Consorcio Ferrex

Abstract

This case presents the experience of six Chilean manufacturing companies that opted for joining forces to conquer international markets. Each specializes in a different line of hardware or construction-related items, and taken together, they offer a wide range of products. The case describes the reasons for the formation of the consortium, including a severe economic recession that drastically affects the construction industry and reduces the sales of the hardware manufacturers. One option is to export, but entry in international markets requires a broad line of products, physical presence, advertising and promotion, and brand recognition, which none of the companies acting independently can attain, and even less so if they compete with one another. Therefore, the companies decide to join in a consortium, consisting of two interrelated companies: Ferrex Trading Company, with offices and warehouses in Miami, which acted as a U.S. importer and distributor, and Ferrex Chile S.A., which received orders from its U.S. counterpart and distributed them among the six member companies. It also prepared shipments and complied with export procedures, maintaining close contact with government entities that supported the initiative such as the Central Bank of Chile, the export promotion agency PROCHILE, and customs. The case describes how Ferrex negotiated with the government for favorable conditions such as free zone status that allowed the consortium to reduce operating costs and provide better service both to member companies and to final consumers. This case is an excellent vehicle for exploring ways that small companies have been successful in their domestic market but that lack the resources to penetrate international markets as independent companies can join forces in combining product lines, pooling marketing efforts, enforcing quality standards, advertising, and developing a single brand name that comes to be respected among consumers. The case documents the consortium's success in obtaining brand recognition for quality and a reputation for excellent service. Moreover, it now has an opportunity to reduce operating costs by signing contracts with nationwide distributors. The problem facing the consortium at the time of the case was that the domestic market for hardware products in Chile had recovered, demand was strong, and four of the six members had lost interest in export marketing, which is less profitable and more difficult. Mr. Patricio Lioi, president of the consortium and owner of one of its most active member companies, had to decide between pressuring the consortium members to honor their original commitments or looking for new companies to join. Among Mr. Lioi's options were to buy out the shares of the less active members in the consortium and to continue ahead with the project.