Directory UMM :Data Elmu:jurnal:J-a:Journal Of Business Research:Vol50.Issue1.2000:

Virutex-Ilko S.A.
Jon E. Martı´nez
UNIVERSIDAD ADOLFO IBAN˜EZ

Rodrigo K. Ba´ez
UNIVERSIDAD ADOLFO IBAN˜EZ

Fernando P. Salinas
UNIVERSIDAD ADOLFO IBAN˜EZ

This case presents the inspiring success story of a family company that
was founded by a European immigrant in Chile in the 1930s to produce
steel wool. The company has captured a dominant share of the domestic
market for household cleaning products plus a broad line of products for
the kitchen including baking molds, kitchen tools, and nonelectric food
processors, such as strainers and graters. As with many Latin American
family firms, Virutex-Ilko confronted a succession crisis with the passing
of its founder. But under the firm leadership of the founder’s eldest son,
supported by a strengthened board of directors, the company not only
maintained its market position in Chile but also began exporting bakingware to the United States and eventually to the more demanding markets
of Europe. The 1980s were not a “lost decade” for Virutex-Ilko. The case

documents the steps taken by new management to serve its customers in
the developed countries of North America and Europe with tailor-made
products under private brand labels, providing high levels of service and
quality at low prices. By 1991. nearly two-thirds of the company’s Ilko
line of kitchen products were being exported to these northern markets.
In that same year, profitability began to erode as the Chilean inflation
rate outstripped devaluation of the peso against the dollar. As is repeatedly
seen in cases of Latin American business enterprise, a political decision
to overvalue the currency had disastrous effects upon the export business.
As the case opens in 1992, Tomas Munzer, eldest son of the company’s
founder, faced the decision of whether to change the strategy in developed
country markets from that of cost leadership to one of product differentiation through distinctive design and brand recognition or to concentrate
on new export markets in the developing countries of Latin America. To
explore the latter option, he hired Christian Salamovich to conduct a
study of six countries in South America. The case contains rich data on
the markets, distribution channels, and competition for the Ilko product
line in Argentina, Bolivia, Mexico, Paraguay, Peru, and Uruguay. Not
only did Mr. Munzer have to decide which countries were more attractive,
he also had to decide how to penetrate the markets of those that he
selected. The case presents a broad array of options including export to

distributors or commission agents, establishment of an independent sales
Address correspondence to J. E. Martinez, Universidad Adolfo Ibanez, Av.
Presidente Erazuriz 3485, Las Condea, Santiago, Chile.
Journal of Business Research 50, 83–95 (2000)
 2000 Elsevier Science Inc. All rights reserved.
655 Avenue of the Americas, New York, NY 10010

organization, the granting of manufacturing licenses, or investment in
manufacturing facilities, either alone or with local partners. Export to
countries within the Latin America region is a strategy that is being
adopted by many Latin American enterprises. The Virutex-Ilko case
illustrates many of the reasons for this trend. There is, of course, the
problem of declining profit margins in developed country markets. But,
there is also the opportunity for access to economies that have overcome
periods of crisis and stagnation, and that are opening to global competition.
It is precisely the Latin American enterprises that are poised to take
advantage of these opportunities because of geographic proximity, linguistic
and cultural affinity, and in-depth knowledge of business practices. The
Virutex-Ilko case provides an opportunity to design an entry strategy into
these new markets. In which countries do the greatest opportunities lie?

With what kinds of products and in what market niches does the company
have a competitive advantage? Through what sorts of channels and manufacturing arrangements can it best realize this advantage? J BUSN RES
2000. 50.83–95.  2000 Elsevier Science Inc. All rights reserved.

E

arly in March 1992, Toma´s Mu¨nzer, President of Virutex-Ilko S.A., was pondering the firm’s international
expansion strategy. The company, family owned, was
the absolute leader in the Chilean market of home cleaning
products, cookware and nonelectric food-processing devices,
with almost US$11 million of annual sales and a labor force
of 340 employees.
The firm had begun its internationalization process in
1982. After some stumbling, it succeeded in introducing its
products in the markets of developed countries. After almost
10 years of international operations, exports of bakeware and
kitchen tools to the United States and Europe accounted for
almost 14% of the company’s total sales. However, the profitability of these operations had been perceptibly affected by
the sharp decline in the real exchange rate of Chile’s currency.
A new market seemed to offer interesting opportunities to

Virutex-Ilko. The Latin American market, after several years
ISSN 0148-2963/00/$–see front matter
PII S0148-2963(98)00112-X

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J Busn Res
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of economic crisis and protectionism, was now exhibiting
increasing dynamism. The firm’s board of directors and management would have to decide whether they would continue
focusing their efforts on the penetration of developed countries, or if they should address the Latin American market as
well. If they chose this second alternative, they would have
to decide on the markets to penetrate, the entry strategy to use
and whether they should apply the same marketing program
everywhere or adapt to each country situation.

