Dale mis encomiendas, aunque no lo conozco, y dile que me pesa mucho y parte con él de aquesa conserva, que para ti, bien mío, la tenía guardada. Mañana es día de amasijo y te haré una torta de aceite con que sin vergüenza puedas convidar a tus camaradas.
Give him my regards, though I do not know him, and tell him that I am sorry, and share with him these pickles that I had treasured for you, my dear. Tomorrow is baking day and I will make you an olive oil torta so you may treat your comrades proudly.
Mateo Alemán, Guzmán de Alfarache, [1599] Cátedra 1987, p. 486.
1. INTRODUCTION
Family firms, in general, and, more specifically, their internationalisation processes have lately received increasing attention from researchers. The international literature generated over the last few years is ample and has been recently reviewed by Pukall and Calabro (Reference Pukall and Calabro2014). Spanish literature on the subject includes monographs published by the journals Información Comercial Española (2009), Revista de la Historia de la Economía y la Empresa (2014) and Journal of Evolutionary Studies in Business (2016), as well as research works on the internationalisation of large companies, both family firms and corporations (Fernández Pérez and Lluch Reference Fernández Pérez and Lluch2016)Footnote 1 .
This article studies, from the born-again global firm framework, the firm Inés Rosales. The company has the advantage of belonging to a traditional industrial sector (pastry) that is far from the most frequently analysed among high-technology industriesFootnote 2 . After a huge crisis and a change of hands, the company grew in the national market and, then, focussed its resources on the international market but did not manage to improve its size.
The postulates of Oviatt and McDougall (Reference Oviatt and McDougall1994) focussed on rapid insertion processes, about international new ventures, and take born-global firms as the object of study. These are firms which started as small- and medium-sized companies (with fewer than 500 employees and annual sales below 100 million dollars) (Knight and Cavusgil Reference Knight and Cavusgil1996), whose executive boards saw the world as their market from the start. Cutting-edge technology is basic for the development of innovative products or relatively unique processes; they are present in at least five countries, having been internationalised within an average 3-year period from their establishment and generate at least 25 per cent of their sales in foreign marketsFootnote 3 . In addition, the sale of their products, the majority of which are intended for industrial uses, typically involves substantial value adding (Knight and Cavusgil Reference Knight and Cavusgil2004; Knight et al. Reference Knight, Madsen and Servais2004; Kontinen and Ojala Reference Kontinen and Ojala2012; Andersson et al. Reference Andersson, Evers and Griot2013).
This theoretical setting challenges all traditional internationalisation theories, because it focusses on early internationalisation, when the whole world is seen as a potential market, and describes the company’s simultaneous presence in various physically and culturally distant countries without the need to go through any incremental stages. In fact, these firms apply multiple formulas of international relations, which are simultaneously compatible with each other and encompass from the companies’ own marketing channels, through alliances with large distributors or retailers, commercial agents, individual distributors or even franchisees, to establishing subsidiary firms in highly consolidated markets (Solberg Reference Solberg2012; Schueffel et al. Reference Schueffel, Baldegger and Amann2014)Footnote 4 . These enterprises enjoy sales-associated scale economies in various markets at the same time; this allows them to increase their sales and reduce their costs per unit. In addition, thanks to the new information technologies, the firms’ executive boards have direct access to clients around the world and receive information at high speed. Finally, these companies are ambitious and audacious in their internationalisation decisions and show no risk aversion (Knight et al. Reference Knight, Madsen and Servais2004; Leonidou and Samiee Reference Leonidou and Samiee2012).
The concept of born-again global firms — or re-born-global firms, as defined by Schueffel et al. (Reference Schueffel, Baldegger and Amann2014) — emerged from the born-global firm idea (Bell et al. Reference Bell, Crick and Young2001, Reference Bell, Mcnaughton and Young2003, Reference Bell, Mcnaughton, Young and Crick2004; Olejnik and Swoboda Reference Olejnik2012). These were firms already solidly established in their domestic markets but which had not been really motivated or interested in expanding their activities to foreign markets until they suddenly decide to implement a rapid internationalisation strategy (2-5 years from their first international operation). This strategy is often the result of a «critical incident» or, in most cases, of a combination of «critical incidents» usually involving a change in ownership and/or management, but also mergers or acquisitions. In consequence, the companies usually end up internationalising 25 per cent of their sales (Kalinic and Forza Reference Kalinic and Forza2012; Kuivalainen et al. Reference Kuivalainen, Sundqvist and Saarenketo2012; Nummela et al. Reference Nummela, Saarenketo, Jokela and Sharon2014)Footnote 5 . More specifically, Graves and Thomas (Reference Graves and Thomas2008) defined the three aspects determining the internationalisation process: (i) the extent to which the owning family is committed to the process and the new strategy; (ii) the amount of financial resources available for internationalisation and the actual will to invest them in it; and (iii) the ability to develop or acquire the organisational capacities required for the process.
