Alternative Strategy Solution for Tia

Alternative Strategy Solution for Tia

The objective of this assignment is to offer an alternative strategy solution for the future of Tia. It also aims to present a critical analysis to Francisco de Narvaez's decision to sell the company, by examining his rationale behind this decision, and by pointing out the reasons that led him not to consider other options.

Alternative Solution: An involvement with a strategic partner would be a feasible alternative solution for Tia.

a) Supporting argument # 1: It would be economically attainable for Tia to sell approximately half of its shares to a strategic partner. The involvement of a business partner would allow the company to deal successfully with the challenges of globalization and to withstand competition on the domestic market. For the purpose of this argument I will consider Wal-mart as a potential strategic partner.

Evidence: Narvaez would need to attract a global operator that has the financial capacity to establish its dominance on Argentina's retail market. Wal-mart is a good choice because it enters the Argentine market as a powerful American retail giant that has the financial means to tackle the increasing global competition. If Narvaez is to pick up a strategic partner of a smaller scope, the new joint venture faces the risk of assimilation by other competitors. It is implied that with Wal-mart, Tia express stores will be well-financed. The most significant issue to be resolved in this merger would be the stock share. It is quite unlikely that Narvaez will agree to sell the majority of shares. Throughout his whole stay at Tia, Narvaez was never willing to release control. His determination in keeping strategic power is discussed later in the paper, when his decision to sell Tia is evaluated. Under these circumstances, it can be assumed that he would not be willing to sell more than 49% of Tia.

b) Supporting argument #2: If Tia teams up with Wal-mart its best strategy would be to maintain control and concentrate operations mainly in the countryside, and let Wal-mart take over the Tia Express stores in the cities.

Evidence: Empirical evidence (exhibit 4, p. 90) suggests that the population in rural areas accounts to 40% of the whole population in the country. Yet, it brings Tia more revenue than the urban regions (62% in the countryside as opposed to 38% in the cities), and 77% of profit (compared to only 23% in the cities). Also, as Narvaez admits, just before the sale Tia was "the only national player covering the whole country" (p.108). Therefore, it is logical to assume that Tia's involvement in the countryside is a big comparative advantage, and thus, it will be extremely feasible for the company to maintain that advantage by investing more in its "rural" network and operations. When selling 49% of the shares to Wal-mart, Narvaez needs to annunciate that Tia would maintain its Demand stores in the countryside, while Wal-mart will concentrate in the urban regions.

Despite the fact that global retail chains have been trying to establish themselves in Argentina, it can be assumed that it is quite unlikely that they would be able to penetrate in the countryside as fast as in the urban centres. Being the only national operator, Tia would have a comfortable cushion of at least 3-5 years (Narvaez, himself suggests this time frame- p.111), in which it is expected to dominate the market in the interior. There are at least two reasons that support this argument. People on the countryside are considered more conservative than people in the cities. According to the profitability statistics, it is evident that 77% of Tia's profit comes from the countryside. This evidence undoubtedly suggests that Tia has managed to make its products attractive to them, and it is obvious that it satisfies their demands. Therefore, the mentality of the people in the rural region could be used strategically by Tia to gain additional momentum and to maximize assets.

The second reason, that suggests that global operators would not be able to establish themselves in the interior immediately, is based on the assumption that Argentina is still characterized with underdeveloped infrastructure and unsophisticated transportation system. Although, evidence suggests that there is a positive trend towards economic stabilization, easing inflation and higher per capita income, it has to be pointed out that Argentina cannot be considered a developed country yet . It is rather in a transition stage, recovering from its economic collapse, hyperinflation, and political struggles for power. Even though the current conditions appear to be favourable for foreign investment, Argentina is not a low-risk market. Therefore, it is possible to assume that the global retail companies, when entering Argentina's market for the first time, would focus on establishing themselves first in the major cities, where the customers are more "sophisticated". This would, therefore, create a core-periphery division (the core, being the urban regions, and the periphery - the countryside), with all global investors focusing mainly on the core. It also has to be pointed out that despite their global influence and superior financial means, international chains, such as Carrefour, would be hesitant to invest huge amounts of capital in the countryside immediately. They would need at least a 2-4 years before they make any significant expansion within the periphery. Another important factor is that global operators lack experience on the domestic market in Argentina. This constitutes another huge comparative advantage for Tia, which, if utilized properly and without delay, would provide the company of estimated 3-5 years of market dominance in Argentina's countryside. Even after the actual sale of Tia to Exxel and Promodes, which eventually merged Tia's operations with Norte, Narvaez reflected that in the metropolitan areas some stores changed from Tia to Norte, but in the interior everything remained the same..."the Tia brand name in the interior was a very powerful one, while Norte had no presence" (p.111). Narvaez neglected the fact that people in the countryside would remain loyal to Tia, which gives the company an appropriate strategic positioning. Exhibit 1 (p.87) clearly shows that Tia is evenly spread throughout the country, and consequently it has become an institution for which people held affection : "shopping at 'Casa Tia' has become an Argentine tradition" (p. 92). Narvaez did not consider this advantage either.

Empirical evidence also suggests that Tia has a top-of-the-line team. Narvaez admits that Tia had "the top people" to run the company successfully. Therefore,

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