During a recent trip through South America, I was given a bottle of a delicious Chilean wine called “Purple Angel.” Not only is it one of the best wines I’ve tried in years, it also has become a metaphor for me about how regional companies can grow into strong global competitors based on the strength of their distinctive repeatable business models.
Chile is approaching a 10% share of the global wine market. It has increased its volumes by two-thirds in the last five years, while French and other export wines have declined. Exports now account for 70% of Chilean wine, the highest of any major wine-producing country.
And just as Chilean wines are appearing on more tables throughout the world, so too is the competitive presence of many of the best South American companies spreading—first regionally, and increasingly across continents.
In speaking to management teams and executives from Brazil to Chile as part of a series of dinner talks and seminars about my book, Repeatability, I’ve been struck by two consistent and powerful themes:
The healthy growth of countries must ultimately be based on the healthy growth of its businesses—the ultimate creators of jobs. At Bain & Company, our research has found that job creation particularly tracks back to those 10% of companies in the world that we call “sustained value creators”—companies growing at 5.5% revenues and profits in real terms and earning their cost of capital. In both Brazil and Chile, for instance, our research shows the percentage of companies with these characteristics is increasing and is now at about 15%—well above the global average.
As in other areas of the developing world, the vast majority of companies in South America achieving successful penetration beyond their home markets are those that fit the pattern of “Repeatable Models®.”
These global challengers, many still with links to their original founders, share three characteristics that allow them to react faster and adapt better than their larger, often more bureaucratic rivals. These are:
- A simple source of differentiation that is built into their business model and that they apply again and again, with constant refinement;
- An industry view and non-negotiable beliefs that are shared across the company in a simple way and that can be observed in frontline interactions with the customer;
- Methods that speed learning and adaptation and make them a competitive advantage.
Consider the following examples of such companies:
Falabella is the most successful major retailer in Chile and has met Bain & Company’s criteria as a sustained value creator for two decades in a row—an achievement only the best 2% of all companies can claim. Its operations—which started in Chile but are now spreading throughout South America—span a range of retail formats from the Sodimac home improvement center business, to Falabella department stores, to grocery. What particularly impressed me in talking to the management team was their investment in systems and methods to make sure that serving the customer is always a top priority. Sodimac employees know that “when the customer appears, we put aside everything else we are doing.” That widely shared drop-everything concept translates literally from Spanish as “the customer kills operations.” Falabella’s systems are geared to make that happen. In Falabella grocery, stores are ranked weekly on customer service measures. Low ranking stores receive visits from a team of people from the highest service store who are obligated to observe and suggest alternative practices. These write-ups then become a key source of learning and dynamic feedback.
Do you know what the most valuable airline is in the world by market cap? Most people would not think to say that it is the result of the merger between LAN and TAM airlines in Chile, but that is the answer. LAN created a unique repeatable model that combines an unusually high ability to carry freight along with a passenger airline that offers good service and highly competitive operating costs. The combined company, LATAM, is estimated to control 40% of the Latin American passenger market. I flew LAN across South America and experienced firsthand its impressive repeatable business model. I expect you will soon see an increasing number of their flights outside of South America.
AB InBev is the largest beer company in the world. It is fueled by a repeatable model forged in the crucible of the Brazilian beer market by a set of private investors who purchased a loss-making brewer in 1989. Their system for creating a low-cost brewery allowed the company to expand—first throughout South America and now around the globe. As my Repeatability co-author James Allen described in a recent HBR post, unique repeatable models such as ABInbev’s “Voyager Plant Optimization” system for managing breweries enabled the Brazilian business to consistently and dramatically improve margins as it grew and merged with other brewers. AB InBev’s EBITDA has grown at an annual rate of 38% in the past 10 years—a testament to the power of repeatable, adaptable models.
In today’s fast-paced world, complexity is the silent killer of growth at many companies. But the corollary is that repeatable models—simplicity of concept, of differentiation and of feedback systems—are the quiet rocket fuel for the many companies that are gaining share on incumbents.
For example, two-thirds of the top 20 airlines by market capitalization are different than they were just 10 years ago. We find similar “strategic reversal” in industry after industry, due to both the speed of change in the world and to the increasing difference between incumbents and challengers in their ability to embrace simplicity, act quickly and adapt.
Written by Chris Zook, a partner at Bain & Company and a co-head of the firm’s Global Strategy practice. He co-wrote the book Repeatability: Build Enduring Businesses for a World of Constant Change with Bain partner James Allen.