More recently, Dimitratos et al. (Reference Dimitratos, Plakoyiannaki, Pitsoulaki and Tüselmann2010) identified another category, the global smaller firms, characterised by a certain type of entrepreneurial orientation, which includes a specific attitude towards risk, innovation and competitive aggressiveness, so that promptness in internationalisation is not the only relevant dimensionFootnote 6 .
The present research integrates the usual internationalisation channels in the study of small- and medium-sized firms. Three options are thus considered: (i) that of traditional small- and medium-sized companies, which are gradually internationalised and establish themselves in nearby markets with the main objective of surviving and growing; (ii) that of born-again global firms, which are initially focussed on their domestic markets and then suddenly internationalised as a result of critical events such as changes in ownership or management; and (iii) that of born-global firms, which are rapidly internationalised soon after their creation, so that they are simultaneously present — independently of the distance from the firm’s headquarters — in various foreign markets, where their products, developed according to the foreign demand, sell especially wellFootnote 7 . Into this general setting, Kontinen and Ojala (Reference Kontinen and Ojala2012) introduce several dimensions in order to qualify the various strategies used by companies for their internationalisation. These include (i) time, referring to the speed and pace of the process, (ii) scale, considered in relation to foreign sales and (iii) scope, meaning the number of countries in which the firm operates (Kuivalainen et al. Reference Kuivalainen, Sundqvist and Saarenketo2012)Footnote 8 .
For the purposes of this article, case study methodology is especially interesting because it makes it possible to gain deeper knowledge of the phenomena under analysis, and has emerged as a relevant methodological approach for qualitative researchers (Plakoyiannaki and Deligianni Reference Plakoyiannaki and Deligianni2009; Dimitratos et al. Reference Dimitratos, Plakoyiannaki, Pitsoulaki and Tüselmann2010; Leonidou and Samiee Reference Leonidou and Samiee2012). The present research can in fact be defined as a «positivist case study» (Leppäaho et al. Reference Leppäaho, Plakoyiannaki and Dimitratos2015, pp. 1-2)Footnote 9 . Case studies are used in scholarly research for the purposes of empirical description and classification, theory building and testing, clinical diagnosis, professional preparation, and programme evaluation (Hamel Reference Hamel1993; Yin Reference Yin2003; Flyvbjerg Reference Flyvbjerg2006). In a widely cited article, Eisenhardt (Reference Eisenhardt1989) proposed them as an ideal methodology for exploring an empirical phenomenon and building theory based on the evidence collected (Guillén and Garcia-Canal Reference Guillén and Garcia-Canal2010).
The article is structured in six sections. After this opening section, the second part focusses on the presentation and criticism of the research sources. A born-again global-like Inés Rosales has a prior history of expansion across its national market that excludes any attempt at internationalisation, a history that is summarised in the third section of this work. The fourth section describes how Inés Rosales emerged as a born-again global firm after the disruptive events that led to a new family (Moreno) taking over its ownership and management, shortly after the previous shock of its near dissolution. The reborn Inés Rosales inherited the artisanal manufacturing tradition of the old firm, but had a clear international orientation that included a strategy to enter several markets at the same time, a global mentality and the product flexibility required to sell a high percentage of its output abroad (Kontinen and Ojala Reference Kontinen and Ojala2010; Olejnik and Swoboda Reference Olejnik2012)Footnote 10 . At the end of the process here described, Inés Rosales has not only become an internationalised company but, since the opening of a subsidiary in 2015, also a multinational firmFootnote 11 . The fifth section concentrates on Inés Rosales’ economic-financial results with the purpose of discovering the positive effects that internationalisation may have had on the firm. The analysis is carried out through an in-depth scrutiny of the actual results and a benchmarking, counterfactual, analysis of the results that Inés Rosales would have had if the internationalisation process had not taken place (Buckley and Fernández Pérez Reference Buckley and Fernández Pérez2016).
Finally, the conclusions section confirms the relevance of the case here presented, given that Inés Rosales does not fit the usual pattern of knowledge-intensive companies as specified in the literature. It manufactures a traditional, almost artisanal, product, the olive oil torta (Lubinski et al. Reference Lubinski, Fear and Fernandez Perez2013, p. 8), and, in spite of the difference in size, its attitude is, in some ways, similar to that of large Spanish multinationals in the food industry (Guillén and Garcia-Canal Reference Guillén and Garcia-Canal2010)Footnote 12 . In this sense, Inés Rosales, like other Spanish multinational agro-food industries, was a second-line competitor some years ago and has now become a global company (see Table A3 in the Appendix) without the need of a technological basis. Inés Rosales, like other agro-food companies, made a huge investment (see Figure 1) in order to gain scale improvements (Guillén and Garcia-Canal Reference Guillén and Garcia-Canal2010). However, and far from those patterns, the internationalisation of Inés Rosales started in distant countries, which would appreciate the torta as a healthy food (see Section 4). Within an 18-year period, stretching between 1996 and 2014, Inés Rosales’ exports have reached twenty-five countries, accounting for 20 per cent of its sales.
