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

Turri, S.A
Marcelo Paladino
INSTITUTO DE ALTOS ESTUDIOS EMPRESARIALES, IAE-UNIVERSIDAD AUSTRAL

Founded as a small mechanical workshop by an Italian immigrant in
the 1920s, Turri had come to be a major player in the technologically
sophisticated “CNC” (computerized numerically controlled) sector of the
machine tool market by the late 1980s. The case describes this transition,
leading to the company’s decision to abandon the manufacture of traditional lathes and to produce only CNCs. However, the global machine
tool industry has changed significantly over the past decade, and Turri
faces difficult new challenges. The sale of a family business to corporate
interests may provide the access to resources, technology, and markets
that are needed for success, or it may smother the inventiveness and
entrepreneurial spirit of the founder. As Turri was sold twice, first to a
Swiss multinational and later to a large Argentine conglomerate, the case
provides a rich opportunity to explore this question. The Swiss were
instrumental in developing a state-of-the-art technology policy and in
initiating an export strategy for Turri, but it was the founder’s reputation
for quality and innovation in the domestic market that had created the
foundations for success. J BUSN RES 2000. 50.15–28.  2000 Elsevier
Science Inc. All rights reserved.

T

he case traces the various stages of economic policy
in Latin America, from import substitution and protectionism through trade liberalization and the new opportunities presented by Mercosur, the regional trading bloc.
It also describes the turbulent economic and political environment of Argentina in which the company operated. It was
this environment and specifically the severe recession of the
early 1980s that led the Swiss investors to sell to ITSA, the
Argentine conglomerate, which was accustomed to managing
under conditions of hyperinflation and could take advantage
of sharp devaluations by selling in export markets at competitive prices.
The issue of technology acquisition by a Latin American
company may be examined through new management’s quest,
under ITSA, for strategic alliances abroad. Such an alliance is
finally struck through agreements with a Japanese producer
of CNC machine tools, which licenses the production of a
Address Correspondence to Marcelo Paladino, Mariano Acosta S/No, Derqui(1629) Pilar-Buenos Aires, Argentina.
Journal of Business Research 50, 15–28 (2000)
 2000 Elsevier Science Inc. All rights reserved.
655 Avenue of the Americas, New York, NY 10010

general purpose machine, the T-4, that is ideal for the Latin
American market. Turri’s choice of reputable but second-class
Japanese firm is interesting in that there is less likelihood of
its being absorbed by the new partner. Turri also is able to
adapt and improve the T-4 technology as a base for new
product lines.
Just as the company was about to capitalize on this technology in a more favorable economic environment, and with
the opening of the Brazilian market, it experienced operating
problems that can be traced to a major restructuring in which
many experienced managers resigned. Though most were replaced, the production management team was left crippled.
Scheduling bottlenecks and unmet deliveries lead to cancelled
orders, and sales dropped until a crisis point was reached in
1990. In this context, the company once again searched for
a foreign partner but this time one with financial resources
and complementary product lines. One possibility is Mandelli,
the Italian machine center manufacturer, with whom Turri’s
CEO then began negotiating.
This is truly a global case, in which one may see the
interplay of Turri with Japanese, Swiss, and Italian companies

operating within the policy context of Mercosur in Brazilian
and Argentine markets.

TURRI, S.A.
In September 1990, the chief executive officer of Turri, S.A.
was concerned about the machine tool company’s scarcity of
funds. New loans from commercial banks would be difficult
to obtain given the company’s current financial situation and
the uncertain economic conditions in Argentina. The only
remaining source of financing was ITSA, the holding company
that owned Turri, unless a foreign partner was approached.
The CEO, Mr. Gilligan, had recently begun conversations
with Mr. Giancarlo Mandelli, president of a leading Italian
manufacturer of machining centers, and he was now preparing
to negotiate a joint venture with Mandelli.
Turri, S.A. was a producer of technologically advanced,
numerically controlled (CNC) lathes for the machining of
industrial parts. To rationalize expenses and build a high-tech
image for the company, the board of directors had approved
ISSN 0148-2963/00/$–see front matter

PII S0148-2963(98)00104-0

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M. Paladino

Table 1. Sales Volume and Deliveries
Sales
CNC Lathes
Year
1986
1987
1988
1989
1990 (11 MOS.
a
b

Delivered Machines
Parallel Lathes

CNC Lathesa

Parallel Lathesb

Domestic
Market

Exports

Domestic
Market

Exports

Domestic
Market

Exports

Domestic
Market

Exports

37
31
20
34
4

6
26
47
28
18

128
64
47
52
11

39
21
67
31
20

9
39
26
18
18

7
19

29
34
17

87
59
78
49
17

19
30
73
37
19

Average value: .US$90,000 per machine.
Average value: US$12,000 per machine.

a plan to phase out its line of traditional, parallel lathes because, as the CEO explained, “these were not compatible with

new technologies, and sales have continued to decline.” (Data
on sales volume and deliveries of the two product lines during
the period 1986 to 1990 are shown in Table 1.)
Even with the reduced sales volume, Turri had sometimes
failed to meet production plans. The situation was further
complicated by drastic changes in the Argentine political and
economic environment. The current president, Carlos Menem,
had been in office only one year and had already faced two
hyperinflation periods, in July and December of 1989.