History of the Company
The firm’s history dates back to 1937, when Herbert Mu¨nzer,
a Jewish immigrant who in Germany had been a housewares

dealer, decided to take up residence in Chile. Early in the
1940s, he created a small business to import the same kind
of products. The main product, steel wool, was imported from
the United States, but due to the Second World War the
firm had to start manufacturing in Chile. The firm ordered
machines required for the manufacturing of steel wool, looms
for metal netting manufacturing, and weaving machines to
produce steel wool pads. The Virutex brand name was used
for all the products they manufactured.
The firm began to develop and grow, with new products
constantly being added to the Virutex line. In 1953, the firm
entered the new business of manufacturing kitchen tools with
matrices brought from Germany. Later, the acquired knowledge made it possible to begin domestic construction of matrices and to launch a variety of products, such as coffee filters, fly
swatters, dish covers, tin-plated strainers, spoons, eggbeaters,
pastry wheels, skimming spoons, potato presses, and grape
squashers. These items, originally manufactured under the
brand “Ideal”, inaugurated the current Ilko line. All the firm’s
products were sold to large wholesale dealers, mainly Gildemeister and Duncan Fox, who purchased the factory’s entire
output and placed it in the retail market.
Herbert Mu¨nzer regularly traveled to Europe and the

United States, bringing back new product and process ideas,
which he later adapted and developed for the Chilean market.
In that way, the firm introduced new kitchen cleaning products, such as Mago Pads, with and without soap and, later,
the Bonobril line, consisting of plastic foam adhered to an
abrasive material.
After a six-year feasibility study, in 1970, Mr. Herbert
Mu¨nzer decided to import presses, equipment, and matrices
to manufacture the current Ilko products. Thus began the
manufacturing of bakeware, roasting pans, serving dishes,
kitchen graters, toasters, corkscrews, can openers, knife sharpeners, pliers, and other devices. The Ilko line was oriented
mainly at leading quality products, and great concern was
shown for design and external appearance. This strategy resulted in the company’s products gaining the image of imported articles at a time when Chilean consumers were showing a clear preference for foreign designs.

J. E. Martı´nez et al.

In 1980, Mr. Mu¨nzer died, leaving as heirs his wife Ilse
and his two young sons. Toma´s and Roberto, the children,
22 and 18 years old, respectively, were both students. The
family considered three options: to sell the business, to put
one of the sons in charge despite of lack of experience, or to

hire an external manager. They chose the latter, hiring a general manager for operational and financial-administrative management, while also constituting a board of directors that
included the three family members and two family friends,
one of whom had broad experience in international trading.

Virutex-Ilko in 1992
The decisions adopted by the Board of Directors enabled the
firm to continue its progress despite the serious recession of
1982 to 1985. Over a five-year period, Toma´s Mu¨nzer held
several jobs in the company’s commercial and procurement
areas. He took up the presidency in September 1984. A short
time later another professional manager, Ciro Sa´nchez, joined
the firm as financial manager, and in 1989 he assumed the
vice-presidency.
The explosive growth of the firm in years 1986 and 1987
generated a second dilemma: how to face the challenge of
growth while simultaneously improving on production and
quality. Continued growth was hindered by a patriarchal management style. In 1988, with the help of outside advisors, the
firm began a process of cultural change and organizational
development. These changes consisted of improved communications in all areas increased participation to all employees
and the encouragement toward creativity, commitment, autonomy, and teamwork. Internal ceremonies and rites were

established during this process, and the company’s “credo”
was developed. (see Figure 1).
In 1992, the Virutex line held 55% of the household cleaning products market. Its main rivals were Manlac, Metaltex,
Calegri, 3M, and Fibro Chile. Each of these competitors manufactured only some of the products in the lines manufactured
and sold by Virutex.
In the kitchen tools, bakeware and nonelectric food-processing devices market, the Ilko line, with 150 products, held
almost 60% of the Chilean market. Its rivals were imported
products and small local manufacturers. In 1991, Ilko’s sales
in Chile represented 22% of the firm’s total sales. Almost all
of the firm’s exports, amounting in 1991 to 14% of the overall
income, were Ilko products (Income statements for 1985–
1991 and balance sheets for the periods ending December
31, 1990 and 1991 are presented in Table 1).
Virutex-Ilko executives ascribed success in the Chilean
market to the firm’s strong concern for the quality of its
products and to a clear focus on the end consumer and on
distribution channels. One of the firm’s main assets was its
knowledge and experience in merchandising. In 1981, due
to the failure of one of its major dealers, the firm decided to
create its own sales staff. Previously, only a couple of individu-

Virutex-Ilko S.A.

Figure 1. Virutex-Ilko’s credo (by Toma´s Mu¨nzer).

als in the sales area looked after the distribution to large
customers and the exhibition of products at points of sale. A
marketing unit was created in 1983, and in turn new advertising operations were designed, more importance was assigned
to packaging, labeling and product exhibiting, and the first
“merchandisers” were hired. Little by little, a professional
sales staff was developed at the national level. In 1991, the
structuring of the marketing management area was completed
with the addition of two new executive positions and a staff
of product managers and sales representatives (an organization
chart is shown in Figure 2).
In 1992, the firm marketed its Virutex and Ilko products
through the following distribution channels: supermarket
chains, 62%; distributors and wholesalers, 30%; department
stores, 3%; other channels, 5%.
Early in 1992, the firm entered the business of plastic

brushes and brooms as a complement to the household cleaning products group of the Virutex line. These products, imported from Brazil under the brand name “Clap”, were marketed through the same channels used by Virutex products.