EVOLUTION OF INVESTMENT AT INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL Source: Calculated with data from SABI (Sistema de Análisis de Balances Ibéricos, Iberian Balance Sheet Analysis System) database.
2. SOURCES
The present research combines personal in-depth interviews and an examination of documents and data gathered from the company’s archives and from commercial publications (Yin Reference Yin2003). Direct information about Inés Rosales prior to 1985 is practically non-existent and bibliographical references are very scarce and extremely generalFootnote 13 .
Consequently, the reconstruction of the history of Inés Rosales is based on the information provided by the firm itself and collected during three interviews conducted with Juan Moreno Tocino, the company’s current owner. The official history generated by the firm gives rise to difficulties already underlined by the literature (Rowlinson and Hassard Reference Rowlinson and Hassard1993; Delahaye et al. Reference Del Ángel2009; Rowlinson and Delahaye Reference Rowlinson and Delahaye2009; Suddaby et al. Reference Suddaby, Foster and Trank2010), because companies tend to construct their own thinking and their own myths according to later needs and justificationsFootnote 14 . Delahaye et al. (Reference Del Ángel2009, p. 31) point out that almost all companies produce historical accounts of their trajectory, either through formal texts making up their corporative history or through their «who we are» section on their websites.
On the other hand, the interviews with the current owner (conducted on 17 September 2015, 3 May 2016 and 25 November 2016) assumed the risk of presenting Juan Moreno’s activity as a mechanism to achieve legitimacy, status and reputation (Suddaby et al. Reference Suddaby, Foster and Trank2010). This possibility was consciously sidestepped by referring to the available sources, namely the company’s notarial deeds of incorporation, transfer to the new owners in 1985 and capital increase of Inés Rosales SAU. The interviews combined the interviewee’s free speech with questions that had been previously defined in order to gather detailed information on the beginnings of Inés Rosales as a born-again global firm.
Finally, the documents provided by the firm have also been used, in particular its internal report on the company’s internationalisation strategy and its accounting documentation, which included Inés Rosales’ annual accounts from 2008 to 2015, sales data by both country and year, and product and year, and the costs and investments associated with the internationalisation process.
3. INÉS ROSALES CABELLO AND INÉS ROSALES: FROM THE ORIGIN AND SUCCESS OF A TRADITIONAL PRODUCT (THE OLIVE OIL TORTA) TO ITS CRISIS
The history of Inés Rosales starts back in 1910, when Inés Rosales Cabello started the adventure of producing olive oil tortas, first at home and later on an industrial basis. The olive oil torta is a traditional Andalusian recipe for a homemade pastry made with natural ingredients: unbleached wheat flour, extra-virgin olive oil and aromatic spices (aniseed, sesame seed and natural anise essence). The olive oil torta is flat and round (12 cm in diameter) and its dough combines all the above-mentioned ingredients. Even today, tortas are handmade and then put in the oven until they are cooked. The result is a crunchy cake with a salty-sweet flavour and a touch of anise.
Inés Rosales Cabello lived in a village called Castilleja de la Cuesta, which is very near the city of Seville, on the road from Seville to Huelva. She started very modestly, with a homemade production that women from the village sold at crossroads, coaching inns — later on, bus stops — and at the nearby old Seville train station. This ambulant sale of olive oil tortas to travellers at transit points facilitated the product’s expansion to other Spanish regions, and it was not long before the torta became the first sweetmeat commercialised far from the place where it was produced.
The transition from homemade production to a more industrialised activity took place only in the 1920s, when Inés Rosales bought an oven from the village bakery and, a little later, invested 6,500 pesetas in new equipmentFootnote 15 . At the beginning of the 1930s, she introduced the waxed-paper wrapper that allowed optimal preservation and maintenance of the tortas’ properties and quality, as well as easier transportationFootnote 16 .
Inés Rosales Cabello died in 1934 and her brother Esteban Rosales Cabello took over her responsibilities at the firm. Very soon, the outbreak of the Spanish Civil War paralysed activity at the factory due to lack of raw materials. When the war ended, the firm announced the resumption of its activityFootnote 17 . In the 1950s, Francisco Adorna Rosales, Inés Rosales’ only son, entered the firm.
In the distribution of olive oil tortas across Spain, the role of Andalusian emigrants moving from their hometowns and villages to other Spanish regions such as Catalonia, Madrid or the Basque Country in the 1950s and 1960s was essentialFootnote 18 . The increasing demand for tortas led to the modernisation and mechanisation of certain phases of the production process, incorporating new ovens and machinery, although the tortas themselves were still handmade. In those years, the products were also diversified with the introduction of the torta de polvorón Footnote 19 , the almond torta Footnote 20 and the cortadillo Footnote 21 .