Lathe Products
A lathe is a machine tool that shapes the parts to be machined
by scraping off shavings of material. The part rotates around
its axis, and a cutting tool shaves off the material to be removed. The most common type is known as the Parallel Lathe
(shown in Figure 1).
The computerized numerical control (CNC) is a system
applied to machine tools (MTs) to automate and control all
their actions, including: carriage, headstock, tool post, and
tailstock center movements; tool feeding and spindle speeds
and directions; cutting tool and part changeovers; and normal

operations.
The information needed to perform machining operations
on a particular part required preparing a program. The combination of a lathe and a CNC resulted in a product known
as a CNC lathe. Figure 2 shows simplified charts of both
conventional and CNC operating systems. Figure 3 features
a photograph of Turri’s model T-4.
As a result of progress made in mastering the control unit
electronic technology and in simplifying its programming,
MTs equipped with these units had become widespread. Also
noticeable was a technological trend towards integrating MTs
with other automation elements, such as robots and computeraided design and manufacture control systems (CAD/CAM),
which created Flexible Production Cell systems and Flexible
Manufacture Systems (FMS). This trend placed great demands
for design and production on MT manufacturers, and created
significant technological barriers to entry in the industry.

Company Background
As often occurred in Argentina in the 1920s, an Italian immigrant opened a shop, placed his name on the door, and soon
had a successful business. In this case, the Italian was a mechanic named Turri, and the workshop he established was
to produce single-pulley lathes. In time, this family-owned

business increasingly gained prestige in the domestic MT market and slowly became the leader in parallel lathe manufacture.
In 1957, the company was acquired by an international
Swiss group that carried out a thorough transformation of
Turri’s technology and human resources. After this transformation, Turri began exporting its main product, parallel
lathes, to other Latin American countries and soon became
the indisputable leader in this MT segment. In the domestic
market, company products were protected by a 33% tariff.
In the 1960s and 1970s, Turri’s technology policy was
state-of-the-art, and it made major investments in product
development and plant tooling. Turri was the first Argentine
company to venture into numerical control technology, which
was a turning point for the metalworking industry in general
and for the MT segment in particular. Mastering this technology involved the use of computers in machining processes,
as MT command and control elements. Using in-house development engineering capabilities, in late 1979, Turri manufactured some prototype models that were actually nothing more
than conventional machines retrofitted with a CNC unit. This
limited their performance: for example, cutting speed was not
constant due to conventional gearboxes and motors.
In 1982, after a severe recession that afflicted domestic
industries, the Swiss group decided to sell off the company,
which was acquired by ITSA, an Argentine capital holding
company engaged in the oil and construction businesses.
ITSA’s top management was known for its unflagging optimism and for its interest in taking on ambitious new ventures.
Since 1979, a decline in public works contracts prompted the
group to look for business opportunities in other industry
segments to diversify their portfolio but always in activities
that contributed to national economic development.
ITSA acquired Turri with the goal of turning it into the
number one MT manufacturer in Argentina and to meet the

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Figure 1. Main components of a center lathe: 1, gearbox cover; 2, main shaft bore for bar insertion; 3, main shaft; 4, feed gearbox; 5,
headstock; 6, chuck (faceplate); 7, chuck gripping jaws; 8, tool slide; 9, tool post; 10, cross slide; 11, turntable; 12, charriot; 13, lathe bed
guide bars; 14, fixed middle rest; 15, tailstock center; 16, tailstock shaft; 17, tailstock; 18, feed shaft; 19, switch reverse shaft; 20, carriage
with apron; 21, turnings and coolant tray; 22, rack; 23, lathe bed; 24, leadscrew.

challenge of developing this important industrial sector, which
they considered vital to domestic industrial growth. In response to the perceived trend toward economic liberalization,
the new Turri management installed by ITSA began to redefine
the market and to rethink the product technology strategy in
accordance with new market requirements. Until this time,
Turri’s growth had benefitted from the protection of a relatively closed economy, as had many small- and medium-size
Argentine businesses. The ITSA strategy was to manufacture
products for the global market. In the face of falling tariff
barriers, MTs had to be produced with internationally competitive quality and prices. The new management concluded that
this could only be achieved through economies of scale that
were unattainable in the small and unstable domestic market.
At the time of its acquisition, Turri was a small business
compared with the other ITSA companies. It sold approximately 75 conventional and 12 numerically controlled lathes
per year for total sales of under US$3 million. Total shares
outstanding were valued at US$1.5 million.
Argentine industry’s reputation for protectionism and lagging technology meant that the company had to make an extra
effort to establish its credibility with world-class companies.
Nevertheless, in 1983, Turri was able to negotiate several agree-

ments for the purchase of new technology from Takisawa, a
second-rate though renowned firm in the MT market. As part
of these agreements, Takisawa discontinued manufacturing of
its model T-4 CNC lathe (some of whose vital pieces were
wearing out through friction with metal shavings) and licensed
the technology to Turri. This breakthrough resulted in Turri’s
successful marketing, in 1984, the first licenced numerically
controlled machine in the country, the T-4 CNC. Exporting to
several Latin American countries also was considered.
Based upon initial acceptance of the T-4 in the local market,
Turri increased its technical staff and opened its own U.S.
distribution operation in California with the objective of obtaining 1% of the large U.S. market (equivalent to four CNCs
per month). To carry out this plan, a general manager, two
sales engineers, one service engineer, and a secretary were
hired to staff the U.S. sales office, and several vehicles were
purchased. The new office required some US$45 thousand
each month in start-up expenses, plus working capital to
maintain five machines in stock. Further outlays were required
for participation in the Chicago and Milan international industrial trade fairs.
In 1986, Turri acquired another manufacturing licence
from Takisawa, for the less powerful but more modern and

