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The Unstoppable Mexican Wave

02 Abr 2013

In globalization, you can’"t be a spectator.

You either participate or you become a victim

Source: IESE Insight

Date: March 2013

Using His Loaf

Grupo Bimbo has come a long way since CEO Daniel Servitje’s grandfather emigrated from Catalonia, Spain, to Mexico in 1928 and opened his own bakery there. Servitje’s father, together with four partners, later founded Bimbo in 1945. Initially, they had just five trucks to deliver their bread and baked goods to Mexico City grocery stores. Today, Grupo Bimbo has more than 126,000 employees, a presence in 19 countries and more than two million sales points. Servitje grew up with the business. As a teenager in the ’70s, he helped out in the plants during school breaks. He has now been full-time with the family firm for more than 30 years, having earned a bachelor’s degree in business administration from Ibero-American University and an MBA from Stanford. Among the early names suggested for the company were Pan NSE (the Spanish word for “Bread” followed by the acronym in Spanish for “Nutritious, Tasty and Economic”), Pan Nieve (“Snow Bread”) and Pan Azteca. In the end, everyone settled on Bimbo, a diminutive of the Italian word “bambino” to refer to small children, which they felt best captured the tender essence of their bread. A picture of a cuddly white teddy bear spotted on a Christmas card ended up inspiring the company logo for its “white as flour, soft as bread” image. That heritage carries through today in the company’s mission “to nourish, delight and serve our world”.

“In globalization, you can’t be a spectator. You either participate or you become a victim.”

So declared Daniel Servitje, CEO of Grupo Bimbo, during his appearance at IESE’s Global Alumni Reunion held in Sao Paulo, Brazil. He took part in a panel discussion on “Charting Connectedness Across Borders, Leveraging Global Business Opportunities,” which was moderated by IESE Prof. Pankaj Ghemawat, an expert in globalization and international business strategy, and producer of DHL’s Global Connectedness Index.

Grupo Bimbo has shown itself not to be a victim of globalization. When the governments of the United States, Canada and Mexico signed the North American Free Trade Agreement (Nafta), eliminating duties and restrictions on goods and services traded within that continent, some feared that Mexico might lose out against the sheer business dominance of its powerful northern neighbor. But it hasn’t quite worked out that way: The growth in foreign investment by Mexico in the United States has happened much faster than the other way around, and at last count the U.S. goods trade deficit with Mexico was running at $66 billion.

Grupo Bimbo has been at the forefront of this Mexican wave. While internationalization might be the norm among food processing companies, few whole-sale baking companies have a major presence beyond national borders. Grupo Bimbo is an exception.

After commanding the home market, helped in part by the decision to vertically integrate into wheat production and flour mills, the company expanded throughout Central and South America. It began exporting baked goods to homesick Hispanic expats living in key U.S. states as long ago as 1985. Since Nafta, as well as a series of strategic acquisitions, the company now distributes everything from tortillas and pizza crusts to English muffins, donuts and hot dog buns north of the border.

In 2006, Grupo Bimbo became the first major Latin American firm to gain a foothold in the coveted Chinese market. Crucially, too, in 2011, Grupo Bimbo became the largest baking company in the world after acquiring Sara Lee North American Fresh Bakery, Fargo in Argentina and Sara Lee in Spain and Portugal.

But more than being the largest, Servitje aims to make Grupo Bimbo the best baking company in the world. To this end, the company continues its history of innovation: In the 1940s, it invested in a new type of wrapping to keep its products fresher for longer; in October 2012 it inaugurated its first wind farm in Mexico to provide clean energy for its plants.

It consistently ranks as one of the 10 most socially responsible companies in Mexico, and has been credited for publicly reporting the carbon footprint of its facilities and vehicles in Mexico. In this interview with IESE Prof. Pankaj Ghemawat, Servitje talks more about leveraging global business opportunities.

PANKAJ GHEMAWAT– Grupo Bimbo is unusual among Latin American multinationals in that it has expanded its position north of the border into the United States. How do you decide which markets to get into, and where do you see Grupo Bimbo going in the future?

DANIEL SERVITJE– For us, it was a defensive/offensive strategy. First, we went after Mexican consumers who were already in the United States and who knew our products. For a while, this was very profitable. But then we realized that we needed to be a local player, too, and take on the American brands. After all, the border was open, and if we didn’t go to the United States, U.S. companies would end up coming into our market.

Our strategy for Latin America is quite different. In a sense, we have replicated, country by country, the strategy that we had in Mexico many years ago: It’s about small businesses with low per capita consumption. From a profitability perspective, Latin America has not always been as positive as we would have liked. But as we continue to mature our distribution networks, it will become a very strong market for us. For the future, we are keeping our options open, but mostly we will be focusing on emerging markets.

PG– Given your status as an emerging market company, Grupo Bimbo is competing both in emerging markets and in the United States, in an area where brands and differentiation are very important. How have you managed to make that work?