The 1973 economic crisis also had an impact on Inés Rosales. Sales clearly decreased while labour conflicts broke out in what was a labour-intensive factory, where the employees moved rack ovens and the kneading of the dough and the wrapping of the tortas were still done by hand. If the seasonal character of the production is also considered — the tortas could not be made during winter because the wet weather spoiled the dough — it is easy to understand why the company’s bad results had a negative impact on the atmosphere of social peace in the factoryFootnote 22 .
At the same time, the olive oil torta came to be regarded as an outdated product and was displaced among young people and children by the booming industrial bakery products entering the Spanish market in those years with aggressive marketing campaigns targeting these segments of the consumer populationFootnote 23 .
When the new decade started, serious problems were threatening what was already a «loss-making badly managed» firm. This is why in 1980, Francisco Adorna Rosales, owner and manager of Inés Rosales, decided to change the legal form of the firm and transform it into a public limited company (Inés Rosales SA) with a capital of 13 million pesetas. He persuaded his nephews, José María and Juan Carlos Bermudo Lecumberri, to join the firm and draw up a business plan for itFootnote 24 . They made a diagnosis and suggested implementing an Expediente de Regulación de Empleo (ERE, employment regulation plan), an option that their uncle totally rejected, mentioning the family’s honour and commitment to preserving the tradition and protecting the employment createdFootnote 25 .
Given the impossibility of relaunching Inés Rosales SA without dismissing anybody, Francisco Adorna Rosales, who was childless, decided to sell the firm. The purchaser was the Sánchez Romero Carvajal group, who appointed Pedro Lucas Robles Garrido as the new manager. He implemented the ERE and used the distribution network of Osborne (another company owned by the Sánchez Romero Carvajal family holding) to sell Inés Rosales’ tortas Footnote 26 . The new management undertook a series of transformations in the production process (the tortas were now made mechanically, saving money but losing authenticity) and the packaging process (the tortas were now packed in cardboard boxes, which were cheaper but, because they absorb the moisture, made the tortas lose their properties and expire earlier). These changes lowered the quality of the product and led to a constant decrease in sales, negatively affecting the firm’s profit and loss account. In addition, given that the mechanisation process was externally financed — the company’s own resources were very limited — the financing costs increased consequently and led, together with the falling revenues, to the firm not being able to face its payment commitments.
4. A BORN-AGAIN GLOBAL FIRM IS BORN: THE NEW INÉS ROSALES
A born-again global firm is a company with a prior history and no interest in foreign markets that responds to a critical event by undertaking a quick internationalisation process of global scope. Inés Rosales outlived two of those critical events, rather than just one. The first took place in 1985 and almost led to the company’s dissolution due to financial and sales problems. The second affected the company between 1996 and 2004, during the confrontation (see below) that ended with Juan Moreno becoming the sole owner of the firm.
From a corporate perspective, Inés Rosales went through a transition phase that lasted from 1985, when it was acquired by the new purchasers (Juan Moreno Tocino, the brothers José and Antonio Ponce Jiménez, and Juan López), who divided their shares into equal lots (25 per cent each), to 2004, when the firm became the property of the Moreno familyFootnote 27 . The acquisition implied reducing the share capital to zero in order to restore the equity balance, destroyed as a result of the company’s accumulated losses, and a capital increase of 20 million pesetas in which only the new shareholders participatedFootnote 28 . In reality, the disbursement of those 20 million pesetas never took place, because the sellers presented a fake accounting record of the firm, given that the actual financial discrepancy was larger than the one reflected in the company’s documentsFootnote 29 . Thus, the new owners used the 20 million pesetas to rebalance and reorganise the firm, with 15 million pesetas being used to help to take care of the firm’s imminent payments.
The company’s original share distribution was modified around 1990, because only Juan Moreno and Juan López subscribed the capital increase carried out that year. Each of them now held 26 per cent of the business. Between 1992 and 1993, José and Antonio Ponce (who were in disagreement with their two partners) sold their shares for 90 million pesetas to a company called Arroyo Pérez SL, which thus acquired 48 per cent of Inés Rosales SA Footnote 30 . Juan Moreno immediately responded to this operation by purchasing Juan López’s 26 per cent of the business to guarantee his position as majority shareholderFootnote 31 . These changes took place during a period in which distributors were losing their specific weight in the commercialisation of bakery products because large sellers were buying directly from the producers.