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M. Paladino

Figure 2. Operating systems of parallel
and CNC lathes.

faster T-2 CNC. Because of its high speed and low horsepower,
the T-2 was ideal for the specialty machining of small parts
and light alloys. However, it had limited sales potential in the
Argentine market, where industrialists typically were looking
for a general-purpose product. For example, the growing numbers of gearboxes required by the domestic automobile industry contained steel parts that were forged and difficult to
machine on the T-2.
Meanwhile, Turri’s engineering department improved the
T-4 and turned it into a more technologically advanced product: the T-5 CNC. It also developed the T-1 CNC, a unique
model that was exhibited at the EMAQH 86, a prestigious
international machine tool trade fair held in Buenos Aires
every two years. This lathe, with a lower price and fewer
features, was developed to satisfy Turri’s traditional customer
demand, the small- and medium-size workshops wanting to
modernize without much investment. The EMAQH 86 coincided with the favorable results of a government initiative
known as the Austral Plan to stabilize the economy, and this
combination of favorable factors produced a sales increase in
the MT sector of 40 percent between June 1985 and April
1986. By 1990 Turri still offered a full line of parallel lathes
(though the discontinuation of this line had already begun),

three CNC lathe models (T-5, T-2, and T-1) and a lathe
produced only through special orders, the TN-300.
Reflecting on Turri’s success in penetrating global markets
during the 1982 to 1986 period, Mr. Gilligan felt that being
able to get those first licences required a lot of perseverence,
given that to large international companies Turri didn’t have
reasonable technological know-how to back up its intention
of becoming a player in CNC equipment. Moreover, in those
years Argentina had a poor image, just emerging from military
rule and heavily in debt. Regarding how Turri faced these
circumstances, Mr. Gilligan remarked: “That is why we had
to work so hard to reach an agreement with Takisawa, which
was only one of many companies we had started negotiations
with. We considered this agreement a key achievement to
make Turri international.”

The Manufacturing Process
Turri’s manufacturing process required close coordination
among the different areas involved in operations (see production planning flowchart, Figure 4). The process began with
the commercial department coordinating with production to

Turri, S.A.

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Figure 3. Planning area system.

agree on an annual production plan that included time required to source inputs.
This plan gave rise to a product program spanning a sixmonth time horizon as shown in Table 2 for both parallel
and CNC lathes. Activities included issuing production orders;
determining materials orders; scheduling machine loads at the
workshop; preparing a monthly estimate and a weekly load
with day-to-day details; and supplying the subassembly and
final assembly sections.
The machining process for each part was detailed on routing sheets, which specified the operations to be performed
at the different machines indicated therein. All operations
required a previous machine setup task that typically took a
long time. For this reason, machining of parts was done in
lots, usually an entire run, in order to optimize setup times.

There was no clear division at the plant separating the conventional and CNC product lines.
Each machine generally had one operator assigned to it
that created an uneven workload. Some with light machine
loads tended to stretch times, while others were saturated
with parts to be machined and became process bottlenecks.
The production machinery in the Turri plants was not
new but was generally in good condition. The most recent
investment in equipment had been the purchase of a “machining center” including an entire system of machines from Mandelli of Milan, Italy, one of the world’s leading manufacturers
of MCs. The cost had been US$800,000.
All castings and fairing component plates were painted in
one area. Since a customer could choose among lathe colors,
the process was tailor-made for each job. Final assembly re-

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M. Paladino

Figure 4. Manufacturing timetable.

works or those made due to changes requested by customers
were quite frequent. The facilities were a bit old and demanded
special manual labor and care on the part of supervisors and
painters.
The next stage was the assembly of the different subassemblies that went into the product, which were subsequently
sent to final assembly. They were put together according to
an assembly order (AO) in series of four to six subassemblies.
Warehouses would release materials on the basis of AOs.
The different subassemblies were mounted in succession
on top of the lathe base or bed, while lathe plating or fairing
was being built. Simultaneously, electric wiring and general
machine cabling was carried out, as well as installation of all
lathe servomotors and hydraulic connections. This required
operators with different skills working together.
Finally, the entire machine performance and quality specification conformance were verified. Quality control was the
responsibility of a boss and two supervisors who originally
reported to the engineering department. Quality control management basically was done at three stages: (1) inspection of
main castings, (2) control of parts machined in-house at the
workshop, and (3) final control over product performance.

In the case of exports, lathes were packed in wooden crates
assembled at the carpentry section. Every lathe was shipped
with a series of normal and special accessories that were added
at this stage.
The process was basically the same for parallel lathes, except for preassembly, which took place before painting (refer
to Table 2). However, an internal report analyzing the impact
on operations of the discontinuation of parallel lathe manufacture had shown that CNCs were less labor intensive, required
more imported materials and purchased items, and could use
fewer in-house parts (see Figure 5).

