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Logoplaste Global Growing Challenges Case Solution
Logoplaste is a company manufacturing moldable, synthetic plastic for manufacturing companies. Founded in 1976, Logoplaste started manufacturing plastic containers for companies in Europe. It established its factories close to its customers. Investing in transportation costs of plastic, a space-consuming and low-value product, was not a feasible option. It met the plastic industry standards and was a supplier to various small as well as large fast-manufacturing consumer goods (FMCG) companies. These companies included Procter and Gamble and Unilever. With each new customer, it was required that Logoplaste set up a dedicated plant in the proximity of the customer factory. It meant a lot of investment in the beginning to reap profits later. With large multi-national companies such as P&G and Unilever as customers, it was important always to be ahead of the competitors. The reason was that these large companies have a lot of suppliers offering them services at lower cost than what Logoplaste is offering. However, meeting the quality, as well as price standards, was the main goal of the company, Logoplaste.
Following questions are answered in this case study solution
Why would companies like P&G and Unilever favor Logoplaste over its competitors? How does your answer change if Logoplaste increased its global footprint?
What are the Pros and Cons of each of the three strategic options of global expansion that the case identifies? What would you recommend to Logoplaste's board, and why?
Expansion into the Global Market
Local Company Focus
Case Analysis for Logoplaste Global Growing Challenges
There are a few points on which P&G and Unilever would be justified to use Logoplaste's containers.
Logoplaste's flexibility had been one factor by which many companies were attracted. Firstly, the delivery of plastic containers was not a viable option because it would increase the costs for the company. The first point of flexibility is that LP, with every new customer, opened up a container manufacturing facility in proximity. Many companies before the 1990s preferred to have a single container manufacturing unit for a large geographical area. This was because the manufacturing was not very high in the markets such as Holland and Europe. In the case, Heinz was taken as an example. It had only required one plant setup in Holland. However, as the manufacturing scale increased, many companies opted for separate container manufacturing setups for every manufacturing unit. This was cost reduction on the company end because the transportation costs were lowered immensely.
The other point for flexibility was coping with client sales. In the case, it was stated that this factor had been essential for client retention. P&G's soft drinks suffered a huge loss after a scandal of a girl getting ill because of it. The sales volumes decreased for that segment and Logoplaste, which was looking for a long-term relationship with the company was operating at a loss. LP had two options, either it could take all the investment costs from the company and lost a very profitable customer or, it could have shown flexibility. LP opted for the second option. It gave the offer to the company to downsize the container plant and revise the contract.
Second is the innovativeness factor. LP's goal was not to come to the price negotiations, but charge on the innovativeness. The reason is that in the global market, cost-leadership is not preferred. Cost-leadership may gain the company profits initially. However, it is constantly faced with the threat of competitors and low-profit margins. A research in the book 'Born Global Firms: A New International Enterprise', showed that companies competing on cost-leadership were the poorest if the performers (Cavusgil & Knight, 2009). It is stated that cost-based competitiveness in the global market may also lead to lower quality of products, which would result in the decrease in sales for the company, in this case, LP (Hitt, et al., 2013). The innovative products created by I Lab, a division of the company focusing on research and development of new packaging, were offered to the companies. These products were not only just low-priced, but also increased efficiency. This negotiation was made at the end of the contract term. The renewal of the term was not based on price, but new products. The I Lab facility included a fully integrated service to the clients. These services included early marketing of the packaging, design of the new product, research, strategy development, engineering, manufacturing and implementation of the packaging. These integrated functions attracted clients because of the offering of all the components of packaging by a single firm.
Third is the experience with expansion. For the internationalization/ international expansion process, firms have to have two essentials. Firstly, the firm's experience, secondly, the market experience (Buckley & Ghauri, 1999). Both of these experiences were with LP. It was stated that LP started its expansion in 2004. It expanded in Western Europe and continued to Brazil, North-America, Central and Eastern Europe, China and Asia Pacific. The business gained knowledge about the difference in the cultural and legal contexts in different environments. This led to the creation of different systems for further knowledge and ease in business negotiations. The challenges presented by cultural and language differences were catered to by the formation of a small plant. After the experience with that plant, LP continued its expansion. The Asian markets proved to be a great success after the experience in Central and Eastern Europe. The expansion process became a typical for LP. For new ventures, it selected a plant manager of a previous plant to explore the new opportunities. This had become a typical for LP and implied that LP had gained the expertise for the expansion process.
The challenge was to choose between expansion to new markets or to stay local. The multi-national companies wanted LP to expand to other markets. The reason for this preference over competitors was LP's experience with the expansion process and a history of success in it.
LP, in order to gain more clients and retain the previous ones, had begun to offer additional services to them. These additional services included the procurement services for the companies for the purchase of services and other supplies for the manufacturing unit. These additional services gave cost-cutting benefits and sales improvement benefits for companies. An example was given in which a figure of 80% cost reduction as stated for telecommunication services. This had led to a boost in the aggregate demand for the company's manufacture. If seen from the LP perspective, increased sales meant increased demand for packaging, thus increasing the sales for LP. This can be a concept of a strategic alliance. LP, in order to increase its sales, is working on the increase of the other company’s sales (Inkpen & Ramaswamy, 2006)
If LP increased its global foothold, it would be greatly beneficial to companies. The points that would be then the factors for company preference would be:
Improved price margins
The global foothold would increase LP's global presence that would serve as container manufacturers for the manufacturing units of P&G and Unilever apart from the already present markets.
The improved price margins would come with the economies of scale because the scale of production will increase. It is stated in the case that FMCG companies focus on the development of new container functions in an acceptable price range (Peng, 2014). The global strategy would improve the price functions with the new container function development already available with the I Lab project.
The globalization strategies are such that they project a standardized product to different markets. Through these standardization practices come the benefits of the economies of scale also (Ireland, et al., 2009). It is states in the case that multi-national companies want to keep the packaging a standard as offered in their Western markets. The design and standard of the containers would be the same across. This would be a positive for the standardization factor and global operations of LP would allow companies to maintain the quality and design of their packaging worldwide.
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