The Internationalization Process
In 1982, possibilities for sustained growth for Virutex had
been limited by the small size of the Chilean market, the
large share that the firm had already achieved, and the low
replacement frequency of some Ilko products. For these rea-

J Busn Res
2000:50:83–95

85

sons, the options of developing new businesses in Chile and
expanding current businesses to foreign markets had been
taken under consideration. After the founder died, his son
Toma´s, supported by Pablo Wald, one of the firm’s directors,
took the first steps in that direction. These actions occurred
before Toma´s had assumed the presidency.
In those years, the country was suddenly flooded with

imported products similar to those manufactured and sold by
Virutex. Between 1981 and 1985, Ilko halted a part of its
own production and imported some products. In the process
the firm acquired detailed knowledge about the products sold
in developed markets, identified the major suppliers and their
weaknesses, and searched for opportunities in international
markets, obtaining access to a valuable network of contacts.
In 1982, the first attempts to export Ilko products were
made. The reasons behind this first international expansion
were: to take advantage of unused capacity; to diversify markets; to avoid devaluation loss; and to soften the impact of
the domestic market decline in the years after 1981. Furthermore, the larger product volume would allow the firm to
achieve some economies of scale. The challenge of being a
manufactured products exporter and the status that this implied in a country that traditionally exported only basic raw
materials (copper, cellulose, fish meal, etc.) strengthened top
management’s resolve to sell abroad.
However, persuading the rest of the management team of
the feasibility of the mission abroad was not easy. VirutexIlko products were, on the whole, difficult to sell in external
markets because shipping costs reduced their competitiveness.
To reduce the impact of shipping costs, innovative packing
techniques were used. For example, springforms were packed
one inside the other. Such innovations enabled Virutex products to compete even in the distant Mexican market.
However, the first attempts were clumsy; a desire to sell
abroad was all that the firm had. Virutex management made
contacts with potential customers through ProChile, a government export promotion agency, but these contacts did not
produce sales. Company managers attended specialized shows
without a product catalog or price lists. They knew nothing
about cubical contents or shipping requirements. “In brief,
there was a total ignorance of all that was required for exporting,” recalled Toma´s Mu¨nzer. “Everything failed. We had
neither a plan nor clear targets to achieve. But there was one
virtue: perseverance.”
Virutex managers learned from these mistakes. They attended courses, prepared special catalogs, and produced samples that were seen everywhere. They traveled constantly to
houseware shows abroad, particularly in the United States,
acquiring firsthand information on what was happening in
the industry. They located importers that marketed products
similar to those manufactured by the firm and who might be
interested in beginning a long-term commercial relationship.
Through these efforts, they began to generate a network
of contacts that became very useful during the following years.

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J. E. Martı´nez et al.

Table 1. 1985–1991 Yearly Income Statements and 1990 and 1991 Balance Sheets
Yearly Income Statements (thousands of dollars per year)
Income

1985

1986

1987

1988

1989

1990

1991

Domestic sales
Exports
Total

2,064
82
2,146

2,991
152
3,143

4,115
449
4,565

5,669
602
6,271

7,202
694
7,896

7,941
743
8,684

9,375
1,500
10,875

Cost of salesa
Domestic sales
Exports
Total

954
54
1,008

1,369
101
1,469

1,889
301
219

2,616
406
3,022

3,305
473
3,778

3,667
517
4,184

4,380
1,065
5,445

Gross margin

1,138

1,674

2,375

3,249

4,118

4,501

5,430

Operational expenses
Indirect from manufacturing
Administration and sales
Depreciation and discounts

254
575
152

314
854
167

358
1,150
198

593
1,561
210

775
2,117
230

860
2,191
256

1,073
2,640
308

Net margin

157

339

669

885

997

1,195

1,410

Nonoperationals expenses
Other income
Other expensesb

56
217

106
224

131
382

134
334

281
467

313
698

390
749

221

418

685

812

809

1,051

Profit (loss) fiscal year

(4)

Balance Sheets (thousands of dollars per year)
31 December 1991

31 December 1990

2,010

1,610

3,704
3,869
526
10,108

2,889
3,082
488
8,068

2,677
135
803
5,442

2,157
60
204
484

1,051
10,108

809
8,068

Assets
Available
Salable
Net fixed assets
Other assets
Total assets
Liabilities
Short term
Income tax
Long term
Equity and reserves
Fiscal year profit
Total liabilities
Source: Virutex-Ilko management.
a
Direct labor cost accounts for 16%.
b
Income tax included in other expenses.

In 1984, they placed their first exports in American and Canadian markets, with customers whose basic concern was price.
As the firm gained experience, it began to offer products at
higher prices that were tailored to customer specifications.
Toma´s Mu¨nzer commented:
We did everything in successive approaches. In bakeware,
we were competitive both in price and quality; besides, we
were flexible, with a great capacity to adapt to customers’
requirements in product design, appearance, packaging,
quantity, etc. We appealed to the customer’s pride by using
private labels to differentiate them from competitors who
sold only under their own brand name. What was done in

bakeware was also done with nonelectrical food-processing
devices. Whereas the competitors’ strategy was rigid and
unadaptable, ours was the opposite and this helped make
it possible for Virutex-Ilko to enter these markets.
Later, the firm looked for potential European importers at
the trade shows and thus generated the first orders. Management thought that it would be easy, but they made several
mistakes. In the first place, they did not analyze the European
market, nor did they inquire into the consumer needs and
characteristics to ascertain if they were different than those
of North American market. They did not sufficiently take into
account the Europeans’ cooking traditions, their higher regard

Figure 2. Virutex-Ilko S.A. organization chart.

