Question

You are to prepare a two-page (single-spaced) paper based on the case assigned. The case is listed below.

Case Note Format

Your case analysis should be in the format of a two page (not counting the reference section) single-spaced Executive Summary. The report should follow the following format in sentence/paragraph form using APA format to cite sources. You are required to cite the textbook and at least one outside source from an academic peer-reviewed article.

1. Introduction of Firm

2. Overview of Firm Competitive Advantage

3. Problem(s) Statement

4. Alternative Solutions - Solutions/Opportunities

5. Option 1 Analysis

6. Pros

7. Cons

8. Option 2, Analysis

9. Pros

10. Cons

11. Add More Option Analysis as needed.

12. Decision and Support

13. Action Plan

14. References in APA format

Book Pitt, M., & Koufopoulos, D. N. (2012). Essentials of Strategic Management. London: Sage. ISBN: 9781849201872

CASE STUDY: Grupo Salinas of Mexico 37

Grupo Salinas originated as two family businesses, Benjamin Salinas & Co, a bed factory started in 1906, and a retail store called Salinas y Rocha. In 1950, Hugo Salinas Rocha started the Elektra Company to make television sets. His son took control in 1952 and accelerated growth by door-to-door selling and offering credit and instalment payments. Elektra’s first retail store opened in 1957. Elektra and Salinas y Rocha separated in 1961. Thereafter, Grupo Elektra grew substan- tially: in 1993, it issued shares on the Mexican stock exchange for the first time and was listed as global depository shares on the New York Stock Exchange in 1994. These sources of equity funds triggered a rapid expansion and diversification. Grupo Elektra’s commercial activities achieved EBITDA profits of $244 million on sales of $1.5 billion in 2000, more than 15% up on 1999. In 2001 the Salinas y Rocha department store chain rejoined the portfolio and Grupo Salinas was created as the parent holding company. At that time, the Group comprised the following activities:

• The Elektra chain of 600+ stores selling a wide range of electrical goods and furniture mainly to lower middle-class consumers, mostly in Mexico but also in Peru and four Spanish-speaking countries in Central America.

• The up-market Salinas y Rocha department store chain of 85+ outlets selling furniture, high-tech electronics and other consumer goods.

• Bodega de Remates, a discount chain of 50+ stores selling repossessed, reman- ufactured and discontinued goods to low-income Mexicans.

• The One, an acquired and expanded chain of 130+ stores selling casual clothes and accessories, previously called Hecali.

• Various consumer services and financial activities such as extended warranty provision, in-store ATMs and debt collection.

• An alliance with Western Union to enable expatriate Mexicans in the United States and elsewhere to make electronic money transfers to families at home.

• An Elektra-owned money transfer service in Mexico.

• TV Azteca, (the renamed, former state-owned Mexican TV service) acquired in 1993 as part of a consortium headed by President/CEO Ricardo Salinas, with more recent subsidiaries Azteca Digital (media production) and Azteca Music (records).

• A transportation company, Grupo Salinas Motors.

• A 50% shareholding in the mobile telephone operator Unefon, owned by TV Azteca (with Elektra stores selling Unefon services and handsets).

• The Fundacion Azteca, a charitable foundation established to support families and young people in difficulties.

Subsequently, corporate executives have substantially remodelled Grupo Salinas. As of 2009, it comprised nine wholly or partly owned businesses, operating vari- ously in Mexico, the United States, Guatemala, El Salvador, Honduras, Panama, Peru, Argentina, and Brazil, as follows:

Grupo Elektra

• Commercial (retail) group.

• The Elektra retail chain (over 1000 stores in the above-named countries, of which 800+ are in Mexico). • The Salinas y Rocha chain with 55 Mexican stores offering world-class brands in electronics, household appliances, furniture, motorcycles, tyres, cell phones, computers, and other retail services such as extended warranties, electronic money transfers, and credit services in collaboration with Banco Azteca. • Azteca Finance group.

• Banco Azteca, a full-service retail and commercial bank offering loans, mort- gages, debt collection and payroll services, operating in Mexico, Panama, Guatemala, Honduras, El Salvador, Argentina, Peru and Brazil.

• Seguros Azteca, a renamed insurance company acquired in 2003.

• Afore Azteca, a pension-fund management company.

• A minority stake in Ci?rculo de Cre?dito (a joint venture credit information service set up in 2005).

TV Azteca (media division)

• TV Azteca, the leading commercial TV broadcasting company in Mexico, together with its subsidiaries Azteca Digital, Azteca Music, and the Mexican pro- fessional football club Monarcas.

• Azteca America launched in 2001 as a Spanish language TV network in the US in Los Angeles, with coverage soon expanded to reach the majority of Hispanic homes across the US. Azteca Internet is a complementary web portal.

Grupo Iusacell (telecommunications division)

• Grupo Iusacell was acquired in 2003 and subsequently merged with Unefon (also owned by Grupo Salinas), providing 3G CDMA wireless telecommunica- tions services to over 3 million subscribers in Mexico, with a market share of 7%.

Italika: a manufacturer and retailer of motorcycles (started in 2006 and already selling over 200,000 units a year in Mexico, with 500 service points).

Social Foundations: Fundacio?n Azteca, Fundacio?n Azteca America, and ASMAZ y Fomento Cultural GS.

In 2007, the well-respected US journal Business Week criticised Grupo Salinas’s sub- sidiaries Grupos Azteka and Elektra for charging very high effective interest rates for extended credit (over 100% annualised in some cases) to very low-income households in Mexico and other Central and South American countries. Micro- lending, averaging $250 per loan was nonetheless very popular, and owing to effective debt collection methods, incurred relatively few defaults.

By 2009, Grupo Salinas’ market capitalization exceeded $US 12 billion and it employed about 45,000 people.

Answer 1

1. Introduction of the firm

Grupo Salinas Is a conglomerate of many companies with diversified product and service portfolio. Every company works as a different entity with own board of directors and Senior management. Elektra group main products are consumer electronics, home appliances and furniture. They also into financing and bike segment. Other companies are into internet service and television and radio network.

1. Overview of Firm Competitive Advantage

With varied product portfolio, big supply chain network will be considered its competitive advantage. Elektra has many retail shops in Mexico and Countries in Central America. Its supply chain network along with the access to all classes of people in Mexico has provided a conglomerate with specific advantage. Along with the supply chain Salinas can also integrate both upstream and downstream. Grupo Salinas has TV and radio manufacturing, retails shops to sell them, financing for quick and easy purchasing and TV and radio and internet network for viewing. This integration in the value chain has further enhanced its supply chain as along the value chain, supply chain can be synergized to improve efficiency.

1. Problem Statement

Group companies with varied product portfolio may face difficulty in synergizing the supply chain function to add further to its competitive advantage

1. Alternate Solution

Companies both in upstream and downstream of the value chain shall bring together a team of people from each company and then list down what can be done to remove inefficiencies in the system by taking advantage of each other. They can see how Telecosmo, internet service provider company can come to help mobile phone sellers at Elektra by giving out sweet deals.

1. Pros

With So many high probabilities existing in the system to improve efficiencies, conglomerate may see its revenue rising and cost of operation eventually coming down.

1. Cons

As each company has a management of its own, it is difficult to take quick decisions in such scenario and implementation too becomes a big issue.