Expert answer:week 4 assignment 2 Blue Ridge Spain
Expert answer:Read the following case to prepare for the case brief:“Blue Ridge Spain” (Course Pack)Suggested Guidance Questions for Brief AnalysisThe following questions are offered as a guideline for your analysis. These do not have to cover all the issues raised by the case. Some of these other issues may be more important in your opinion and you can support them.Delta, Blue Ridge, Terralumen, Sodegran, Alvarez and Costas are central in this case.What are the main issues from each one’s point of view?Given these issues, if you were Sodegran, what would you do? Why?If you were Costas, what would you do? Why?Should Delta Foods insist on the dissolution of Blue Ridge Spain? Why?
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Jeanne M. McNett prepared this case under the supervision of David Wesley and Professors Nicholas Athanassiou and Henry W.
Lane solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of
a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
Ivey Management Services is the exclusive representative of the copyright holder and prohibits any form of reproduction, storage or
transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights
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c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 6613208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2002, Northeastern University, College of Business Administration
Version: (A) 2009-12-01
Yannis Costas, European managing director of Blue Ridge Restaurants, found it difficult to control the
anger welling up inside him as he left the meeting with the company’s regional vice-president (VP) earlier
in the day. That evening, he began to reflect on the day’s events in the relative peace of his London flat.
“Ten years work gone down the drain,” he thought to himself, shaking his head. “What a waste!”
Costas recalled the many years he had spent fostering a successful joint venture between his company,
Blue Ridge Restaurants Corporation, and Terralumen S.A., a mid-sized family-owned company in Spain.
Not only had the joint venture been profitable, but it had grown at a reasonably brisk pace in recent years.
Without a doubt, partnering with Terralumen was a key reason for Blue Ridge’s success in Spain.
Therefore, Costas was somewhat dismayed to find out that Delta Foods Corporation, Blue Ridge’s new
owner, wanted out. Yes, there had been recent tension between Terralumen and Delta over future rates of
growth (see Exhibits 2 and 3), but the most recent round of talks had ended in an amicable compromise —
he thought. Besides, Delta’s senior managers should have realized that their growth targets were
unrealistic.
They had gone over the arguments several times, and Costas tried every angle to convince his superiors to
stick with the joint venture, but to no avail. To make matters worse, Costas had just been assigned the
unpleasant task of developing a dissolution strategy for the company he had worked so hard to build.
BLUE RIDGE RESTAURANTS CORPORATION
Blue Ridge was founded in Virginia in 1959, and quickly established a reputation for quality fast food. In
1974, after establishing more than 500 food outlets in the United States and Canada, Blue Ridge was sold
to an investment group for US$4 million.
Over the next five years, the company experienced sales growth of 96 per cent annually. However,
international sales were haphazard and there was no visible international strategy. Instead, whenever a
foreign restauranteur wanted to begin a Blue Ridge franchise, the foreign company would simply approach
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BLUE RIDGE SPAIN
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Blue Ridge headquarters with the request. As long as the franchise delivered royalties, there was little
concern for maintaining product consistency or quality control in foreign markets.
The strategy at the time was to enter into joint ventures with local partners, thereby allowing Blue Ridge to
enter restricted markets and draw on local expertise, capital and labor. Partnering also significantly reduced
the capital costs of opening new stores. The strategy of local partnering combined with Blue Ridge’s
marketing know-how and operations expertise, quickly paid off in Australia, Southeast Asia and the United
Kingdom, where booming sales led to rapid international expansion.
On the other hand, there were some glaring failures. By 1987, Blue Ridge decided to pull out of France,
Italy, Brazil and Hong Kong where infrastructure problems and slow consumer acceptance resulted in poor
performance. Some managers, who had been accustomed to high margins and short lead times in their
alcoholic beverages division, did not have the patience for the long and difficult road to develop these
markets and would tolerate only those ventures that showed quick results.
