Abstract Dissertation Title: “The bittersweet taste of growing a traditional chocolate manufacturer” Author: Tiago Aires da Fonseca Keywords: Internationalization; Expansion; Growth; SMEs Arcádia is a family-owned Portuguese confectionary, recognized for its quality products, especially its chocolates. The company has a long history, founded in 1933, by Manuel Bastos, and has been managed by the family ever since. Throughout its lifetime, Arcádia has established a recognizable brand in its local market and has grown from its origin city to the rest of the country. Under the management of João and Margarida Bastos, the company expanded its store presence to several locations in Portugal. Their expansion process included through the creation of new store concepts as well as franchising. Their growth plan leads to the focus of this Case Study, which aims to understand the current situation of Arcádia and the viability of its expansion to international markets. Relevant subjects are addressed in the Literature Review, such as: internationalization; definition of SMEs, their context in internationalization as well as their motivation and difficulties encountered in this process; firms’ resources and capabilities. The Teaching Note includes an analysis of the Case Study and the company’s current situation, as well as suggestions for future challenges that Arcádia would face if it decides to internationalize. The main focus of this dissertation is to analyse this company’s specific situation and motivations to explore new markets. Also the paper tries to explore if, as an SME, Arcádia’s resources and capabilities better position the company for an internationalization challenge and what difficulties it will face in this process. 2 Resumo Título da dissertação: “O sabor amargo de crescer uma fabricante de chocolate tradicional” Autor: Tiago Aires da Fonseca Palavras-Chave: Internacionalização; Expansão; Crescimento; PMEs A Arcádia é uma confeitaria portuguesa, reconhecida pelos seus produtos de qualidade, especialmente pelos seus chocolates. A empresa, gerida pela família de Manuel Bastos, responsável pela fundação da empresa em 1993, tem uma longa história. Ao longo da sua existência, a Arcádia conseguiu estabelecer uma marca reconhecida no seu mercado e expandir da cidade de origem para o resto do país. Sobre a gestão de João e Margarida Bastos, a empresa ampliou a sua presença no País. O processo de expansão inclui a criação de novos conceitos de lojas, bem como o franchising. O plano de crescimento da empresa leva-nos ao centro deste Estudo de Caso, que visa compreender a situação atual da Arcádia e a viabilidade da sua possível expansão para mercados internacionais. Temas académicos relevantes são abordados na Revisão da Literatura, tais como: internacionalização; definição de PMEs, o contexto das mesmas em processos de internacionalização, bem como as motivação e dificuldades encontradas neste processo; recursos e capacidades das empresas. A secção da Nota de Ensino inclui uma análise do Estudo de Caso e da situação atual da empresa, bem como sugestões e desafios que a empresa possa enfrentar caso decida internacionalizar o seu negócio. O principal foco desta dissertação passa pela análise da situação e motivações específicas desta empresa para explorar novos mercados. Além disso o estudo procura explorar se os recursos e capacidades da Arcádia, como uma PME, a posicionam para o desafio deste processo de internacionalização e quais as eventuais dificuldades que enfrentarão neste mesmo processo. 3 Acknowledgements I would like to express my gratitude to João Bastos, for allowing this thesis to be developed and for his complete availability and cooperation throughout the whole study. I would also like to thank my academic advisor, Professor Nuno Magalhães Guedes, for his support and guidance throughout all this process. His experience, supervision and motivational words, were essential for my completion of this paper while working at the same time. Lastly, and most importantly, I would like to thank my parents for their full support throughout all my academic life and their investment in my academic path. They allowed me to best position myself to complete this study and face the marketplace well prepared. I owe all my qualities and my achievements to their efforts in supporting me. Also, I would like to highlight the support of my friends and colleagues which were also important in motivating me to conclude this part of my academic life. 4 Table of Contents Abstract ............................................................................................................................ 2 Resumo ............................................................................................................................ 3 Acknowledgements .......................................................................................................... 4 1. Case Study ................................................................................................................ 6 1.1. The Origins ................................................................................................................... 6 1.2. The market .................................................................................................................. 8 1.2.1. Pricing ...................................................................................................................... 9 1.2.2. Clients .................................................................................................................... 11 1.3. The evolution of the stores ......................................................................................... 11 1.3.1. The new store concept and the Financial Crisis ........................................................ 13 1.4. The Expansion ............................................................................................................ 15 1.4.1. The move to Lisbon ................................................................................................ 15 1.4.2. The New Points of Sale and Line of Products ........................................................... 17 1.5. The next steps ............................................................................................................ 18 1.6. Exhibits ...................................................................................................................... 20 2. Literature Review .................................................................................................... 30 2.1 Internationalization .................................................................................................... 30 2.2 Internationalization of SMEs ....................................................................................... 30 2.2.1 Definition of SMEs ...................................................................................................... 30 2.2.2 Context of internationalization of SMEs ...................................................................... 31 2.3 Why SMEs go International? ....................................................................................... 32 2.3.1 The motivations ......................................................................................................... 32 2.3.1.1 Globalization .......................................................................................................... 33 2.3.1.2 Network Theory ..................................................................................................... 33 2.3.2 Challenges ................................................................................................................. 34 2.4 Resources and Capabilities ......................................................................................... 34 2.4.1 Tangible and Intangible Resources .............................................................................. 34 2.4.2 Classifying Capabilities ............................................................................................... 35 3. Teaching Note ......................................................................................................... 36 3.1 Learning Objectives .................................................................................................... 36 3.2 Class Plan ................................................................................................................... 36 3.3 Analysis ..................................................................................................................... 37 3.4 Teaching Note Exhibits ............................................................................................... 49 4. Conclusion .............................................................................................................. 50 5. References .............................................................................................................. 52 5 1. Case Study It was a cold mid-September 2017 afternoon in Porto, the second largest city in Portugal. João Bastos, the CEO and owner of Arcádia, was meeting with his sister, Margarida, at the iconic deco style office covered in pictures of the history of the well-known chocolate maker. The third-generation management was discussing the past success of the company and all its accomplishments: “We have reached our growth objectives. All the hard work led us to the point we find ourselves in now, but how should we grow further and explore more revenue streams?”