The owners of Arroyo Pérez SL, who had mistakenly thought that by purchasing those shares they would get hold of most of Inés Rosales’ capital, opposed all subsequent shareholders’ meetings and undertook legal proceedings on the basis of disloyal administrationFootnote 32 . Those proceedings ultimately caused the ruin of Arroyo Pérez SL when the court ordered the attachment of most of its shares in Inés Rosales, which, after being auctioned, ended up in Juan Moreno’s handsFootnote 33 . Finally, in 2004, the company sold the remaining shares to Juan Moreno. He thus became the only shareholder of Inés Rosales Sociedad Anónima Unipersonal (SAU), a single-shareholder firm which nowadays belongs entirely to Corporación Alimentaria SA, a corporation whose shareholders and owners are all members of the Moreno Pedrosa family (Juan Moreno and his offspring)Footnote 34 .
From the point of view of production and marketing, the first decision that the company made in 1985 was a massive repurchasing of the stock of Inés Rosales products that was still in the hands of the distributors (~70-80 per cent was recovered). The remaining 5 million pesetas of the 20 million provided by the new shareholders were used for this operationFootnote 35 . The objective was to restore consumers’ trust in the company by removing from the market those products that did not meet the quality standards. The second major decision was to return to the old packaging and the original production system, since the new owners were sure that the cardboard packaging and the mechanised manufacture of olive oil tortas were the two factors that had affected sales most negatively.
Customers immediately perceived the change and, as soon as June 1985, employees at the factory were working overtime to meet the increasing demand for tortas. Nevertheless, the seasonal character of the production was still an obstacle, considering the under-use of the firm’s industrial capacity. The solution was found in 1986 through a plastic packaging heat-sealing machine, originally designed to preserve biscuits, which Inés Rosales adapted to its own needs. The use of this machine made it possible to produce and sell olive oil tortas during the winter, notably increasing the factory’s productivityFootnote 36 .
It was in 1996 when the Inés Rosales factory moved from its original site in Castilleja de la Cuesta to its current and larger premises in the village of Huévar del Aljarafe. This move made it possible to expand and modernise its facilities (incorporating a continuous oven and an in-house designed automatic packaging machine). After 2004, when the company’s ownership was fully in the hands of the Moreno family, a major investment process was initiated at the factory (Figure 1).
The internationalisation of Inés Rosales was driven by several factorsFootnote 37 . The first of these was the confirmation that a mature domestic market offered limited options for further growth. Second, the so-called «democratisation of transport», that is, the modernisation and streamlining of transport means, which allowed the company to reach customers wherever they were at increasingly reduced prices and without having to ship large quantities of productsFootnote 38 . Of course, the third and most relevant element was the product itself. In Spain, the olive oil torta is a low-value product commercialised as a low-price, traditional and nostalgic product, whereas in foreign markets tortas are a differentiated product that fit in with healthy food consumption patterns because they are handmade with wheat flour and olive oil and contain no preservatives, food colourings or additivesFootnote 39 .
The firm prepared itself for the challenge posed by the internationalisation process by sending its managers to international fairs and meetings where they could gather information about the different countries and market possibilities, which helped analyse the perception of the product and contact potential distributors (Cambra-Fierro and Vázquez-Carrasco Reference Cambra-Fierro and Vázquez-Carrasco2010). Even though the internationalisation process had in fact started earlier, in 1998 the firm formally created an export department. This department was responsible for introducing and placing olive oil tortas in Spanish imported goods stores, positioning the whole range of products in relevant gourmet stores, incorporating the torta as a permanent item on the menu of international Spanish restaurants and looking for «distributors who could endorse the product, caring for it and preserving its image before the consumers» (Cambra-Fierro and Vázquez-Carrasco Reference Cambra-Fierro and Vázquez-Carrasco2010, p. 70). Thanks to these efforts, olive oil tortas have become, in new destinations, a product for health-minded middle- and high-income customers.
Companies usually start their internationalisation processes by exporting to countries that are close to theirs in both language and culture. Inés Rosales made a different choice and selected its targets first among countries in northern and central Europe (the Netherlands, France, Belgium, Germany, Norway, Finland, Sweden and Denmark), where it had to face the competition of domestic sweetmeats, and then within the Anglo-Saxon market (United Kingdom, United States and Australia)Footnote 40 . All these countries had a double common denominator: (i) a healthy food culture, which conditions the consumers’ purchase decisions and promotes healthy products for which they do not mind paying a higher price; and (ii) a high-income per capita that allows consumers to access those high-priced productsFootnote 41 . The main challenge was introducing the product in markets with cultural entry barriers against it. In these cases, new eating habits needed to be introduced; in other words, customers had to be taught how to savour an olive oil torta Footnote 42 .
The export plan designed in 1995 was implemented 1 year later, when exports were made to three European countries, although initially their sales barely accounted for 1 per cent of the firm’s turnover (Figure 1 and Table A1 in the Appendix). During this first phase, the number of target countries slowly increased to seven, but the 1 per cent of the turnover barrier was not clearly overcome while the sales were concentrated in European Union countries (Tables A2 and A3 in the Appendix). The effort of entering markets where customers were not used to buying foreign manufactured agri-food products and then consolidating the company’s presence in those countries slowed down the search for new markets.