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J. E. Martı´nez et al.

Table 2. Virutex-Ilko Customers in External Market

Customer type and number of
purchased products
Institutional distributora
Importer distributor
Importer/distributor
Importer/final consumer
Purchase rationale
Number of years purchasing from
Virutex-Ilko
% of Virutex-Ilko total exports
Brand used in end sale

United States

Canada

Germany

United Kingdom

1 (15)b
5 (25–30)b

1 (25)

1 (3)
1 (7)

1 (6)
1 (15)

1 (5)b
Quality/price

Quality/price

Price

Price

6–8
32
Customer

6
10
Customer

2
24
Customer

2–4
28
Customer

Source: Virutex-Ilko marketing management estimates.
a
Sales to hotel chains and others.
b
In parentheses, the number of different products sold to each customer.

for kitchen products, their greater knowledge about their use.
Neither was any consideration given to the importance that
design had for this consumer, nor of the sales seasonality of
certain products.
Nevertheless, there were many good ideas as well. There
were periodic visits to customers, through which excellent
communication and empathy as well as first-rate service was
established. For instance, the firm offered toll-free telephone
service for all U.S. customers, so that they could request any
kind of information without cost. Every difficulty was solved,
every suggestion was welcomed. Promises were fulfilled.

The Market in Developed Countries
Virutex-Ilko had succeeded at competing in the bakeware
market in countries with long cooking traditions and had
gained twelfth place in the world bakeware market in terms
of volume. The customary way of life in Germany and Austria
was centered in the kitchen, where ovens were kept burning
during the cold winters. In traditional celebrations, such as
Christmas Day and Holy Week, most families baked cookies,
sweets, and cakes that were typical of those festivities.
Virutex-Ilko customers were importer-distributors who
sold to small, specialized gourmet shops; distributors who
sold to supermarkets; importer-dealers who served customers
in the institutional-professional market; manufacturer-distributors who sold complementary products to those produced in
house; and customers who sold directly to the final consumer
(information on the firm’s customers in developed countries
is contained in Table 2).
Internationally, there were some 80 or 90 significant manufactures of bakeware, kitchen tools, and nonelectrical food
processing devices. Most of them had headquarters and operated in developed countries. Every year, they could be found
at the major houseware trade shows.
In Europe, the strongest bakeware industry was in Germany. The four main manufacturers had a share of at least

80% of that market. The leader was Kaiser, a company that
manufactured the whole variety of springforms. Other major
competitors were Zenker, a manufacturer that also sold metal
strainers, and Doctor Oetcker. With combined annual sales
of US$200 million, the German manufacturers had little flexibility in their policies regarding international markets. They
were strong in Europe but weaker in North America (information on competitors in the bakeware industry in developed
countries is shown in Table 3).
Two large English manufacturers had a share of almost
95% in their home market, with an annual billing of some
US$150 millions. In the European market, though in a lesser
proportion, some German, Dutch, Austrian, English, and
Swiss importers competed alongside French and U.S. manufacturers. There were almost no products from the Far East
to be found in Europe.
In the North American market, products and designs were
different, resembling those in the Anglo-Saxon world. There
were three major U.S. manufacturers that collectively had a
market share of about 80% and total sales of more than
US$200 million. These producers (Ekco, G. & S. and Chicago
Metallic) had begun to lose market share as a result of significant volumes of some items being imported from low-cost,
manufacturing-oriented competitors in Taiwan, Hong-Kong,
and Korea that competed on the basis of price.
In addition to bakeware, company management believed
that there were great future prospects in nonelectrical food
processors, such as strainers, potato presses, vegetable sieves,
graters, etc., where Virutex-Ilko ranked sixth in the world
market. The undisputed leader in this market was an Italian
manufacturer, Metaltex, which had subsidiaries in Belgium,
Switzerland, and Germany, and a major distributor network
in the United States. Its leadership was based not only in
product design and variety but also on costs, both in the mass
and upscale market. Its annual sales were US$75 million, and
it had captured 87% of the European market, 9% in the United
States, and 4% in other countries. It had 450 employees.

Virutex-Ilko S.A.

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Table 3. Bakingware Market Competitors
United States
Number of main manufacturers
Market share
In own country
Abroad
Countries where they sell
Total sales volume (millions of
dollars)
Technological level
Own brand abroad
Main sales argument
Distribution channel used

Germany

3

4

80
3
Mexico
Canada
Europe
225

85
10
Europe
U.S.A.

High
Yes
Quality

High
Yes
Quality
Design
Retail

Retail

225

United Kingdom
2
95
1
Europe
U.S.A.
150
High
Yes
Quality
Price
Retail

Italy
2
90
15
Europe
U.S.A.
75
High
Yes
Design
Quality
Retail

Eastern
European
3
100
15
U.S.A.
Europe
Mexico
53
Regular
No
Price
Distributor

Source: Virutex-Ilko management estimate.

Other competitors were from Eastern European countries such
as Czechoslovakia, Poland, and former East Germany. China
also was showing an increased presence in this industry.
With respect to technology, the leaders in these industries
were the Germans in bakeware and the Italians in nonelectrical
food processors, both superior to the level of technology in
Virutex-Ilko. Since 1989, the firm consistently integrated process improvements and invested in new equipment. Nevertheless, it still had a relatively low level of automation.