Human Resources
Front-line workers were affiliated with the traditional and
strong Metallurgical Industrial Union (UOM), while supervisors belonged to the ASIMRA union. Due to a company policy
of international promotion, all supervisors had been promoted
from operator positions. They possessed a thorough knowledge of their tasks and were closely acquainted with their
subordinates, many of whom had been their peers.
Many operators and supervisors had been with the com-

Turri, S.A.

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Table 2. Impact on Operations of Parallel Lathe Discontinuation: Internal Report

Direct labor vs. materials
Parallel Lathes
CNC lathes

Local vs. imported materials
Parallel lathes
CNC lathes

Raw materials vs. commercial items
Parallel lathes
CNC Lathes

Number of in-house parts vs. purchased items
Parallel lathes
CNC lathes

pany for over 20 years, quite often sharing strong friendship
and even family ties. They earned a fixed wage and an individual bonus. Each operator’s bonus depended on productivity,
as measured by predetermined time standards for each operation. When the task did not have any predetermined time established or if, for any reason, the standard could not be met,
the supervisor used his judgment in applying the percentage
production bonus. The maximum bonus rate was 33% of salary,
although people would typically receive 30% as an average.

The Industrial Sector
Machine tool manufacturers had typically been small and
medium sized; although in such countries as Japan, Brazil, and
South Korea, the role of big firms was becoming increasingly
important. MTs made up a small fraction of capital goods
production. Nevertheless, this industry was considered to be
important because of its contribution to technological development. The MT industry acted as a transmission belts for technological innovations to downstream industrial sectors, and producer countries usually had schemes in place to protect it.
Few participants in the MT industry had the capacity to
both design and produce. Technological evolution had changed
the research and development (R&D) function and its economic relevance. Thus, R&D teams would require increasing
numbers of electronic technicians, and from being a minor
expense, R&D came to consume approximately 5% of sales
revenues in leading companies. The market was aware of this,
primarily through international trade fairs, where potential
buyers examined new products and evaluated new industry
entrants such as the new Japanese manufacturers that had
arisen during the past decade. Numerically controlled MTs

Direct Labor (%)

Materials (%)

43
21

57
79

Local (%)

Imported (%)

91
44

9
56

Raw Materials (%)

Commercial Items (%)

59
23

41
77

In-House Parts (%)

Purchased Items (%)

63
39

37
61

had gone down in price as a result of technological breakthroughs and larger scale production, particularly in Japanese
companies (see Table 3).
High-tech MT production thus was clustered in relatively
few countries, with exports as the primary means of international expansion. Technology transfers and direct foreign investment also had been used, although to a smaller degree,
in expanding the industry.
Typically, MTs were produced in lots or short runs because
of the wide variety of accessories needed for different machining operations. In Latin America, only Argentina and Brazil
had a significant production. Table 4 provides data on MT
supplier to major countries in the region through 1987. Incipient growth in MT industry trade between Brazil and Argentina
has occurred since then as a consequence of having including
MTs in the common list of Protocol No. 1 on Capital Goods
(an economic integration program agreed upon by both nations for selected industrial sectors).
In 1990, Japan was the world’s largest producer of MTs,
having taken the lead from the United States. European manufacturers held their ground and some emerging economies,
such as China, Taiwan, India, and Korea, consolidated their
positions.

Local Industry
With the development of the Argentine automobile industry,
MT demand reached its heyday in the early 1970s. In 1973,
total production was 22,500 units employing 6,000 people,
and the market was dominated by small- and medium-size
local businesses that imitated foreign models to develop their
own products. These companies were protected by tariffs

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M. Paladino

Figure 5. Technological development and NCMT prices in Japan.

levied on imported products, following the traditional import
substitution model of industrial development.
Economic liberalization policies introduced in 1976 had a
devastating impact on local industry, especially overwhelming
between 1980 and 1982. Few producers survived, and by
1990 only local two companies, Turri and Promecor, were
capable of competing in world markets. These were the only
Argentine companies to have incorporated CNC technology,
which was of rapidly growing importance in the local market
(as shown in Table 5).
Tariff protection for CNC lathes (first 35% and then 45%)
made it possible for local producers to successfully compete
with imported lathes, although technological features were
not the same. In the case of lathes, some equipment similar

to those manufactured locally were able to enter the country
through the so-called lump tariff items in the tariff schedule.
In 1985, a resolution (P78) adopted by the Secretariat of
Industry and Commerce accorded tariff protection to domestically manufactured CNC lathes of 95%, subsequently reduced
to 50% in 1990. At the same time, imported numerical control
units would be subject to a higher tariff to favor local production. Resolution P78 was thought to provide greater protection
than requested by NCMT manufacturers themselves.

Relaunching Turri—1986
On January 1, 1986, all members with over fifteen years of
experience in the company resigned in disagreement over a

Turri, S.A.

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Table 3. Major Machine Tool Suppliers to Latin American Markets (millions of US$)
Importer
Mexico

Brazil

Venezuela

Argentina

Colombia

Peru

Equador

Year

World

US

W. Ger.

Italy

Japan

Switz.

Spain

Argent.