These early years of international expansion provided important learning opportunities as more managers
gained a personal understanding of the key strategic factors behind successful foreign entry. The success of
the company’s international expansion efforts helped Blue Ridge become the company’s fastest growing
division. When Blue Ridge was sold to Delta Foods in 1996 for US$2 billion, it was one of the largest fastfood chains in the world and generated sales of US$6.8 billion.
Delta was a leading soft drink and snack food company in the United States, but at the time of the Blue
Ridge acquisition, it had not achieved significant success internationally. It had managed to establish a
dominant market share in a small number of countries with protected markets in which its main
competitors were shut out. For example, one competitor was shut out of many Arabic countries after
deciding to set up operations in Israel.
The company’s senior managers disliked joint ventures, in part because they were time-consuming, but
also because they were viewed as a poor way to develop new markets. Delta was an aggressive growth
company with brands that many believed were strong enough to support entry into new overseas markets
without the assistance of local partners. When needed, the company either hired local managers directly or
transferred seasoned managers from the soft drink and snack food divisions.
Delta also achieved international growth by directly acquiring local companies. For example, in the late
1990s, Delta acquired the largest snack food companies in Spain and the United Kingdom. However,
given that joint ventures had been the predominant strategy for Blue Ridge, and that some countries, such
as China, required local partnering, Delta had no choice but to work with joint venture partners.
YANNIS COSTAS
Yannis Costas was an American-educated Greek who held degrees in engineering and business (MBA)
from leading U.S. colleges. Although college life in a foreign country had its challenges, it afforded him an
opportunity to develop an appreciation and understanding of American culture and business practices.
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In 1981, Blue Ridge was acquired by an international beverages company for US$420 million. Under new
ownership, the company made its first major foray into international markets, and international operations
were merged with the parent company’s existing international beverage products under a new international
division.
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The transition from university to corporate life was a difficult one. Social life seemed to revolve around
couples and families, both at Blue Ridge and in the larger community. Although Costas met some single
women from the local Greek community, his heavy travel schedule prevented him from establishing any
meaningful relationships. Instead, he immersed himself in his work as a way to reduce the general feeling
of isolation.
Costas was fortunate to have an office next to Gene Bennett, the company’s director of business
development. Bennett had served as a lieutenant in the U.S. Navy before working in the pharmaceutical
industry setting up joint ventures in Latin America and Europe. He was hired by Blue Ridge specifically to
develop international joint ventures. As Costas’ informal mentor, Bennett passed on many of the lessons
Costas would come to draw on later in his career.
It was at the urging of Bennett that Costas applied for a transfer to the international division in 1985. Three
years later, Costas was asked to relocate to London, England, in order to take on the role of European
regional director for Blue Ridge. In this position, he became responsible for joint ventures and franchises in
Germany, the Netherlands, Spain, Northern Ireland, Denmark, Sweden and Iceland.
In 1993, Costas was transferred to Singapore where, under the direction of the president of Blue Ridge
Asia,1 he advanced in his understanding of joint ventures, market entry and teamwork. Over the next five
years, Costas built a highly productive management team and successfully developed several Asian
markets. He was eager to apply these new skills when he returned to London in 1998 to once again take up
the role of European director (see Exhibit 1 for a summary of Costas’ career).
THE SPANISH DECISION
When the decision was first made to enter the Spanish market, Bennett was sent overseas to meet with real
estate developers, construction companies, retail distributors, agribusiness companies, lawyers, accountants
and consumer product manufacturers in order to gather the preliminary knowledge needed for such an
undertaking. Bennett soon realized that Blue Ridge would need a credible Spanish partner to navigate that
country’s complex real estate and labor markets.
Few Spaniards among Bennett’s peer generation spoke English. However, Bennett had a basic knowledge
of Spanish, a language that he had studied in college, and this helped open some doors that were otherwise
shut for many of his American colleagues. Still, Bennett knew that finding a suitable partner would be
difficult, since Spaniards frequently appeared to distrust foreigners. The attitude of one investment banker
from Madrid was typical:
Many Spaniards do not want to eat strange-tasting, comparatively expensive American
food out of paper bags in an impersonal environment. We have plenty of restaurants with
good inexpensive food, a cozy atmosphere and personal service, and our restaurants give
1
At the time, Blue Ridge Asia was one of the company’s most successful operations with nearly 800 restaurants in
Singapore, Malaysia, Taiwan and Thailand.