The Strategic Dilemma
By mid-1991, after several years of successfully exporting to
markets in developed countries, profitability began to decrease
with the increasing overvaluation of the Chilean peso. Export
margins, which traditionally had been half the margins enjoyed in the domestic market, had fallen to 25%, and the firm
had been working at full capacity for the last three years.
Furthermore it was necessary to add investments in technology
and the training of human resources to continue competing
in international markets. The President commented:
Ten years ago, exporting was a challenge. We wanted to
demonstrate that we could penetrate the northern markets
and stay there. Whereas today, we want to improve our
profitability, which has been affected by the exchange rate.
We think that there are basically two options to achieve
that improvement. One is to support our products with a
brand of our own, because until now we have exported
only with private labels, and to innovate in design. The
second option is to penetrate markets with higher margins,
fewer competitors and greater opportunities for applying
what we have learned in Chile and in the Northern markets.
With relation to the first strategic option, Virutex-Ilko’s
executives knew that introducing a brand of their own in

mature markets would require a substantial investment of
financial resources. The firm had been imitating the design
of products in developed markets, to later adapt them for use
in Chile, and exports consisted of products made to customer
specifications. To obtain better margins in developed markets
required therefore, the investment of resources, energy and
creativity in the design variable. It was not an easy job, because
Chile did not have an industrial design tradition.
From the outset of internationalization, Virutex management had considered the alternative of establishing an alliance
with a European or North American company. This had not
been pursued because of differences in business vision with
potential partners, but the idea had not been discarded. In
the words of Toma´s Mu¨nzer:
Today’s efforts are directed to moving from a price market
to a design market and to bring off associations with manufacturers or dealers interested in having a supplier who
is reliable not only for its product quality but also for
performance and service. The challenge is to be creative,
to develop new products, and to offer a more attractive
and more varied range of products. To do this we must
improve the speed of innovation at competitive costs.
Regarding the second option, it appeared that there was a
great difference between the markets of developed and developing countries. In America, the level of competition posed
by Mexico to its Northern neighbors seemed to be very different than from Mexico to the South. Latin America appeared to
present interesting opportunities for Virutex-Ilko, particularly
considering the increasing openness of several major economies in the region and the improvement of their macroeconomic position after what had been called the “lost decade”.
In recent years, the firm had made a few occasional sales in
some of these countries.

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J. E. Martı´nez et al.

Table 4. Latin American Market

Market size (millions of
dollars)
Entry barriers
Customs tariffs (%)
Quotas
Technical standards
Main distribution channels
Manufacturing feasibility

Argentina

Bolivia

Mexico

Paraguay

Peru

Uruguay

7.1

0.2

10.5

0.6

0.9

0.5

22
No
No
Wholesalers
Supermarkets
High

10
No
No
Markets
Fairs
Bazaars
Low

15
No
No
Supermarkets
Wholesalers/Dist
Big stores
High

23
No
No
Market
Fairs
Big stores
Low

25
No
No
Counter wholesalers
Market and fairs
Supermarkets
Low

50
No
No
Counter
Wholesalers
Big stores
Low

Source: Virutex-Ilko marketing management estimates.

In mid-1991, the firm created a unit to study the Latin
American market and to analyze export or investment possibilities in the region. Christian Salamovich, a multinational executive with extensive marketing experience in Latin America,
was hired to take charge of that unit. He was to report directly
to Juan Eduardo Rodrı´guez, the marketing manager (refer to
organization chart in Figure 2), who had fostered the idea of
penetrating this region.
In the second semester of 1991, Mr. Salamovich began his
analysis of Latin American countries. As a first step, it was
decided that only the markets of Argentina, Bolivia, Paraguay,
Peru, and Uruguay would be studied. He visited each of
these countries, where he examined distribution channels and
competitors, and met with suppliers and potential importers
and distributors. Mexico also was included in this study, but
the information was provided by Fernando Bihan, the exports
manager, for developed countries, since with the creation of
a North American Free Trade Agreement, this country fell
under his jurisdiction. A summary of data on these six countries may be found in Tables 4 and 5.

The Latin American Market
Argentina
Virutex-lko’s marketing management believed that the size of
the Argentine market for Ilko’s product line was a little over
US$7 million. Tariffs for these imported products were 22%,
and there were neither quotas nor technical standards.
Approximately 70% of the retail sales of these products
were made through some 3,000 bazaars throughout the country, where many of them carried a wide stock. These bazaars
were served by large wholesalers, who provided typical wholesale functions. The remaining 30% was sold by supermarket
chains that, though less developed than in Chile, had lately
exhibited growth and dynamism. Several Chilean supermarket
chains, such as Jumbo and Unimarc, had substantial investments in Argentina, and others, such as Almac and Ekono,
had plans to do the same.

