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Tetra Pak Argentina Case Solution

Solution Id Length Case Author Case Publisher
1118 798 Words (2 Pages) Tarun Khanna, Krishna G. Palepu, Gustavo A. Herrero Harvard Business School : 708402
This solution includes: A Word File A Word File

Brazil had an exceptional performance in terms of sales in US Dollars and profitability. This was largely attributed to its self-sufficiency in production inputs. On the whole, Latin America accounted for just 7% of global sales in the 1990s, which then grew to 15.5% of global sales. The region exhibited one of the best profitability and productivity performances. These factors largely drove Tetra Pak’s initiative to invest in Latin America. Moreover, regional distribution of main production inputs gave rise to self-sufficiency, and this self-sufficiency was first seen in South America. Shipping hassles and supply chain problems owed to the spread of the production process in different continents were thus avoided. Moreover, taking a leaf from previous experiences, in an effort to downplay the uncertainty that was associated with exchange rate, the establishment of regional clusters was encouraged.

Following questions are answered in this case study solution

  1. What were the drivers for Tetra Pak’s investment in Latin America? What was their strategy for mitigating exchange rate risk?

  2. What was the economic situation in Argentina faced by Tetra Pak in 2001-02, and what factors contributed to the crisis? Discuss the asymmetric devaluation of the currency and the impact on Tetra Pak’s business.

  3. What suggestions do you have for Tetra Pak to deal with the economic situation in Argentina?

  4. What strategies or approaches could Tetra Pak have adopted to better mitigate this kind of risk?

Case Analysis for Tetra Pak Argentina

What was the economic situation in Argentina faced by Tetra Pak in 2001-02, and what factors contributed to the crisis? Discuss the asymmetric devaluation of the currency and the impact on Tetra Pak’s business.

At the beginning of the 1990s, Argentina sought out steps to curb the inflation it had faced in the late 1980s. In order to do so, Argentina’s currency was pegged to the US Dollar. The issuance and printing of local currency were put under stringent rules that called for the backing of any pesos to be printed with hard currency (US Dollar) inflows. This limited the Central Bank’s role as the lender of last resort. Meanwhile, a period of sustained growth came about, lasting till 1997. However, a recession followed soon after in 1998. Public debt also rose due to an increase in public spending and a limit on printing money.

In 1999, public spending became hard to manage under a new political regime and to contain the recession of the economy became a challenge. Political unrest came about in 2001, and a sovereign default was announced. Asymmetric devaluation was experienced, wherein there was a discrepancy between the exchange rates at which foreign currency loans were collected by banks and deposited in banks. US Dollar loans made by the bank were received back at just 30% of the exchange rate they were lent at. Meanwhile, import payments were to be paid back in full valuation of the US Dollar. Eventually, consumption fell, and commercial credit became nonexistent. In the thick of things, Tetra Pak had to tackle the issue of asymmetric devaluation at its scale as well. Despite a clause governing its sales with regards to the US Dollar conversion, the possibility of non-adherence to this clause drew concern based on the state of the country at the time. Meanwhile, the supply of inputs incoming from abroad called for full remuneration to overseas suppliers at the international US Dollar rate. Thus, Tetra Pak suffered immensely from the implications that an asymmetric devaluation brought about.

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