x Continent IKEA case study

7/28/2019 x Continent IKEA case study

1/23

Leveraging CSR to Drive Growth


2/23

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


3/23

I. Cementing Distributor RelationshipsIncreasing CEMEXs direct sales to

distributors


4/23

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

4


5/23

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

5

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

8


9/23

Involve the suppliers of complementary goods

Share operating costs; both companies will realizetremendous market share gains

Cost Split:

Companies:

70% 30%100%

9

Current Capital Sources are Non-Sustainable


10/23

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

10


11/23

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

13


14/23

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

14


15/23

Consideration of External FactorsComparing Past Success with

Future Potential

6


16/23

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

16


17/23

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

17

8


18/23

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


19/23

AppendixAdditional Analysis


20/23

Average vs. Low Income Consumers

21


21/23

21

Market Share Pie Chart

CEMEX48%

Holcim-Apasco22%

Cruz Azul

16%

Moctezuma9%

Other5%

Mexican Cement Manufacturers Market Share in 2011

22


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22

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 Cost 29,000 29,000 29,000

Initiative 3


Increase in Cost 0 0 0

Total


Increase in Cost 29,000 29,000 29,000

Change in Profit 750 3,750 5,750

Pro Forma Income Statement


23/23

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/
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