The first 5-year period of the 21st century brought a leap forward in the number of countries to which the firm exported (thirteen) and in the percentage of export sales (around 9 per cent). The destination countries were still within the EU (with Germany, Belgium, France and the United Kingdom in the first line) and accounted for almost 95 per cent of the firm’s exports, but there was already a timid approach to the North American market (Figure 2 and Tables A2 and A3 in the Appendix). In 2002-2003, the firm experienced a slight upturn, and the number of countries to which exports were made increased from nine to thirteen. This success was the consequence of greater experience and of the product’s consolidation in several foreign markets.
EXPORT SALES AS A PERCENTAGE OF TOTAL SALES AND NUMBER OF COUNTRIES TO WHICH INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL (SAU) EXPORTS Source: Calculated with data provided by Inés Rosales SAU.
The beginning of the second half of the decade (2004-2005) brought a setback in relation to the percentage of sales in foreign markets and the number of countries the firm exported to, but not in absolute numbers. With the exception of 2005, these numbers kept growing during the whole period. 2006 saw the consolidation of the expansion in the North American market with sales multiplying by ten in the United States (Table A3 in the Appendix).
From 2006 onwards, exports have increased constantly, both in absolute numbers and as a percentage of the firm’s total sales (Figure 3). However, Inés Rosales concentrated its foreign market activity in six countries only: Belgium, Germany, Switzerland, United Kingdom, France and United States, which accounted for 50 per cent of the company’s total exports in 2007 (Table A2 in the Appendix). It was after 2009 that exports reached a double-digit percentage, accounting for 17 per cent of turnover in 2011 (Table A1 in the Appendix). Sales more than doubled between 2007 and 2010, rising from 0.5 to 1.2 million euros. The United States’ vitality as a foreign market and the company’s consolidation in north European countries were responsible for most of those sales. However, in 2014 sales actually dropped to less than 1 million euros because of a decline in the North American market (infra) (Table A2 in the Appendix).
EXPORTS OF INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL (SAU) (EUR) Source: Calculated with data from SABI (Sistema de Análisis de Balances Ibéricos) database and annual statements of Inés Rosales SAU.
Until 2008, Inés Rosales concentrated its export activity in a small group of European countries and the United States. However, from 2009 onwards, the number of countries to which the firm exported clearly expanded from fourteen in 2009 to twenty-three in 2011. The firm was busy consolidating those markets until 2013, but later spread to other countries in South America, Asia and Oceania, until it reached twenty-six in 2014 (Table A1 in the Appendix). The available data show how Inés Rosales has worked to consolidate the European market’s sales volume at around 200,000 euros.
Not only did the firm’s strategy focus on incrementing the number of destinations for its exports, but it also insisted on the healthy character of its products. Obtaining quality and Kosher certifications allowed the company to expand the customer base by including both Jewish and Muslim consumers and everyone interested in healthy eating habitsFootnote 43 .
In its search for new European and North American customers, the firm has diversified its products and adapted its flagship product, the traditional olive oil torta, to new experiencesFootnote 44 . Selling in northern European markets had an impact on the production of cortadillos, which were traditionally made with lard and have now been transformed into a fat-free productFootnote 45 . The North American market forced the replacement, in the traditional olive oil torta, of anise, which is associated with alcohol consumption, with cinnamon and orangeFootnote 46 . In addition, the North American demand for a product that is closer to a salty snack has led to the commercialisation of savoury olive oil tortas Footnote 47 .
Within this international expansion operation, the entry into the U.S. market was certainly the most successful one, and it has been the main source of export revenues for Inés Rosales since 2006, accounting for 82 per cent of the firm’s export sales and 14 per cent of its global sales. The choice of the United States, due to the resemblance of its consumption patterns to those of the United Kingdom, was also influenced by the fact that North American consumers have the habit of exploring products that are good for their healthFootnote 48 .
The expansion strategy in the United States included some of the patterns described in the literature (Solberg Reference Solberg2012), first of all, the selection of a network of small-scale healthy products distributors. Bonds of trust were then created with them and soon Inés Rosales’ products accounted for 50 per cent of their turnoverFootnote 49 . In those years, sales augmented progressively, from the initial 13,000 euros to a figure in excess of sales in European countries as a whole in 2007 and reaching sales of over 1 million euros in 2011 (Table A2 in the Appendix).
The problem came when a larger group purchased the original distribution network, for which Inés Rosales’ products represented a much smaller share of the business. After several consecutive takeovers of one distribution group by another always increasingly larger one, Inés Rosales’ products ended up accounting for less than 1 per cent of the distribution decisions. In 2012, the loss of relevance of Spanish olive oil tortas in the perception of the new North American distributor led to a drastic fall in sales, which was even sharper in 2014 (Figure 4).
SALES OF INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL (SAU)’S PRODUCTS IN THE UNITED STATES (EUR) Source: Calculated with data provided by Inés Rosales SAU.
