
II. SecureSustainable
Partnerships
III. NewProduct
Offering
18
20% increase inprofits over 3 years
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AppendixAdditional Analysis
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Average vs. Low Income Consumers
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Market Share Pie Chart
CEMEX48%
Holcim-Apasco22%
Cruz Azul
16%
Moctezuma9%
Other5%
Mexican Cement Manufacturers Market Share in 2011
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Pro-Forma Income Statementin thousand
2011 2012 2013 2014
Revenue 45,000 74,750 107,500 142,250Cost of Goods 0 0 0 0
Gross Profit 45,000 74750 107500 142250
General and Administration
Expense 41500 70500 70500 70500
Operating Profi 3,500 4250 37000 71750
Operating Margi 7.78% 5.69% 34.42% 50.44%
Taxes(assume -1225 -1487.5 -12950 -25112.5
Net Income 2,275 2,763 24,050 46,638
in thousand
Initiative 1
Increase in Revenue 2,250 2,250 2,250
Increase in Cost 0 0 0
Initiative 2
Increase in Revenue 20,000 23,000 25,000
Increase in Cost 29,000 29,000 29,000
Initiative 3
Increase in Revenue 7,500 7,500 7,500
Increase in Cost 0 0 0
Total
Increase in Revenue 29,750 32,750 34,750
Increase in Cost 29,000 29,000 29,000
Change in Profit 750 3,750 5,750
Pro Forma Income Statement
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Sources
Cemex: Innovation in Housing for the Poorhttp://www.bus.umich.edu/FacultyResearch/ResearchCenters/ProgramsPartnerships/IT-Champions/CEMEX.pdf
Cemexs Patrimonio Hoy: At the Tipping Point?http://www.globalens.com/DocFiles/PDF/cases/inspection/GL1428606I.pdf
Constructing a Base-of-the-Pyramid Business in a Multinazional
Corporation: Cemexs Patrimonio Hoy Looks to Grow(Business Case)
Cemex Financial Statementhttp://www.cemex.com/InvestorCenter/files/2011/CEMEX2011_20F.pdf
IDB Project (PCG)http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=36162193
Villacero Website (Social Responsabilities)http://www.villacero.com/responsabilidad.php?lang=en
Cost Breakdown of Building a Househttp://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/
http://www.bus.umich.edu/FacultyResearch/ResearchCenters/ProgramsPartnerships/IT-Champions/CEMEX.pdfhttp://www.bus.umich.edu/FacultyResearch/ResearchCenters/ProgramsPartnerships/IT-Champions/CEMEX.pdfhttp://www.globalens.com/DocFiles/PDF/cases/inspection/GL1428606I.pdfhttp://www.cemex.com/InvestorCenter/files/2011/CEMEX2011_20F.pdfhttp://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=36162193http://www.villacero.com/responsabilidad.php?lang=enhttp://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.professorshouse.com/Building-a-house/General/Articles/Cost-Breakdown-of-Building-a-House/http://www.villacero.com/responsabilidad.php?lang=enhttp://www.villacero.com/responsabilidad.php?lang=enhttp://www.villacero.com/responsabilidad.php?lang=enhttp://www.villacero.com/responsabilidad.php?lang=enhttp://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=36162193http://www.cemex.com/InvestorCenter/files/2011/CEMEX2011_20F.pdfhttp://www.globalens.com/DocFiles/PDF/cases/inspection/GL1428606I.pdfhttp://www.bus.umich.edu/FacultyResearch/ResearchCenters/ProgramsPartnerships/IT-Champions/CEMEX.pdfhttp://www.bus.umich.edu/FacultyResearch/ResearchCenters/ProgramsPartnerships/IT-Champions/CEMEX.pdfhttp://www.bus.umich.edu/FacultyResearch/ResearchCenters/ProgramsPartnerships/IT-Champions/CEMEX.pdf