Because of the Argentine preference for salty meals such
as pizza and other doughs, molds were as important or more
than the springforms for pastry (cakes, pies, etc.), that prevailed in Chile. Some salty meals required mold shapes that
were different than those used in sweet doughs. Besides, Argentines used higher and larger springforms than Chileans.
The same was true with other kitchen tools, such as ladles
and palette knives.
There were three local springform brands of poor quality
whose prices were one-third less than those of Ilko products.
Imported baking molds were few, brought mainly from the
United States and, in lesser quantities from Germany and
Brazil. In general, the prices for these imports were higher
than Ilko’s, and the products were poorly distributed. In
kitchen tools, such as ladles and palette knives, there were
two Argentine brands in stainless steel, a more durable material than the superchromium plated rolled steel that Ilko manufactured for the Chilean market. They were strong brands
and had suitable distribution. Besides these, there were many
stainless steel imports from the Far East, Brazil, and other
countries, but all of them were of very poor quality.
In nonelectric food-processing products, such as strainers
and potato presses, there were few reliable local producers.
Their quality was poor, and they had a reduced variety of
products in contrast with the wide range of the Ilko product
line. However, it was possible to find inexpensive imported
products from the Far East as well as imported products of
convenient design and price from the United States and Brazil.

Bolivia
Bolivia was the smallest market in the region, with an estimated volume of only US$150,000 per year. Apparently, ovens were used very little in Bolivia, so demand for bakeware
was quite small. Bolivian import duty was 10%, and there
were neither quotas nor technical standards imposed on these
products. Supermarkets had little significance and accounted
for about 10% of sales of bakeware products. The remainder
was sold in public market, fairs, and small bazaars.

Virutex-Ilko S.A.

Table 5. Competitors in Latin America
Bakingware
Country

Local

Kitchenware

Imported

Local

Non-electrical food-processors
Imported

Local

Imported

Argentina

Poor quality
Lower price

Germany, U.S.A., Brazil
Scarce, expensive

Strong competition stainless steel, good distribution

East: stainless steel, cheap
Chile: super chromium
plated

Few suppliers, reliable,
poor quality

East, U.S.A., Brazil
Design, price

Bolivia

None

Scarce

None

East: stainless steel, cheap
Brazil: stainless steel, cheap
Argentina: stainless steel,
cheap

None

East, Brazil, U.S.A.
Irregular supplying
Quality, price

Mexico

Poor quality
Lower price

U.S.A., Germany
Scarce, expensive
Very good appearance

Two very strong firms
with good quality chromium-plated and stainless steel products
Quite competitive

U.S.A., East
High ranking: expensive and
stainless steel

Two very strong firms.
Good quality
Chromium-plated
Very competitive

Italy
Good and expensive
product

Paraguay

None

Brazil, U.S.A.

None

East: stainless steel, cheap
Brazil: stainless steel, cheap

Very small

East, Brazil, U.S.A.
Irregular supplying
Quality, price

Peru

Poor quality
Lower price

Brazil, U.S.A.
Scarce, expensive

Poor quality

Brazil: stainless steel, cheap

Poor quality
Small variety

East, Colombia, Brazil,
Venezuela
Irregular supplying,
price

Uruguay

Poor quality
Lower price

Brazil
Competitive

Poor quality

Argentina: stainless steel,
cheap
Brazil: stainless steel, cheap
East: stainless steel, cheap

Poor quality
Small variety

Brazil, East
Irregular supplying,
price

Ilko strengths

Quality
Competitive price
Variety

Variety
Quality
Competitive price

J Busn Res
2000:50:83–95

Source: Virutex-Ilko marketing management estimates.

Design
Variety
Competitive price

91

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2000:50:83–95

There were no local suppliers of baking molds, and imported products were scarce. There were also no local kitchen
tool manufacturers, though there were low-priced imported
stainless steel products from the Far East, Brazil, and Argentina. As for nonelectrical food-processing products, such as
strainers, the only ones to be found were imported from the
Far East, Brazil, and the United States, which competed in
quality and prices, but whose supply was irregular.

Mexico
The Mexican market was the largest among those analyzed,
with an estimated US$10.5 million per year. Nevertheless, in
relative terms, this was not a very large market, because Mexico
was a country where apparently there was little habit of baking
meals in general and pastry in particular. Typical Mexican
foods included many salty and seasoned products. This market
did not have quotas or technical standards or restraints, and
there was a 15% import tariff.
The most important channel, by far, were supermarket
chains, which accounted for 65% of national level sales and
which were predominant in the Federal District, the country’s
capital. Wholesalers, very important for serving bazaars and
shops, contributed approximately 30% of sales. Department
stores sold the remaining 5% but were significant because of
the status and publicity of having one’s products displayed
there.
The competitors were quite diverse. In bakeware products,
local suppliers exhibited poor quality, though prices were
quite convenient. Imported products were few, but of excellent appearance and high prices, and they came from the
United States and Germany. In kitchen tools, there were two
very strong Mexican manufacturers, with good quality both
in chromium-plated and stainless steel utensils that were very
expensive. In strainers and other nonelectrical products, there
were also two very strong local suppliers, with good quality
and very competitive prices in tin-plated products. Imports
came mainly from Italy, from the world’s largest exporter, and
they were products high in quality and in price.

J. E. Martı´nez et al.

significance was increasing. On the other hand, there were
seven or eight large department stores in Asuncion alone.
There were no local competitors in bakeware products,
though springforms were imported from Brazil and the United
States. There were no Paraguayan manufacturers of kitchen
tools, and products found in the market came, as in the
case of Bolivia, from the Far East, Brazil, and Argentina. These
products were stainless steel devices of poor quality and low
prices. In strainers and other nonelectrical items, there was little
local production and, as in Bolivia, the market was supplied
with Far Eastern, Brazilian, and U.S. products that were competitive in quality and price but with irregular distribution.