Consequently, in 2015, Inés Rosales SAU decided to create Inés Rosales USA (IRUSA, New Jersey) as a subsidiary in the United States. As a result, the Spanish parent company could decide and control the distribution strategy and objectives without depending on third partiesFootnote 50 . Assuming the commercialisation and distribution of its production in the United States through this American subsidiary has transformed Inés Rosales into a multinational company.
IRUSA imports the products from Spain, which arrive in the United States in containers, and then sells them to North American distributors (local, regional and national) and to specific retailers that have been collaborating with the company ever since the times of the old importer. IRUSA works mostly with brokers, who are the actual commercial force of the company in the United States. These are commercial representation and marketing companies that develop all sales and merchandising activities in those states where IRUSA is not physically present. In some cases, they also work as intermediaries between the company and the distributors, alongside whom they manage the different promotionsFootnote 51 .
Inés Rosales is thus focussed on its internationalisation process, not only in relation to its profits, but as acknowledged by the Executive summary of the company’s global internationalisation strategy:
Para el 2016 se espera que las Cifra de Facturación Internacional alcance un 30% de las ventas, para alcanzar en el 2020 un 80% de facturación internacional. Este escenario es justamente antagónico al actual, donde la cifra de exportación alcanza un 25% del total facturado Footnote 52 .
We expect that the International Turnover will reach 30 percent of our sales in 2016 and then 80 percent in 2020. This scenario is exactly the opposite of the current one, where exports account for 25 percent of the total turnover.
5. THE INTERNATIONALISATION STRATEGY OF INÉS ROSALES: AN ANALYSIS OF ITS FINANCIAL RATIOS
The next step in this research is to evaluate the results of the company’s internationalisation strategy according to the main profitability ratios, comparing the real data with those calculated in relation only to production and sales in the domestic market. The calculation was done replacing the value of sales, costs and investment in foreign markets with the value that would have been obtained had that percentage of the production been sold in the Spanish market (Table A4 in the Appendix). All the indicators (Figure 5) evidence the same fact: that the firm’s internationalisation strategy is actually a survival strategy, the results of which prove its effectiveness when compared with those that would have been obtained had the strategy not been implemented.
The mature domestic market stimulated the implementation of the company’s internationalisation strategy. Until that moment, domestic sales had oscillated between 8 and 8.5 million euros, but export sales allowed total sales to reach a figure between 8.5 and 9.5 million euros.
The low EBIT (earnings before interest and taxes) reflect Inés Rosales’ production costs, which are high due to certain costly inputs of the production process required to maintain the product’s quality. Thus, in the best scenario, EBIT do not reach 800,000 euros for sales that are close to 8.5 million euros. The best result obtained for the margin, which puts the EBIT in relation to sales, is 9.14 per cent (2009), certainly a low figure, which means that the company earns 9.14 euros for every 100 euros sold. The lack of improvement in the margin over the years (it fluctuates between 4.8 and 8.15 per cent) confirms that only a rise in sales would make it possible to maintain and increase the company’s earnings.
If the internationalisation effect is taken out of the equation, it is possible to see how the company’s performance declines. The firm’s meagre profits suffer significantly when the sales drop; in any case because of the costs. The worst data, with losses estimated over 323,000 euros, justify the need to compensate the above-mentioned cost structure with higher sales. The relation between EBIT and sales, that is, the margin, would be negative had the internationalisation process not taken place. The margin would have fallen as low as −4.48 per cent, causing a major problem to the firm, given that sales would not have brought profit but losses and the situation would only have been solved by increasing the turnover. Without export sales, Inés Rosales’ margin would have remained negative, although it would have improved to around 3.54 per cent, a poor figure nevertheless, considering that the impact of the financial costs (interests) has not been removed from the equation.
The firm’s turnover, with or without internationalisation, oscillates between 100 and 120 per cent. In both cases, the values are high and reflect that, despite the handmade nature of Inés Rosales’ products — artisanal products usually provide a higher margin and a lower turnover — the low margin obtained from their sale implies the company’s need to increase its total sales under all circumstances as a key element in their profitability strategy.
In consonance with the turnover, return on assets (ROA) values run parallel to margin values, so that the observations made regarding the margin also apply here. It is possible to conclude that, the larger the assets, the higher the cost structure, although higher production costs do not always imply higher sales. The analysis presents positive ROA values when exports are included and negative values when the export effect is not taken into account.
A negative ROA value has an immediate impact on the return on equity (ROE). It is important to remember that the ROE depends on three basic factors, two of which are directly related to it, while the third is inversely related. Thus, the company’s ROE increases with higher ROA and leverage values, and decreases when the cost of debt rises. In this specific case, ROE values are very positive when the internationalisation effect is included, reaching 26 per cent the first year, falling to a minimum of 6.92 per cent in 2012, and later improving to 15 per cent in 2014.