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Therefore, upon completing his MBA, Costas turned-down several offers of employment from leading
multinational corporations that wanted him to take management positions in his native country. Such
positions, however appealing they may have been at the time, would have doomed him to a career as a
local manager, he thought. He chose instead to accept a position in international auditing at Blue Ridge
headquarters in Virginia, mainly because of the opportunity for extended foreign travel.
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you time to enjoy your food in pleasant company. Besides, we don’t even really know
you. You come here for a few days, we have enjoyable dinners, I learn to like you, and
then you leave. What kind of relationship is that?
TERRALUMEN S. A.
Terralumen was a family-owned agricultural company that had later expanded into consumer products. In
doing so, Terralumen entered into several joint ventures with leading American companies. In recent years,
Terralumen had also begun to experiment with the concept of establishing full-service restaurants.
Bennett was introduced to Francisco Alvarez, Terralumen’s group vice-president in charge of restaurant
operations and the most senior non-family member in the company. In time, Bennett had many
opportunities to become well acquainted with Terralumen and its managers. On weekends he stayed at
Alvarez’s country home, attended family gatherings in Barcelona and had family members visit him in
Virginia. Over the span of their negotiations, Bennett and Alvarez developed a solid friendship, and
Bennett began to believe that Terralumen had the type of vision needed to be a successful joint venture
partner.
After two years of negotiations, Blue Ridge entered into a joint venture with Terralumen to establish a
Blue Ridge restaurant chain in Spain. Upon returning to Virginia, Bennett could not hold back his euphoria
as he related to Costas the details of what he considered to be the most difficult joint venture he had ever
negotiated.
BLUE RIDGE SPAIN
Alvarez hired Eduardo Rodrigo to head up the joint venture as its managing director. An accountant by
trade, Rodrigo was a refined and personable man who valued his late afternoon tennis with his wife and
was a professor at a university in Barcelona. He also spoke fluent English.
Before assuming his new role, Rodrigo and another manager went to Virginia to attend a five-week basic
training course. Upon his return, Rodrigo’s eye for detail became quickly apparent as he mastered Blue
Ridge’s administrative and operating policies and procedures. He knew every detail of the first few stores’
operating processes and had an equally detailed grasp of each store’s trading profile. As a result, Blue
Ridge Spain began to show an early profit.
Profitability was one thing; growth was another. Although the Blue Ridge concept seemed to be well
received by Spanish consumers, Rodrigo was cautious and avoided rapid expansion. Moreover, one of the
most important markets in Spain was Madrid. Rodrigo, who was Catalan,2 was not fond of that city and
avoided travelling to Madrid whenever possible. As personal contact with real estate agents, suppliers and
others was necessary to develop new stores, Blue Ridge’s expansion efforts remained confined to the
Barcelona area. Terralumen, becoming impatient with Blue Ridge’s sluggish growth, decided to focus
more resources on its consumer product divisions and less on the restaurant business.
2
Catalonia, a state in northeast Spain, had a distinct culture and language (Catalan).
Authorized for use only by Jayce Horrocks in INTB 6200 at Northeastern University from Jul 24, 2017 to Aug 20, 2017.
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Luckily, Bennett had a banker friend in Barcelona who recommended that he consider partnering with
Terralumen.
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In 1993, shortly after Costas was transferred to Singapore, Blue Ridge decided to send one of its own
managers to oversee the Spanish joint venture. Under pressure, Rodrigo began to ignore criticism about the
company’s lack of growth. On one occasion, Rodrigo decided to close the Blue Ridge offices for an entire
month just as Blue Ridge’s international director of finance arrived in Barcelona to develop a five-year
strategic plan.3
Terralumen finally replaced Rodrigo with a more proactive manager who had just returned from a
successful assignment in Venezuela. Under the new leadership of Carlos Martin, Blue Ridge Spain began
to prosper. Soon everyone was occupied with the difficult task of acquiring new sites, as well as recruiting
and training employees.