Peru
The size of Peruvian market was estimated at some
US$900,000 per year. Its tariff level was 25%, and, as in the
previously described markets, there was no imposition of
quotas or technical standards, but certification by an international firm was required for quality control on all imports
before they left the country of origin. Supermarkets accounted
for approximately 25% of sales of this kind of product. Because
of the current economic crisis, supermarkets only accepted
goods on consignment. Wholesalers, many of Japanese origin,
were very important, accounting for 40–50% of sales. Markets
and fairs were supplied mainly by these wholesalers. It was
believed that this informal market accounted for almost 50%
of these product’s total retail sales. The remaining sales were
made by large retail outlets that were confronting severe payment problems.
Local suppliers of bakeware exhibited poor quality, though
their prices were lower than those of Ilko products. Some
imported items came from Brazil and the United States, but
their prices were high. There were no local manufacturers of
quality kitchen tools, and channels stocked themselves with
low-priced imports of stainless steel that came from Brazil
and the Far East. Quality and variety of strainers and other
nonelectrical items of Peruvian manufacture were poor, and
imports were irregularly received from the Far East, Colombia,
Brazil, and Venezuela but at moderate prices.

Paraguay

Uruguay

This was a small market, with approximately US$600,000
annual sales for products in the Ilko line. Tariffs were 23%,
and there were neither quotas nor technical standards. It
appeared that Paraguayans did not use ovens much for preparing meals either. There was significant demand among the
Paraguayan population for kitchen tools, strainers, and other
nonelectrical food processors.
The main channels for these products were public markets
and fairs, particularly in lines such as strainers, kitchen tools,
graters, etc. Counter wholesalers were few and their significance was decreasing. Supermarkets exhibited little growth
or dynamism. In Asuncion, the country’s capital, they did
not account for more than 5–7% of retail sales, but their

This was a small market, with estimated sales a little over
US$1 million for Ilko line products. It had the highest regional
import duty (50%), but this was expected to decrease in
negotiating rounds anticipated for July 1992. There were no
quotas or technical standards.
In Uruguay, there were three supermarket chains that accounted for approximately 40–50% of retail sales. The remaining sales were made in bazaars that acted as counter
wholesalers. These were few but very significant.
Locally produced bakeware products were of poorer quality
and lower prices than Ilko’s. Brazilian springform imports
were very competitive. Locally manufactured kitchen tools
were also of very poor quality. It was possible to find imports

Virutex-Ilko S.A.

from Argentina, Brazil, and the Far East at reasonable prices.
Small variety and poor quality were characteristic of strainers
and other nonelectrical items, while imports at very reasonable
prices came irregularly from Brazil and the Far East.

Entry and Operating Strategy
for Latin America
Once the decision to enter Latin American markets had been
made, the firm would have to decide how to penetrate these
markets. One approach would be to export products manufactured in Chile and to distribute them in each market through
importers, distributors or commission agents. These were also
the options of distribution through a sales organization of
their own or subcontracting a local firm. Another approach
would be to manufacture these products in each market, which
could be done by granting manufacturing licenses, directly
investing in facilities of their own or investing jointly with
some local firm. Asked about how he envisioned the firm
operations in Latin America five years ahead, Toma´s Mu¨nzer
commented:
We should have at least one or two small manufacturing
subsidiaries operating. I believe that in the long term, this
business has a weak exporting position in this region. These
investments should be made in association with people
that have a good knowledge of these markets.
Juan Eduardo Rodrı´guez and Christian Salamovich supported the idea of initially appointing an importer or distributor for each country, except in very large countries, like Brazil,
or in countries with very different regions, like Bolivia, where
there would have to be more than one.
In his report, Mr. Salamovich presented the candidates he
had preselected after visiting each country. In Argentina, he
had chosen a manufacturing firm that produced and imported
plastic items, with yearly sales of US$20 million, and whose
customers were mostly the large wholesalers all over the country. This firm also sold 20% to supermarket chains and the
remainder directly to the 500 biggest bazaars in Argentina.
Virutex-Ilko was this firm’s representative in Chile.
In Bolivia, Mr. Salamovich preselected three dealers/importers for the zones of Santa Cruz, La Paz, and Cochabamba,
respectively. The latter was a wholesaler who had been buying
small quantities of Ilko products for years and would be
maintained for the sake of tradition. The one in Santa Cruz,
recently appointed, was an importer of items to be sold in the
bazaars. After many difficulties, they had hopes of appointing a
dealer in La Paz during the coming months, probably the
same one that represented the Argentine plastic manufacturer
selected by Mr. Salamovich to sell Virutex-Ilko products in
Argentina. In Mexico, Fernando Bihan had chosen a distributor/importer who distributed to supermarkets and had four
stores or bazaars that operated both as retailers and as wholesalers. The line that interested him most was that of strainers.

