Rheem–Saiar

Abstract

Saiar, S.A. was created in the 1940s as a joint venture between a diversified Argentine business group with interests in petrochemicals and a European manufacturer of water heaters to produce steel containers, but as frequently occurs in Latin America, the original objectives of the joint venture were broadened to take advantage of the foreign firm's expertise. Thus, Saiar became the first company to introduce the tank water heater to the Argentine market, which had previously relied upon pilot electric heaters. As part of a global divestiture strategy, the European manufacturer sold its interest in Saiar to the Argentine group, allowing the company to continue selling under the Rheem brand name. Faced with economic recession and a declining domestic market, Saiar embarked upon a strategy of product diversification and geographic expansion. The company broadened its product line and began to export to less sophisticated markets in the neighboring countries of South America and in the Caribbean. Having thus gained international experience, it leaped into the far more demanding markets of Australia and the United States in the early 1990s. Saiar now faced an array of strategic decisions typical of the Latin American company attempting to go global. The decision that faced a company about to export to a new market was the selection of an appropriate distribution channel. In the U.S. market, Saiar has received three offers: from a small family-owned company over which it would have a strong negotiating position; from a Japanese company that saw potential in adding Rheem-Saiar to its product line; and from a leading U.S. manufacturer that, despite its size, proposed to begin with a very modest sales volume. The decision that faced a company that has achieved limited market penetration with exports is whether to move into overseas manufacturing. Saiar was considering this alternative in Australia because it would enable the company to adapt its products to the needs of the local market while cutting shipping costs by more than half. However, such a move was threatening to local industry and could have provoked retaliation. The Rheem subsidiary in Australia had threatened to retaliate by entering the Argentine market. Finally, a company that had established an overseas subsidiary was faced with the decision of when to “pull the plug” on a losing operation. Saiar management had to decide what to do about its Chilean subsidiary, Hometech, which was losing money as a result of low sales volume and high fixed costs. The company has received an offer from an important national distributor which would help gain volume but would mean losing control. Apart from these decisions, the case raises several issues about global strategies in Latin American companies that deserve reflection and discussion. One issue is whether the formula used by Saiar, to first gain a dominant position in the domestic market, then export to less demanding neighbors, and finally to penetrate the toughest world markets, is one which makes sense and may be replicated. A second issue is whether the temporary role of the foreign partner is desirable, and if so, how such temporary arrangements might be structured so as to maximize technology transfer while benefitting both parties.