Borges Agricultural & Industrial Nuts: A Paradigm Shift
In 2016, the management team of Borges International, one of the leading groups in the production and distribution of Mediterranean diet products, continued to take steps in the new strategy for their nut-producing subsidiary. This strategy was to bring about a total paradigm shift in that division, one of the most important within the holding.
The growth of consumption of almond products, particularly in the emerging Asian markets, had highlighted the power of the agricultural producer in the value chain of this nut, while Borges acted as a transformer and distributor. In a market where margins were becoming slimmer and slimmer, Borges had decided to move to vertical integration, acquiring farms that would give the firm the productive capacity needed to capture more value, while at the same time achieving efficiencies that would further improve the competitiveness of its almond business.
The case analyzes this ambitious strategy and the reasons that led Borges to adopt it, while raising questions about its timing and execution, since it would require large investments and acquisition of new capacity, with the potential to completely change the character of the company.
Collection: IESE (España)
Ref: SM-1679-E
Number of pages: 18
Publication Date: May 7, 2019
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Description
In 2016, the management team of Borges International, one of the leading groups in the production and distribution of Mediterranean diet products, continued to take steps in the new strategy for their nut-producing subsidiary. This strategy was to bring about a total paradigm shift in that division, one of the most important within the holding.
The growth of consumption of almond products, particularly in the emerging Asian markets, had highlighted the power of the agricultural producer in the value chain of this nut, while Borges acted as a transformer and distributor. In a market where margins were becoming slimmer and slimmer, Borges had decided to move to vertical integration, acquiring farms that would give the firm the productive capacity needed to capture more value, while at the same time achieving efficiencies that would further improve the competitiveness of its almond business.
The case analyzes this ambitious strategy and the reasons that led Borges to adopt it, while raising questions about its timing and execution, since it would require large investments and acquisition of new capacity, with the potential to completely change the character of the company.
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Year: 2016
Geographic Setting: Spain
Learning Objective
The goal of the case is to discuss the possible strategic opportunities and options in a sector in which margins were falling for BAIN, which was losing power within the value chain of the product (in this case, processed almonds), which in turn was being captured by the supplier of the raw material.
In the case of Borges, a family company wishing to remain in the business, withdrawing from the market-despite the shrinking margins-was not an option, and so the search for value was obligatory since, on the other hand, continuing in a position of weakness was not sustainable. Out of this was born a strategy of vertical integration that sought to improve the position of the company within the value chain. The goal of the case is to assess the risks and opportunities of the plan, as well as its chances of success. The long-term vision is important here, as is understanding what "success" means for a company such as Borges. For example, given the volatility of agricultural prices, the Palm plan might drag down BAIN's profitability in some years with falling prices (but on the other hand improve them in years when prices were high). And so, the plan has to be judged within the framework of a complete cycle, and it is necessary to understand what would contribute to the group's global position (for example, stability in the supply).
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