J Busn Res
2000:50:83–95

93

He had been in the business for forty years in the Mexican
capital, where he was the second most important distributor.
In Paraguay, Mr. Salamovich had chosen an imported/
distributor who operated in bazaar and hardware store items
and who had strength in distributing to supermarkets and
market places as well. It was a business that was in the process
of being transformed into a firm, not yet completely professional. It had conducted some operations with Virutex-Ilko
before September 1991. In Peru, Mr. Salamovich selected an
importer/distributor who knew quite a lot about the Ilko line
because he was a mechanical engineer. He did not perform
any manufacturing activity, only commercial activities such as
importing Cristal D’Arques. He had also operated occasionally
with Virutex-Ilko before September 1991.
Finally, in Uruguay, he had selected an importer/distributor
who, besides importing large quantities of merchandise from
the Far East, manufactured plastic items such as shower curtains and inexpensive handbags. It was a medium-size family
business, quite well organized and very professional. The management team consisted of two brothers and their mother,
who took responsibility for sales. They were well accepted in
the distribution channels, especially in supermarkets. Like the
selected distributors in Bolivia, Paraguay, and Peru, they had
operated with Virutex-Ilko before September 1991.
Another issue that troubled Virutex-Ilko executives was
the marketing policy for their products in these markets. The
original idea was to sell the entire range of products in all
markets, and to implement a marketing program much like
the one they had so successfully carried out in Chile. This
included the use of their own brands, full distribution coverage
and presence throughout the country, strong emphasis on
merchandising and salesmen training, sustained personal contact with customers, unique advertising strategies, etc. However, once Mr. Salamovich’s report was analyzed, they asked
themselves if the differences among Latin American markets
would make it necessary to somehow adapt the general plan.

Teaching Note
Case Purpose and Teaching Objectives
The purpose of the Virutex-Ilko is to develop abilities in
the design of entry strategies into new export markets. This
requires an evaluation of the countries in which the greatest
opportunities, as well as an understanding of the kinds of
products the market niches in which the company has a
competitive advantage.
The teaching objectives include the following:
1. Understanding the factors involved in a decision to
export or manufacture overseas.
2. Appreciating the characteristics of Latin American markets, the opportunities and risks that they present.
3. Evaluating the distribution channels and manufacturing
arrangements through which a Latin American company
can best maximize its competitive advantage.

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Suggested Questions for Discussion

J. E. Martı´nez et al.

WHY WAS THE GERMAN MARKET MORE DEMANDING? HOW DID
THE COMPANY RESPOND TO THOSE DEMANDS?

1. How did the company come to dominate the household
cleaning and kitchenware markets in Chile?
2. What was the company Credo and why was it developed?
3. Why did it seek to enter the developed country markets
of North America and Europe? How successful was it?
Why? What was its strategy?
4. Why was the German market more demanding? How
did the company respond to those demands?
5. What countries offer the greatest competition in baking
ware? In nonelectrical food processors? How does Virutex-Ilko compete?
6. What strategic problem does the company face in 1992?
What are its major alternatives?
7. How would you assess the possibility of competing on
design and brand image in North America and Europe?
8. Should the company seek to expand to other markets
in Latin American? Why or why not?

Case Analysis
HOW DID THE COMPANY COME TO DOMINATE THE HOUSEHOLD
CLEANING AND KITCHENWARE MARKETS IN CHILE?

• The founder brought his skills and market knowledge
with him from Germany.
• He took considerable risks in importing new machinery.
• He constantly added new products.
• He traveled to the United States and Europe, bringing
back new product and process ideas.
• There was a marked concern for product quality.
• There was a clear focus on the end consumer.
• Knowledge and experience in merchandising.
• Success in penetrating supermarket chains.
WHAT WAS THE COMPANY CREDO AND WHY WAS IT DEVELOPED?

• Growth could not be achieved with a patriarchal-type
organization.
• A process of organizational development and cultural
change was begun.
• The company needed creativity, commitment, autonomy, and teamwork.
WHY DID IT SEEK TO ENTER THE DEVELOPED COUNTRY MARKETS
OF NORTH AMERICA AND EUROPE? HOW SUCCESSFUL WAS IT?
WHY? WHAT WAS ITS STRATEGY?

•
•
•
•

The Chilean market was becoming saturated.
Softening of Chilean market after 1981.
There was unused capacity.
Need for hard currency (historic losses due to devaluation).
• Product volume might enable some economies of scale.
• Status derived from exporting manufactured products.

• Way of life centered in the kitchen; ovens kept burning
during cold winters.
• Tradition of baking pastries typical of Christmas and
Holy Week festivities.
• Company responded by tailoring product to customer
specifications.
WHAT COUNTRIES OFFER THE GREATEST COMPETITION IN BAKING
WARE? IN NONELECTRICAL FOOD PROCESSORS? HOW DOES VIRUTEX-ILKO COMPETE?

• Germany offered greatest competition in high end-ofscale baking ware and Italy the same in nonelectrical
food processors.
• Therefore, it is necessary to compete with price and
flexibility rather than with design and quality.
WHAT STRATEGIC PROBLEM DOES THE COMPANY FACE IN 1992?
WHAT ARE ITS MAJOR ALTERNATIVES?

• Virutex-Ilko is seeing its margin reduced from 50% of
domestic sales to only 25% due to increased price competition in those markets and loss of competitiveness
from an increasingly overvalued peso.
• It can either change its strategy in the developed country
markets, emphasizing design and quality, using its own
brand name or it can basically abandon those markets
to low cost competitors from the Far East and enter the
emerging markets of Latin America.
HOW WOULD YOU ASSESS THE POSSIBILITY OF COMPETING ON
DESIGN AND BRAND IMAGE IN NORTH AMERICA AND EUROPE?

• This will be very difficult. There is no design tradition
in Chile. The European markets in particular are very
demanding.
• The company does not have the resources to create a
brand image.
SHOULD THE COMPANY SEEK TO EXPAND TO OT