Brazil

83
84
85
86
87
83
84
85
86
87
83
84
85
86
87
83
84
85
86
87
83
84
85
86
87
83
84
85
86
87
83
84
85
86
87

170.0
170.2
149.7
177.2
126.4
65.6
42.2
36.3
60.6
120.1
25.4
33.5
41.9
54.7
68.1
20.6
22.6
31.4
16.4
38.3
10.1
19.7
11.4
11.6
19.9
7.4
2.8
3.4
6.5
8.1
7.8
4.4
10.3
8.5
8.9

39.6
55.5
63.4
114.6
78.1
18.5
13.3
9.7
9.8
18.7
7.8
6.5
12.1
13.6
19.4
1.7
4.7
6.0
7.3
2.3
5.5
9.6
5.4
2.2
4.7
0.5
0.8
0.5
2.4
1.1
1.3
0.5
0.9
1.0
2.0

20.1
18.1
22.0
23.9
23.3
17.7
7.0
15.1
23.7
40.9
2.7
6.6
5.5
8.1
6.4
3.4
5.8
7.0
6.2
8.6
1.4
1.6
0.8
1.3
2.8
1.3
0.4
0.4
0.3
1.4
0.3
0.0
0.6
1.3
1.2

5.4
1.0
4.0
5.2
4.7
6.5
16.3
1.9
5.4
13.3
7.5
6.3
8.8
7.8
15.6
3.0
2.2
6.0
3.1
4.7
1.0
1.1
0.4
1.2
2.1
1.7
0.3
0.5
0.7
1.2
0.5
0.0
0.7
0.9
1.9

9.0
18.4
30.3
1.4
6.7
13.8
2.7
2.8
9.0
13.6
1.0
0.7
2.1
2.2
3.2
3.5
4.0
3.4
1.7
1.5
0.5
0.1
1.3
0.1
0.3
1.8
0.0
0.0
0.7
0.3
0.1
0.0
0.0
0.0
0.1

1.0
0.5
5.3
3.0
4.3
2.8
1.0
2.7
6.1
5.8
0.1
0.0
0.5
1.0
0.4
1.1
0.5
1.7
0.2
4.6
0.2
0.2
0.2
0.6
1.2
1.8
0.0
0.0
0.0
0.0
0.0
0.7
0.1
0.1
0.0

7.6
4.4
7.0
6.3
1.9
0.4
0.3
0.3
0.4
2.5
3.3
3.5
4.6
4.2
4.5
0.1
1.3
1.0
0.7
1.6
3.3
2.3
1.1
2.0
2.7
0.3
0.1
0.1
0.6
0.7
0.4
1.0
1.0
0.8
1.2

0.2
0.4
0.8
0.4
0.1
0.0
0.1
0.2
0.7
11.4
0.1
0.1
0.1
0.2
0.2
0.0
0.0
0.0
0.0
0.0
0.3
0.2
0.9
0.3
0.3
1.4
0.1
0.1
0.1
1.4
0.1
0.1
0.2
0.0
0.0

0.6
2.2
2.1
0.6
0.6
0.0
0.0
0.0
0.0
0.0
0.3
2.4
1.0
0.9
0.4
1.4
0.6
1.1
0.7
1.9
0.3
0.2
0.2
0.1
0.6
0.5
0.1
0.1
0.1
0.4
0.2
0.1
0.4
0.2
0.0

Source: INTAL.

major transformation process undertaken by new management and supported by the board of directors. Within six
months, most of the positions had been filled by younger
managers, though the production management team had been
the most difficult to replace.
At that time, Turri had the opportunity to enter the Brazilian market, which was ten times larger than the domestic
market. Under Protocol No. 1 on Capital Goods, doors were
opening to Argentine products within the framework of Argentina-Brazil economic integration promoted by former President Alfonsı´n. Turri’s CEO commented,
The opportunity of entering Brazil arose from the fact that
they were lagging some six years behind in CNC machines,
because their computer information law banned control
unit imports. On the other hand, since it was a closed
market, we were able to sell at higher prices. For example,
a machine we would sell for US$50,000 in the U.S.A.,

would command US$85,000 Brazil, whereas a Brazilian
machine similar to ours would cost over US$160,000.
In 1985, before the Brazilian door opened, the company
had been able to export only 12 CNCs against expected export
sales of 36, and it had been able to do so only by reducing
its price to US$80,000, less than similar Japanese machines.
Currency devaluation and low labor costs helped to sustain
this price reduction, as did pressures from a new domestic
competitor, Promecor.
The domestic market began to grow once again during
1987 and the first quarter of 1988, at the same time that the
Brazilian market was opening to Argentine products. Turri
was unable to take advantage of these market opportunities,
however, because of its inability to make on-time deliveries, to
provide after-sale service, and to ensure the quality of its products. Problems began with in-bound logistics: there were shortages of some items and overstock of others. Machine downtime

24

J Busn Res
2000:50:15–28

M. Paladino

Table 4. Argentine Production, Exports, and Imports of Metalworking Machine Tools (thousands of US$ and units)
Production

Unita

1985

1986

1987

1988

Estimated (total)

