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Written by Gary F. Smith
Publish Date: 2024-12-03

Harvard Case - Cresud S.A., Farmer or Real Estate Developer?

"Cresud S.A., Farmer or Real Estate Developer?" Harvard business case study is written by Ray A. Goldberg, Arthur I Segel, Gustavo A. Herrero, Andrew Terris. It deals with the challenges in the field of Finance. The case study is 19 page(s) long and it was first published on : Nov 2, 2010

At Fern Fort University, we recommend Cresud S.A. pursue a balanced growth strategy, leveraging its existing agricultural operations while strategically expanding its real estate development activities. This approach will capitalize on both the company's core competencies in agriculture and the attractive growth potential of the real estate market in Argentina and other emerging markets. This strategy will involve a combination of organic growth, strategic acquisitions, and a focus on developing innovative real estate projects that align with the company's commitment to environmental sustainability.

2. Background

Cresud S.A. is a leading Argentine company with a diverse portfolio spanning agriculture, real estate development, and financial services. The company faces a strategic crossroads, needing to decide whether to focus on its core agricultural business or pursue a more aggressive expansion into real estate development. The company's success in agriculture has provided a solid foundation, but the real estate sector offers significant growth opportunities, particularly in Argentina's emerging markets.

The case study focuses on the decision-making process of Cresud's management team, led by CEO Miguel Miguens. The team must weigh the risks and rewards of both options, considering factors such as market conditions, financial resources, and the company's long-term vision.

3. Analysis of the Case Study

To analyze Cresud's strategic options, we can utilize the Porter's Five Forces framework to assess the competitive landscape and the SWOT analysis to identify the company's internal strengths and weaknesses.

Porter's Five Forces:

  • Threat of New Entrants: The real estate market in Argentina is characterized by relatively low barriers to entry, making it susceptible to new competitors. However, Cresud's established brand and strong track record provide a competitive advantage.
  • Bargaining Power of Suppliers: The company's reliance on agricultural commodities and construction materials exposes it to fluctuations in input prices. However, Cresud's scale and relationships with suppliers offer some leverage.
  • Bargaining Power of Buyers: The real estate market is fragmented, with individual buyers and developers having limited bargaining power.
  • Threat of Substitute Products: The availability of alternative investment opportunities, such as fixed income securities, could pose a threat to real estate development.
  • Competitive Rivalry: The Argentine real estate market is highly competitive, with several established players vying for market share.

SWOT Analysis:

  • Strengths: Strong agricultural operations, experienced management team, established brand, access to capital markets, expertise in land acquisition and development.
  • Weaknesses: Reliance on cyclical agricultural markets, potential for over-expansion in real estate, limited international presence, dependence on Argentine economy.
  • Opportunities: Growing demand for real estate in emerging markets, favorable government policies, increasing urbanization, potential for diversification into new sectors.
  • Threats: Economic instability in Argentina, volatility in commodity prices, competition from international developers, regulatory changes.

4. Recommendations

Cresud should pursue a balanced growth strategy that combines organic growth in its agricultural business with strategic expansion in real estate development. This strategy should be guided by the following key recommendations:

  • Organic Growth in Agriculture: Continue investing in technology and innovation to improve operational efficiency and profitability in agricultural operations. Focus on developing high-value crops and livestock, and explore opportunities for vertical integration.
  • Strategic Expansion in Real Estate: Focus on developing high-quality projects in attractive locations, particularly in emerging markets with strong growth potential. Utilize the company's land bank and expertise in land acquisition to develop mixed-use projects that combine residential, commercial, and industrial components.
  • Strategic Acquisitions: Explore opportunities for acquiring existing real estate development companies with a proven track record and a strong market presence. These acquisitions should be carefully evaluated based on financial metrics, strategic fit, and management team quality.
  • International Expansion: Gradually expand into new international markets with strong real estate demand, focusing on regions with political and economic stability. This expansion should be supported by partnerships with local developers and investors.
  • Environmental Sustainability: Integrate environmental sustainability into all real estate development projects, aiming for LEED certification and other industry standards. This will enhance the company's brand image and attract environmentally conscious investors.

5. Basis of Recommendations

These recommendations are based on the following considerations:

  • Core Competencies and Consistency with Mission: The proposed strategy leverages Cresud's existing strengths in agriculture and land management while expanding into a complementary sector with significant growth potential.
  • External Customers and Internal Clients: The strategy aims to meet the needs of both agricultural and real estate customers while providing opportunities for internal growth and development.
  • Competitors: The strategy acknowledges the competitive landscape and aims to differentiate Cresud through its focus on sustainability, innovation, and high-quality development.
  • Attractiveness ' Quantitative Measures: The strategy is expected to generate attractive returns on investment, considering the growth potential of the real estate market and the company's ability to leverage its existing resources.
  • Assumptions: The strategy assumes continued economic growth in Argentina and other emerging markets, stable commodity prices, and favorable government policies.

6. Conclusion

Cresud S.A. has a unique opportunity to capitalize on the growth potential of both agriculture and real estate development. By pursuing a balanced growth strategy, the company can leverage its existing strengths, expand into new markets, and create long-term value for its shareholders. This strategy requires careful planning, execution, and a commitment to innovation and sustainability.

7. Discussion

Alternative strategies include focusing solely on agriculture or real estate development. However, these options present significant risks. Focusing solely on agriculture exposes the company to cyclical market fluctuations and limited growth potential. On the other hand, focusing solely on real estate development could lead to over-expansion and financial instability.

The proposed balanced growth strategy is the most prudent option, considering the company's core competencies, the market environment, and the potential for long-term growth. The key risks associated with this strategy include:

  • Economic Instability: The Argentine economy is highly volatile, which could impact the company's operations and profitability.
  • Competition: The real estate market is highly competitive, and Cresud will need to differentiate itself to attract investors and customers.
  • Execution Risk: Implementing a complex growth strategy requires effective planning, execution, and management.

8. Next Steps

To implement the recommended strategy, Cresud should:

  • Develop a detailed strategic plan: This plan should outline the company's objectives, key initiatives, and resource allocation.
  • Establish a dedicated team: This team should be responsible for overseeing the implementation of the strategy and monitoring progress.
  • Invest in technology and innovation: This will enhance efficiency and profitability in both agriculture and real estate development.
  • Explore strategic partnerships: This will provide access to new markets, expertise, and capital.
  • Monitor market trends and adjust the strategy accordingly: The company should be prepared to adapt to changing market conditions and seize new opportunities.

By taking these steps, Cresud can position itself for long-term success in a dynamic and evolving market.

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Case Description

Alejandro EIsztain, CEO of Cresud S.A., is faced with the difficult choice of whether to sell, develop or continue to hold the 151,000 hectares of remaining undeveloped farmland at the company's Los Pozos farm in Argentina. Developing the land will further expose Cresud to a variety of risks related to owning and operating farmland, but the potential financial rewards are potentially significant. As competition has increased and farmland values have skyrocketed in the last eight years, Cresud's overall corporate strategy has been to increasingly focus on development opportunities outside of the country - in areas such as Brazil, Paraguay and Bolivia. Alejandro's looming decision on Los Pozos is in many ways, reflective of choices facing his company, in general.

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