When the internationalisation effect is dismissed, the scenario is radically different, because ROE values would turn negative in the period between 2010 and 2013 because of the firm’s losses, which, unless capital increases were approved, would inevitably undermine the firm’s shareholders’ equity. Without the support of the foreign markets, the ROE drops from −10.59 per cent to −18 per cent and the accumulation of losses makes the firm’s equity shrink to half its value, thus compromising the company’s future viability. From a legal point of view, it would certainly constitute grounds for dissolution.
The firm’s total assets, which have an impact on the profitability ratios, increased during the first 4 years until, in 2013, they declined following a concentration process that allowed the firm to reduce its assets and to slim down the financial structure in the form of debts, thus lessening the financial costs and the risk of insolvency (Table A4 in the Appendix). The results of the internationalisation strategy were not directly affected by this, but they were indeed indirectly influenced, considering that the slimming down of the economic structure and, as a result, of the financial structure, became a competitive advantage in the access to external resources to be used for new investments.
6. CONCLUSIONS
The literature explains that born-again global firms do not necessarily have to be young, as born-global firms are. In fact, they are usually high-tech companies with a long history focussed on the domestic market which, after a critical incident, re-emerge as rapidly internationalised companies capable of selling, within an average 5-year period, up to 25 per cent of their production in foreign markets.
Inés Rosales SAU is a born-again global firm, which, after 75 years of history in the Spanish market, overcame the critical events that led to its near demise, as well as the later confrontations between new investors. It is finally driven by the Moreno family since they took over as majority shareholder in 1996 and single owner in 2004. Inés Rosales, in the absence of growth of the national market, undertook an internationalisation process. It was, therefore, the owners’ will and commitment to implement this new strategy. The role played by Juan Moreno in this process is close to an «international entrepreneurship», defined as «the process of creatively discovering and exploiting opportunities that lie outside a firm’s domestic markets in the pursuit of competitive advantage» (Zahra and George Reference Zahra and George2002, p. 61). This process is intimately associated with born-global and born-again global firms and represents a new and necessary evidence, considering that the contribution of business history to the field of «international entrepreneurship» is limited (Gil López et al. Reference Gil López, Zozimo, San Román and Jack2016).
The time sequence of this born-again global firm’s development shows that its internationalisation began in 1996 and was reinforced in 2004. The scale of the process increased progressively, so that the volume of total sales in foreign markets leaped from 5 per cent in 2000 to 18 per cent in 2011. The scope of the process also increased with time, in such a way that the three countries to which the company exported in 1996 became nine, 5 years later, and expanded to twenty-five in 2014. In 2015, the internationalisation process entered a new phase with the establishment of IRUSA in the United States, transforming Inés Rosales into a multinational firm. The internationalisation of Inés Rosales has been parallel and, at the same time, predisposed by, on the one hand, the diversification of its products that has helped to open new markets, and, on the other, the modernisation of the production process, with the use of a continuous oven and an in-house designed packaging machine.
The economic-financial results of Inés Rosales conclude that the internationalisation strategy made it possible to solve the problem represented by a very mature domestic market (in 1985 dissolving the firm was thought to be the only way out) by taking advantage of the benefits of scale and scope. Inés Rosales’ financial ratios are positive thanks to internationalisation, and they seem more positive when compared with the results that would have been obtained if this strategy had not been applied. High production costs associated to the quality of Inés Rosales’ products demand that the firm increases its export sales in order to maximise earnings and achieve margins that are more plausible. The financial ratios are in line with the success of the company’s internationalisation strategy.
The case of Inés Rosales widens the field of what is understood as a born-again global firm in the direction of integrating companies that belong to traditional sectors and sell traditional products. One of the most remarkable aspects is that this firm’s flagship product, rather than being technology-based, as the literature on born-again global businesses affirms it should be, has been produced with very basic raw materials for over a hundred years. Moreover, in the production process of olive oil tortas both manual and mechanised techniques are used, which is another differentiating element. Despite the diversification of Inés Rosales’ products, implemented with the purpose of responding to the particularities of the international demand, the traditional olive oil torta is still the firm’s cornerstone.
In summary, cases such as that of Inés Rosales SAU prove how a small company with a limited market is not synonymous with technological backwardness or a predictable failure trajectory, and show the capacity of small- and medium-sized family businesses to adapt themselves to changes and to internationalise even in markets that are culturally distant from their own.
APPENDIX
EXPORT SALES AS A PERCENTAGE OF TOTAL SALES AND NUMBER OF COUNTRIES TO WHICH INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL (SAU) EXPORTS
DISTRIBUTION OF SALES BY REGION
DISTRIBUTION OF SALES BY COUNTRY
COMPARATIVE ANALYSIS OF THE PROFITABILITY OF INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL (SAU) WITH AND WITHOUT EXPORTS