US$00
Units
Y
U
Y
U
Y
U
%
%
Y
U

19049
3362
6355
555
1267
15
1204
13
6.9
15.9
3706
1180

33053
4410
6212
766
3351
34
2679
29
10.8
30.1
4711
627

39927
5360
5040
738
10208
100
9597
94
29.9
65.6
15988
2171

48023
5639
8035
673
11934
95
11181
90
28.4
48.2
32590
3818

18.7
31314
3413
4226
28
47457
5595
5443
42
66.0
61
77.6
66.7
1567
11.7

14.3
16425
1215
3885
33
44767
4998
6976
62
36.7
24.3
55.7
53.2
1701
18.2

40.0
38337
1239
4601
41
62276
4428
10855
93
61.6
28
42.4
33.3
1856
18.4

67.0
44648
1229
9014
40
60681
3050
11354
59
73.6
40.3
79.4
67.8
1870
22.5

Conventional lathes (only)
CNC MT (total)
CNC Lathes (only)
CNC MT/total value of production
CNC Lathes/total lathe units
Exports (totals)
CNC Lathe exports total value of
production (%) (only)
Imports (totals)
CNC MTs (only)
Total consumption
CNC MTs
Imports/consumption (%)
CNC imports/consumption (%)
Personnel employed
Production/employee
a

Y
U
Y
U
Y
U
Y
U
Y
U
Y
U
Y

Unit: Y (thousands of dollars); Units: U.

led to bottlenecks in production flows and huge work-inprocess inventories. Information systems broke down; frontline workers refused to cooperate and threatened to strike.
These operating problems produced heavy financial losses
that were made worse by the expensive financing of increased
working capital needs. In the 1987–88 period, an estimated
US$5 million had been poured into Turri by ITSA to replenish
working capital. Finally, in late 1988, ITSA withdrew its financial support and demanded changes, including the closing of
Turri’s distributor in California.
Meanwhile, the economic stabilization plan that had been
introduced three years earlier was floundering. The government launched the “spring plan,” which fixed the exchange
rate for a few months but did not curb inflation. As a result,
Turri started losing money on exports. “It seemed incredible,
but between August 1988 and January 1989, the more we
exported, the more we would lose,” remarked the CEO. Nonetheless, between February and July, Turri recuperated substantially from earlier losses, due to increased exports to Brazil,
which accounted for 70% of company sales. But despite the
momentum of this reactivation, the company continued to
sell few numerically controlled and many parallel lathes. Mr.
Gilligan explained,
The parallel lathes were increasingly becoming a burden,

since this type of machine is “sold by the pound” and
competition was focused on producing them on a large
scale, with low labor and raw material costs. We were
already seeing that we could not compete against the Chinese and Taiwanese in this segment.
The environment of hyperinflation and severe recession in
Argentina during most of 1989 accentuated the crisis. The
payroll was continuously reduced, and the objective came to
be mere survival. Nevertheless, some achievements were made
in the 1989–90 period. Mr. Gilligan commented that,
Despite all the operating problems, product quality and
after-sale service had improved since 1987 and CNC lathes
were more reliable. The development of a Latin American
trade network and Turri’s brand name positioning in the
CNC lathe segment are also worth mentioning.
In mid-1988, the company had 230 employees organized
in a functional structure. By September 1990, the number of
employees had been cut to 80. The CEO commented,
As we improved we saw that our plant was obsolete and
that heavy investments had to be made in processes. With
the Mandelli machining center we downsized our heavy
machining operations, from 80 to 60 people; but that was

Turri, S.A.

25

J Busn Res
2000:50:15–28

Table 5. Production, Exports and Imports of Machine Tool for Metals Working in Argentina (in Thousands of Dollars and units)

Production
Estimated
NAMTMb
Conventional lathes
CNC MT
CNC Lathes
CNC MT/Total production %
CNC Lathes/Total lathesc %
Exports
Totals
Exports/production %
CNC Lathes
Exp./Prod. CNC lathes %
Imports
Totals
CNC MT
Consumption
Total
CNC MT
Imports/Consumption %
Imports/CNC consumption %
Personnel employed
Production/employees

Unita

1985

1986

1987

1988

Y
U
Y
U
Y
U
Y
U
Y
U
Y
Y

19049
3362
18364
2593
6355
555
1267
15
1204
13
6.9
15.9

33053
4410
30960
4170
6212
766
3351
34
2679
29
10.8
30.1

39927
5360
34180
4446
5040
738
10208
100
9597
94
29.9
65.6

48023
5639
42000
2763
8035
673
11934
95
11181
90
28.4
48.2

Y
U
Y
Y
U
Y

3706
1180
18.7
50
1
4.2

4711
627
14.3
260
5
9.7

15988
2171
40.0
3954
38
41.2

32590
3818
67.0
9594
77
85.8

Y
U
Y
U

31314
3413
4226
28

16425
1215
3885
33

38337
1239
4601
41

44648
1229
9014
40

Y
U
Y
U
Y
U
Y
U
U
Y

47457
5595
5443
42
66.0
61
77.6
66.7
1567
11.7

44767
4998
6976
62
36.7
24.3
55.7
53.2
1701
18.2

62276
4428
10855
93
61.6
28
42.4
33.3
1856
18.4

60681
3050
11354
59
73.6
40.3
79.4
67.8
1870
22.5

Source: production estimated with the production function of the NAMTM partners and export data from INDEC (National Statistics Office).
a
Unit: Y (thousands of dollars); Units: U.
b
National Association of Machine Tools Manufacturers.
c
Production, in thousands of dollars, of conventional and CNC lathes.