DS– We have always been a branded company, and we value brands. However, in the packaged food industry, the name of the game is low cost. We have to fight, not only against our competitors’ branded goods, but also against private labels. As such, we need to be very efficient in whatever we do, so we are investing to become an even lower cost provider.

Where I think we have succeeded, and where we really add value for our shareholders, is by knowing our customers better than our competitors do. Every year, I spend time going to the homes of consumers, wandering the supermarket aisles with them and asking them questions about why and how they make the choices they do. By doing this, we believe that we can create distinctive products that consumers will appreciate more than the alterna- tives in that particular market.

I think it is essential for companies to have this culture of connecting with consumers – to get out into the field in order to understand what is happening in different markets.

We found that there are subtle cultural differences throughout Latin America. In Mexico, for example, packaged bread is much more popular than fresh bread, but this is not true for the rest of Latin America. We also found that, whereas in Mexico people tend to buy their bread in small mom-and- pop corner stores, the Argentines buy theirs in large supermarkets. We had to adjust our distribution strategy accordingly. Local knowledge is essential.

PG- Do all these cultural differences across the markets you work in make it difficult to have a global strategy?

DS– First, baking is a very local business. From a freshness standpoint and a manufacturing stand- point, we cannot travel far with our own products. Second, in my view, the food industry is not a global industry. What works in one market might not necessarily work in another. A value chain can be global in some respects, systems can be global, but when you really get down to it, customers in different countries don’t all like the same things. For that reason, we don’t dictate a global strategy. We have products that would be a complete failure in the United States but are a success in China, and others that work well in Guatemala but not in Mexico.

In each particular market, we offer the teams a portfolio of products and examples of what has worked well elsewhere. But ultimately, the decisions are made locally. For example, with the 70 baking plants we have in the United States, we want each of them to be run according to the market realities of their location, rather than according to what we might say in Mexico City.

PG– As important as the local touch may be, surely there are some things that must be more or less uniform across Grupo Bimbo. How do you strike that balance, and what really isn’t variable across markets?

DS– For one thing, principles – the common culture that we want to have within our company, and our ethics. These are the cornerstones of our business. They go wherever the company goes.

Common processes also help with unity. We have training programs and events for all new staff, so that they understand the core of what we do, where we come from and where we are heading. The other glue that holds the company together is a common IT platform. We have invested a lot of time in creating our shared services center. Wherever we go – whether China, the United States or Spain – the markets, products, prices and strategies will be different, but our back-office functions will be aligned.

PG– When it comes to IT, there are variations within your sector. Nestlé claims that a unified IT system has been critical to its global success, while a company like Kraft has several different IT systems. Where would you locate Grupo Bimbo on this continuum?

DS– Whenever we acquire a company, it takes us anywhere from six months to a year to shut down the old system and transfer everything over to our own. Some elements take longer than others, especially those that have an interface with customers, which really need to be attuned to the realities of the local market. But overall, ours is a unified system.

PG– With regard to acquisitions, how did Grupo Bimbo manage the acquisition of Sara Lee in the United States in 2011, which was a big acquisition in a developed market?

DS– Grupo Bimbo’s history in the United States started back in 1985. We were just starting to export a few products and distribute them in Los Angeles and Texas in small vans. Now, we have more than 30,000 routes across the United States. We have built this up through a succession of acquisitions. In 2009, in the midst of the financial crisis, we acquired George Weston Foods. It was a big opportunity for us to strengthen our position in the U.S. market. With the increased size that this acquisition gave us, we were able to go for the Sara Lee acquisition. In this case, our strategy has been to rebuild infrastructure. With the scale that the Sara Lee acquisition has given us, we have the opportunity to put in larger lines or new plants. We can really start to cut our costs and be even more competitive. It is a long-term vision. We don’t want to just put two companies together. We really want to transform the industry. It will probably take us four to five years of investing and building to be where we want to be. For us, this deal was all about gaining scale.

PG– Having been personally involved with all of these acquisitions, has your philosophy of leadership changed over your career?

DS– I don’t think so. I try to do the same things I have always done. I really try to connect with the teams in the places where we do business. My best days in the job are when I am out in the field, visiting plants or customers, speaking with our associates and really trying to be of service.

Being a CEO of a large company, you might meet very interesting people and say nice things, but you must never forget that you are as common as anyone else in the world. Try to be humble and keep your feet on the ground – that’s my strategy.

PG- What do you think are the key attributes of a global leader?

DS– You always need to have a plan or some notion of what you want to do with the business, whether it is the business you already have or the one you hope to acquire.

Having said that, I think it is vital to step back and listen to the diverse perspectives of your team and your customers. It is all well and good having a plan, but it has to be based on market realities. In the end, it is really about understanding where you can add value and when you have to step back. And then really going for the local game.