Case | HBS Case Collection | September 2007

Tetra Pak Argentina

by Tarun Khanna, Krishna G. Palepu and Gustavo A. Herrero

Abstract

Deals with the hands-on management of a difficult situation facing the subsidiary of a multinational corporation (Tetra Pak) in a developing country (Argentina). The situation arises from a major economic, social, and institutional breakdown that jeopardizes the subsidiary's existence. Argentina defaulted on it sovereign debt and devalued the peso by over 200%, but it differentiated the treatment of the FX rate to be applied to various transactions, depending on the jurisdiction of creditors and debtors. Local dollar-denominated credits and liabilities were converted on a 1:1.40 ratio, while obligations held with foreign entities continued to be enforceable at the new rate of 1:3. The crisis led to the impoverishment of a large portion of the Argentine population, and to an institutional breakdown where the rule of law was shattered in the country, thus posing challenges not just related to the current situation, but also to the future of the operation. The crisis bore consequences for Tetra Pak Argentina on both ends of its value chain, involving suppliers and customers. Tetra Pak focuses its growth on developing nations where it feels there is room for a valuable business, and it attains leading market positions. Shows how the foreign firm must cope with difficult domestic situations where the levers of control are beyond its reach. The existence of value after the crisis turns out to be a relevant consideration.

Keywords: Developing Countries and Economies; Financial Crisis; Currency Exchange Rate; Sovereign Finance; Multinational Firms and Management; Crisis Management; Business and Government Relations; Argentina;

Citation:

Khanna, Tarun, Krishna G. Palepu, and Gustavo A. Herrero. "Tetra Pak Argentina." Harvard Business School Case 708-402, September 2007.