just the beginning. Entering first-class markets without
machines that guarantee manufacturing precision is very
difficult. Unfortunately the company is not now in a financial position to make these investments.
One expansion alternative had been a US$60-million project to set up a lathe factory in Neuque´n, some 1,300 kilometers
from Buenos Aires. This expansion, approved during the Alfonsin administration, was to be made under the Argentine
government’s industrial promotion and economic development plan, with the support of Italian government credit. The
idea was to get Takisawa interested, but despite months of
urging by Turri’s CEO, the Japanese company did not seem
so inclined.
During a trip to Italy, Mr. Gilligan presented the project to
Giancarlo Mandelli, president of the second largest European

producer of computerized machining centers (US$400 million
annual sales) and a Turri supplier. Mr. Mandelli agreed in
principle to a joint venture agreement to establish a 1.2 million
square–foot factory for the manufacture of numerically controlled machining centers and flexible manufacturing systems
for the Latin American market. However, the project was
abandoned when newly elected president Carlos Menem enacted the Economic Emergency Act suspending industrial promotion and, hence, the Neuque´n project.

Alternatives for the Future—1990
As globalization became a reality and international competition became more intense, the benefits of bilateral agreements
in the region began to vanish for Argentina. Turri’s CEO

26

J Busn Res
2000:50:15–28

realized that it was imperative to find a way of truly becoming
an international company, beyond regional agreements temporally covered by government negotiations:
We thought if these countries stabilized and grew they
would provide opportunities for international businesses
to try and introduce their products, the capital goods
needed for growth. And some would even think of establishing plants closer to their customers.
In these circumstances we were wondering how we could
turn these potential risks of intense international competition
into opportunities, considering our weakness in competing
just as Turri in an increasingly demanding market. We were
aware of our weaknesses, but we also had strong points we
could take advantage of: a good Latin American commercial
network; an improved after-sale service level; a prestigious
brand name in the CNC lathe segment; credibility because
Turri continued to serve its customers despite the crisis; and
the possibility of benefiting from the comparative advantages
the country offered this product: qualified professionals and
labor that could be easily trained at a relatively low cost.
The alternative of giving up the MT business and committing efforts and resources to other more profitable activities
available to the group met with resistance. That’s why we had
to find a way to go on: for a firm like Turri, it now seemed
impossible or at least difficult to continue by ourselves, as it
had been in the last eight years, when we had invested in
machinery, technology, management, new market development, and all sorts of adjustments and rationalizations to
compete internationally.
In September 1990, Mr. Gilligan met once again with Mr.
Mandelli during the Chicago international MT fair. From this
meeting came the renewed possibility of working together in
Latin America. The European manufacturer did not anticipate
acquiring a new business but rather suggested creating an
industrial plant with a modern machinery pool and model
rationalization. It would include the addition of a machining
center line to the CNC lathe product line. The new joint
venture would initially concentrate operations in the Latin
American market before proceeding to gain access to the rest
of the world.
Upon returning to Argentina, Mr. Gilligan wondered how
to proceed with the negotiations. The CEO saw many questions arising: what advantages would have to be protected?
Should most management be given up? What kind of partnership would be the most convenient? He believed that these
many concerns would require developing a detailed action
plan to guide future decisions.

Teaching Note
Case Purpose and Teaching Objectives
The purpose of this case is to understand the strategic alternatives available to an entrepreneurial local manufacturer in an

M. Paladino

industry undergoing rapid technological change. The case
describes acquisition by a Swiss multinational and later by
an Argentine conglomerate, technological agreements with a
small Japanese manufacturer, and presents a possible joint
venture with an Italian supplier.
Teaching objectives include:
1. Identifying the key factors in the success of a new venture. The multipurpose parallel lathe produced by the
Italian immigrant could be used in a wide variety of
industrial applications by small business in Argentina,
making it the right product in the right place at the right
time. Moreover, the pride of craftsmanship ensured that
high quality standards would be adhered to and the
personalized attention meant that customer loyalty
would be obtained.
2. Evaluating the impact of environmental factors on performance. The economic swings and policy changes
made it difficult to chart a long-range export strategy,
but in general it was the internal problems that accompanied the evolution of this small entrepreneurial company evolves into a large formal structure, rather than
the problems of the external environment, that led to
missed opportunities in Brazil and elsewhere.
3. Analyzing sources of competitive advantage. Each successive owner brought distinctive advantages to Turri:
the Swiss brought the first numerically controlled machines, giving the company a first mover advantage in
the local market and helping to make the first exports.
ITSA brought capital, contacts, and the strategy of seeking technological agreements abroad.
4. Negotiating international alliances. The case can be used
to stage a simulated negotiation with Mandelli for a
joint venture in Argentina.
This case may be used in a masters’ level course in corporate
strategy, in the section dealing with the formulation of a
technology policy or with the creation of international alliances. It might be accompanied by a reading on strategic
alliances (e.g., Badaracco, 1992).

