Cran chile case study. What are the motivations and factors that influenced the foreign investment decision for Carn Chile?

University Degree Business and Administrative studies

_____________________________________________________________________________________INTERNATIONAL BUSSINES - CASE CRAN CHILE

QUESTION 1: What are the motivations and factors that influenced the foreign investment decision for Carn Chile?

Warren Simmons was the owner of Chevys Mexican Restaurants when he realized that the cranberries suppliers were not able to fulfill the demand of these products, and that there will be inadequate suppliers of cranberries because there were some problems in the US in this market. First, regulation has become more stringent, and the land of cultivation was costly and more difficult to obtain. Also there was a problem with yields. The lands have become less fertile because many years of cultivation and urbanization and land development have increase land cost, so more areas were no longer profitable.

Simmons knew this would be an increasing problem for suppliers and decided to make an investment abroad and gain some advantage. He finally chose Chile, first because it doesn’t have environmental regulations, and the availability of fertile soil and rain which was a problem in the US, but in Chile, may have increased the production and yields.

The main benefits were lower cost of production, including industry cost and human cost. Another benefit is the lack of restrictions in comparison to USA, and also the fertile and extensive land, which has not been cultivated, giving the company a huge advantages of being the first one, and because it doesn’t have any competitors.

QUESTION 2: Do you see any ethical problems by investing where there are no environmental restrictions, such as those that make home-country investment more difficult? How might the differences in environmental restrictions between the United States and Chile affect the future of Cran ...

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The main problem of investing in a country without environmental restrictions is that they will probably not take care about this issue in the host country and they won’t take any actions to prevent future damages.

The main ecological impact of environmental damages in agriculture is the irreversible loss of habitat, which affects the woods, land and may also alter the wildlife and on the other hand, it may also affect other economic activities of the zone.

Other damages in agriculture may include an excessive use of fertilizer and pesticides or even contaminated water which may also affect consumers’ health, and can cause huge media impact and damage the image of the company. In addition, deforestation and soil erosion are important issues to take care because the loss of woods in case of deforestation and because soil erosion can be a source of air pollution. Also, the company can cause damage because of the high consumption of oil and other fuels and he emission of large amounts of C02 which is responsible of the greenhouse effect.

All of these problems caused by a wrong administration of the restrictions can influence the company in the long run. It may be highly effective at the beginning because of low costs, but it will later by punished by the ones who will be affected by these issues, or even the own host country may realize that the company is causing damage and may take actions against it. Because of this, it doesn’t matter if the restrictions are not clear or they’re suppose to be less restrictive, because the future damage will be noticed and if the company is not socially responsible, it will be considered as an enemy and this will finally affect their image and profitability.

QUESTION3: Relate Simmons’s process of international expansion with companies’ usual internationalization process

The international process of the company started with an FDI in Chile, a remote country that promised available and inexpensive land, high production, and fewer restrictions, assuring low costs and high yields. The global benefits of FDI include economic growth of the host country, opportunities of trading, it create employments and improve skill levels, it allows technology diffusion and knowledge transfer, and so on.

The production model in Chile allowed them to be the low cost producer of cranberries. It works because of several factors:

- Vertical integration

- Economies of scale

- New technologies

- Higher yields

- Lower expenses

- Lower capital costs

- And so on.

The process was successful, however, the company was not able to expand sales around the world so easily. Within the States, cranberries are highly consumed because it has been part of the country since years. But this was a total failure in Japan and Chile, because of the acid flavor of the fruit. The most used expansion process of firms is exporting, which is chosen to be the first mode of entry when barriers and transportation costs are low and when they feel it could be safer because if they fail in the host country they won’t lose anything but the transportation cost and barriers cost, but they won’t have to spent in fabrics and initial investment costs.

Nowadays this problem exists no more, because the cranberries are now being consumed around the world. Cran Chile has positioned as one of the largest producers and processors of cranberries in Latin America and has expanded its activities and it is even selling juice and juice and fresh and dried cranberries in different places. So even if the strategy was not normal, they could achieve lower cost of production, keep selling in their own country and satisfy the demand, and when other countries were ready to buy cranberries they had already learned about the process and gain economies of scale which let them grow and be successful in the industry.