COSTAS RETURNS TO EUROPE
In late 1998, Costas was transferred from Singapore to London to resume the role of European managing
director. The previous director had performed poorly and it was felt that Costas had the experience needed
to repair damaged relations with some of Blue Ridge’s Middle Eastern joint venture partners. By this time,
Blue Ridge had more than 600 stores in Europe and the Middle East.
One of Blue Ridge’s more lucrative joint ventures was in Kuwait. However, the partners were threatening
to dissolve the enterprise after the previous managing director became upset that the Kuwaitis were not
meeting growth targets. The partners were especially concerned when they discovered that he had begun to
seek other potential partners.
Costas decided to schedule a visit to Kuwait in early January. The partners counselled against the visit
since Costas would be arriving during Ramadan,4 and therefore would not be able to get much work done.
Nevertheless Costas went to Kuwait, but spent nearly all of his time having dinners with the partners. He
recalled:
Most American managers would have considered my trip to be a waste of time, since I
didn’t get much “work” done. But it was a great opportunity to get to know the partners
and to re-establish lost trust, and the partners felt good about having an opportunity to vent
their concerns.
Costas returned to London confident that he had reassured the Kuwaiti partners that Blue Ridge was still
committed to the joint venture.
Costas was also happy to be working with his old friend Alvarez again, as the two began working on an
ambitious plan to develop a total of 50 stores by 2002 (see Exhibit 2).5 As Blue Ridge Spain continued to
3
In Spain, the month of August was traditionally set aside for vacations.
Ramadan is the holy month of fasting ordained by the Koran for all adult Muslims. The fast begins each day at dawn and
ends immediately at sunset. During the fast, Muslims are forbidden to eat, drink or smoke.
5
The plan to develop 50 stores was agreed to in 1998, prior to Costas’ arrival.
4
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For Costas, one of the challenges during his first assignment as European director was to convince
Terralumen to focus more on the joint venture and support faster growth. Rodrigo positively opposed more
rapid growth, even though Alvarez, his direct superior, voiced support for the idea. Although he had been
very cordial in his interactions with his American counterparts, Rodrigo believed himself to be in a much
better position to judge whether or not the Spanish market would support faster growth.
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grow, stores were opened in prime locations such as the prestigious Gran Via in Madrid and Barcelona’s
famous Las Ramblas shopping district. Costas and Alvarez, both of whom had been involved from the
beginning of the joint venture, were delighted to see how far the company had come.
Delta began to take a more direct and active role in the management of Blue Ridge. In Europe, for
example, Delta created a new regional VP position with responsibility for Europe, the Middle East and
South Africa. When Costas became aware of the new position, he asked whether or not he was being
considered, given his extensive experience in managing international operations. The human resources
department in the United States explained that they wanted to put a seasoned Delta manager in place in
order to facilitate the integration of the two companies.
Although disappointed, Costas understood the logic behind the decision. He also considered that by
working under a seasoned Delta manager, he could develop contacts in the new parent company that might
prove favorable to his career at some future date.
In May 1999, Costas received a phone call from Bill Sawyer, Blue Ridge’s director of human resources,
whom Costas had known for many years.
Sawyer: We hired someone from Proctor and Gamble. He’s 35 years old and has a lot of marketing
experience, and he worked in Greece for three years. You’ll like him.
Costas:
That’s great. Have your people found anyone for the VP job yet?
The line was silent, then Sawyer replied in an apologetic tone, “He is the new VP.” Costas was
dumbfounded.
Costas:
I thought you said you were planning to transfer a Delta veteran to promote co-operation.
Sawyer: Nobody from Delta wanted the job, so we looked outside the company. Kinsley (president,
international division) wanted a “branded” executive, so we stole this guy from P&G.
Sawyer went on to explain that Mikael Södergran, who was originally from Finland, had no …
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