Suggested Questions for Discussion
1. What is your assessment of Turri’s decision to discontinue the manufacture of parallel lathes?
2. What did the Swiss bring to Turri, and why did they
sell? What did the ITSA group bring?
3. How successful was the “relaunching” of Turri in 1986?
Why?
4. What are your recommendations to the CEO, Mr. Gilligan, regarding the upcoming negotiation with Giancarlo
Mandelli?

Turri, S.A.

Case Analysis
What is Your Assessment
of Turri’s Decision to Discontinue
the Manufacture of Parallel Lathes?
This question opens a discussion of the current problems
facing Turri, and their causes. The first part of this discussion
involves the changing machine tool market and the rapid
obsolescence of traditional, parallel lathes and their replacement by CNCs. Support for this conclusion can be found in
the data on the Argentine machine tool industry (Table 5), in
which CNC lathes increased from 15.9% of the units produced
in 1985 to 48.2% in 1988. Domestic sales and exports of parallel
lathes by Turri also are decreasing rapidly (Table 1).
A second justification for the discontinuation of parallel
lathes is in gaining production efficiency and reducing costs
through a reduced product line. Turri sold a wide variety of
parallel lathes, whereas it is now concentrating production
on only three CNC models. Moreover, the production processes are very different for the two types of lathes, both in
terms of scheduling (Table 2) and in terms of the mix of inputs
required (Figure 5). Parallel lathes are less labor intensive,
meaning the prospect of worker layoffs, but they more imported materials and more outsourcing.
A third justification is that the CNC machines are greater
revenue earners, selling at a price of 90,000 versus only 12,000
for the average parallel lathe. Consequently, Turri was able
to maintain and even increase dollar volume of sales through
1989 despite declining unit sales. Therefore, the decision
seems justified from several perspectives.
However, the decision has had an adverse impact on the
company’s finances. Though we do not have the financial
statements, the CEO makes reference to the current liquidity
crisis in late 1990. Given the dramatically higher content of
imported materials in CNC lathes (56% versus 9%) and the
need to keep five on hand in the California sales office, it can
be concluded that the working capital requirements of the
new strategy are much greater than with the production of
parallel lathes.

What did the Swiss Bring to
Turri, and Why Did They Sell?
What Did the ITSA Group Bring?
It was the Swiss who first introduced numerically controlled
lathes in Turri, though it can be argued that these basically
consisted of retrofitting converted parallel machines with CNC
units. The Swiss also implemented a state-of-the-art technology policy and invested significant amounts in R&D. However,
they were unprepared for the economic shocks of the early
1980s and preferred to sell rather than bet on Argentina’s
future. Some students might speculate that they were disap-

J Busn Res
2000:50:15–28

27

pointed with the company’s performance, but there is no
evidence to support this conclusion.
ITSA, the Argentine conglomerate, was in a better position
to understand the national economic and political environment. It could provide contacts and resources. It also recognized its technological limitations (ITSA had no experience
in the machine tool industry; it was largely in energy and
transportation) and encouraged Turri to seek agreements with
technology leaders in Japan.

How Successful Was the
“Relaunching” of Turri in 1986? Why?
The relaunching was a disaster. This is difficult to understand
after four years of ITSA ownership in which sales both traditional and CNC lathes had been built up. The problem was
that Turri was unable to deliver. Of the 73 CNC lathes sold
in export markets during 1987 and 1988, only 48 were delivered by the end of 1988. As a consequence, sales fell in both
1989 and 1990. (See Table 1).
One hypothesis is that Turri simply was unprepared to go
from production volumes of around 40 CNC lathes per year
to 60–70 CNC lathes per year. Because of the significantly
different production technologies involved, it was not possible
to simply substitute CNC production for parallel lathe production. Still, the company should have been able to keep pace
with the demand.
A more plausible explanation for the quality problems and
failure to meet deadlines may be found in the organizational
disarray caused by the older managers’ reactions to the relaunching. Incredibly, the case states that all managers with
over 15 years’ experience in the company presented their
resignations. Though most were soon replaced with younger
managers, we might ask whether these had the requisite experience and contacts in the machine tool industry, or whether
they were brought from the ranks of ITSA’s other companies.
Moreover, we are told that the production team was the most
difficult to replace. Clearly, the organizational turmoil had
taken its toll.

What Are Your Recommendations
to the CEO, Mr. Gilligan, Regarding the
Upcoming Negotiation with Giancarlo Mandelli?
By 1990, the negotiating position of Turri had been weakened
by its poor service to clients and its precarious liquidity position. Its strong points continue to be a prestigious brand name
in the CNC lathe segment; technology, both acquired from
Japan and developed locally; market position; and a distribution network within Argentina and surrounding countries.
These are all assets that should have been of value to Mandelli.

28

J Busn Res
2000:50:15–28

Turri’s machine tools are complementary with Mandelli’s machine centers, so that a marketing and distribution alliance in
Argentina and surrounding countries makes sense. However,
Turri is not in a financial position to invest in a new industrial
plant for the pooling of a machining center line with a CNC
lathe line. Consequently, it must either offer its shares in

M. Paladino

exchange for participation in the venture, or it must negotiate
financing with ITSA.

Reference
Badaracco, Joseph L.: Alianzas Estrate´gicas, McGraw Hill, New York.
1992.