Founded by two Stanford MBAs in June 1999, MercadoLibre.com is an online auction site targeted at the Spanish- and Portuguese-speaking population throughout the world. MercadoLibre.com's first site was launched in Argentina in August 1999. The company was well received by consumers and received significant media attention, both in Argentina and the United States. After this initial launch, the management team decided to expand into Brazil and Mexico, given that together with Argentina, these three markets accounted for over 70% of the Latin American market in terms of population, GDP, and Internet usage. Despite its success, MercadoLibre faced intense competition in the online auction space. DeRemate was another regional player that had followed MercadoLibre to each of its markets. Lokau was a strong player in Brazil that had decided that rather than expand into new markets it was going to "go deep," offering its users value-added services. International competitors like Yahoo! were also entering the market. In October 1999, MercadoLibre received $7.6 million from several prominent investors and was faced with the difficult decision of continuing to expand throughout Latin America and into other Spanish- and Portuguese-speaking markets or to deepen its presence in its current markets.
Authors :: Joel Podolny, Andrea Higuera, Lauren Pressman
Swot Analysis of "MercadoLibre.com (A)" written by Joel Podolny, Andrea Higuera, Lauren Pressman includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Mercadolibre Argentina facing as an external strategic factors. Some of the topics covered in MercadoLibre.com (A) case study are - Strategic Management Strategies, Entrepreneurship, International business, Internet, Negotiations and Strategy & Execution.
Some of the macro environment factors that can be used to understand the MercadoLibre.com (A) casestudy better are - – there is backlash against globalization, increasing government debt because of Covid-19 spendings, competitive advantages are harder to sustain because of technology dispersion, there is increasing trade war between United States & China, increasing commodity prices, geopolitical disruptions, increasing energy prices,
customer relationship management is fast transforming because of increasing concerns over data privacy, wage bills are increasing, etc
Introduction to SWOT Analysis of MercadoLibre.com (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in MercadoLibre.com (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Mercadolibre Argentina, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Mercadolibre Argentina operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of MercadoLibre.com (A) can be done for the following purposes –
1. Strategic planning using facts provided in MercadoLibre.com (A) case study
2. Improving business portfolio management of Mercadolibre Argentina
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Mercadolibre Argentina
Strengths MercadoLibre.com (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Mercadolibre Argentina in MercadoLibre.com (A) Harvard Business Review case study are -
Training and development
– Mercadolibre Argentina has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in MercadoLibre.com (A) Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Mercadolibre Argentina digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Mercadolibre Argentina has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Sustainable margins compare to other players in Strategy & Execution industry
– MercadoLibre.com (A) firm has clearly differentiated products in the market place. This has enabled Mercadolibre Argentina to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Mercadolibre Argentina to invest into research and development (R&D) and innovation.
Strong track record of project management
– Mercadolibre Argentina is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Innovation driven organization
– Mercadolibre Argentina is one of the most innovative firm in sector. Manager in MercadoLibre.com (A) Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Ability to lead change in Strategy & Execution field
– Mercadolibre Argentina is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Mercadolibre Argentina in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Ability to recruit top talent
– Mercadolibre Argentina is one of the leading recruiters in the industry. Managers in the MercadoLibre.com (A) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Superior customer experience
– The customer experience strategy of Mercadolibre Argentina in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Analytics focus
– Mercadolibre Argentina is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Joel Podolny, Andrea Higuera, Lauren Pressman can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Cross disciplinary teams
– Horizontal connected teams at the Mercadolibre Argentina are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
High switching costs
– The high switching costs that Mercadolibre Argentina has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Successful track record of launching new products
– Mercadolibre Argentina has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Mercadolibre Argentina has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Weaknesses MercadoLibre.com (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of MercadoLibre.com (A) are -
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Mercadolibre Argentina supply chain. Even after few cautionary changes mentioned in the HBR case study - MercadoLibre.com (A), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Mercadolibre Argentina vulnerable to further global disruptions in South East Asia.
High operating costs
– Compare to the competitors, firm in the HBR case study MercadoLibre.com (A) has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Mercadolibre Argentina 's lucrative customers.
No frontier risks strategy
– After analyzing the HBR case study MercadoLibre.com (A), it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Workers concerns about automation
– As automation is fast increasing in the segment, Mercadolibre Argentina needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High cash cycle compare to competitors
Mercadolibre Argentina has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study MercadoLibre.com (A), in the dynamic environment Mercadolibre Argentina has struggled to respond to the nimble upstart competition. Mercadolibre Argentina has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Lack of clear differentiation of Mercadolibre Argentina products
– To increase the profitability and margins on the products, Mercadolibre Argentina needs to provide more differentiated products than what it is currently offering in the marketplace.
Low market penetration in new markets
– Outside its home market of Mercadolibre Argentina, firm in the HBR case study MercadoLibre.com (A) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Skills based hiring
– The stress on hiring functional specialists at Mercadolibre Argentina has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study MercadoLibre.com (A), it seems that the employees of Mercadolibre Argentina don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Need for greater diversity
– Mercadolibre Argentina has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Opportunities MercadoLibre.com (A) | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study MercadoLibre.com (A) are -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Mercadolibre Argentina is facing challenges because of the dominance of functional experts in the organization. MercadoLibre.com (A) case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Mercadolibre Argentina can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Mercadolibre Argentina to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Building a culture of innovation
– managers at Mercadolibre Argentina can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Strategy & Execution segment.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Mercadolibre Argentina to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Mercadolibre Argentina to hire the very best people irrespective of their geographical location.
Creating value in data economy
– The success of analytics program of Mercadolibre Argentina has opened avenues for new revenue streams for the organization in the industry. This can help Mercadolibre Argentina to build a more holistic ecosystem as suggested in the MercadoLibre.com (A) case study. Mercadolibre Argentina can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Mercadolibre Argentina in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Mercadolibre Argentina can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Mercadolibre Argentina can use these opportunities to build new business models that can help the communities that Mercadolibre Argentina operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Loyalty marketing
– Mercadolibre Argentina has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Better consumer reach
– The expansion of the 5G network will help Mercadolibre Argentina to increase its market reach. Mercadolibre Argentina will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Mercadolibre Argentina in the consumer business. Now Mercadolibre Argentina can target international markets with far fewer capital restrictions requirements than the existing system.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Strategy & Execution industry, but it has also influenced the consumer preferences. Mercadolibre Argentina can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Threats MercadoLibre.com (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study MercadoLibre.com (A) are -
Increasing wage structure of Mercadolibre Argentina
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Mercadolibre Argentina.
Environmental challenges
– Mercadolibre Argentina needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Mercadolibre Argentina can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study MercadoLibre.com (A), Mercadolibre Argentina may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Technology acceleration in Forth Industrial Revolution
– Mercadolibre Argentina has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Mercadolibre Argentina needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Mercadolibre Argentina can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study MercadoLibre.com (A) .
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Mercadolibre Argentina will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Mercadolibre Argentina business can come under increasing regulations regarding data privacy, data security, etc.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Mercadolibre Argentina can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Shortening product life cycle
– it is one of the major threat that Mercadolibre Argentina is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Mercadolibre Argentina in the Strategy & Execution sector and impact the bottomline of the organization.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Regulatory challenges
– Mercadolibre Argentina needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Mercadolibre Argentina.
Weighted SWOT Analysis of MercadoLibre.com (A) Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study MercadoLibre.com (A) needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study MercadoLibre.com (A) is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study MercadoLibre.com (A) is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of MercadoLibre.com (A) is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Mercadolibre Argentina needs to make to build a sustainable competitive advantage.
