S. A. Chupa Chups is a Multi-National Company that has grown internationally since its inception in 1958. Reasons for successes of this company have been their aggressive approach in developed and developing nations as well as the partnership they do with existing firms in those nations. The problems I noticed with their development were their efforts to diversify from core competencies and their organization structure that was central-based and did not highly promote worldwide learning from experiences.
The first problem I'm noticing in this case is the effort being put forward to diversify from their core competence, making confectionery products. I do understand that it may be economically sound to diversify into markets that are complimentary to your core where economies of scale could be realized. But in this case it seemed like Chupa Chups was trying to build a kingdom where everything they needed would be supplied by an internal source.
The scenario where Chupa Chups partnered with the bread baker to make cakes was a great use of their core competence being leveraged for other revenues. In this case, there were common resources required for both the candies and the cakes that Chupa Chups didn't have to recreate because of their presence in the industry.
There were other instances where Chupa Chups developed its own distribution system for the products. I feel that there were opportunity costs involved with doing this that could have been defrayed by outsourcing the distribution and investing that capital into making candy.
There are two options being recommended that will provide a solution to this problem. The first one assumes that Chupa Chups has a competitive advantage in their confectionery products and that there's another company with the competitive advantage in the other business areas. The solution suggests that Chupa Chups will divest itself of all of its auxiliary businesses that are not part of its core competence. They should outsource to another company that is able to do it with less resources.
The second option is for Chupa Chups to continue to diversify as they're doing, but instead of only providing the services to their confectionery business, to acquire other customers who will need such services. This way, they will be able to realize efficiencies from economies of scale.
The drawback of implementing the first solution is that Chupa Chups will be losing control of pieces of their operations. Although the solution proposes an advantage from where they currently are, it also has the drawback of placing all of their eggs in the same basket.
The second option has an opportunity cost risk. They have to chance of not being as profitable as possible for their stake holders because of the diversification.
Mechanism to overcome drawback(s):
Depending on which option Chupa Chups wants to go with, there are several mechanisms...