Date January 25, 2010 Case Number 466-C-10 Ernestina Company Introduction Ernest
ID: 463079 • Letter: D
Question
Date January 25, 2010 Case Number 466-C-10
Ernestina Company
Introduction
Ernestina Silva was about to turn forty-two. Her family’s economic situation had been
shaky during the difficult decade of the 1980s, and she was hoping there would be
enough money for a birthday present. Walking by a store in the center of town, she saw
the gift she had been dreaming of—a sewing machine—and decided to buy it, hoping it
would be the start of a business some day.
History
Born in the city of Iquique, Ernestina Silva had lived with her godmother since she was a
little girl. When she was fifteen she decided to look for work in a city where the
economic opportunities were better. She chose Arica, known as “the city of eternal
spring,” which was 307 kilometers from Iquique (see Exhibit 1).
Ernestina had been abandoned by her mother at birth, and she wanted to build a life with
the kind of financial security and stability she had never known. Her first job was as a
maid in a private home. As her finances grew stronger, she found a sales position in a
store. Next she became a secretary for an accountant in a hardware store, a job that
motivated her to go back to school and complete her high school degree. This led to a job
in a family-owned business called Indam that produced smoked dried beef. She began as
a secretary and eventually became a manager. With support and encouragement from the
owner of Indam, she attended night school for secretarial training while also becoming
her boss’s most trusted employee. Because of the complicated political climate in Chile
(see Exhibit 2), Indam had to declare bankruptcy and went out of business. Ernestina
needed to find a new job, but she now had professional credentials and was optimistic
about her future.
With her new qualifications, she thought she would be able to achieve economic stability.
She had always wanted to be her own boss and own her own company. Instead of
_______________________________________
This case was prepared by Maria Cristina Alfred and María Paz Terraza of Universidad de Tarapacá under
the direction of Babson College Professor Dennis J. Ceru, Ph.D. as a basis for class discussion rather than
to illustrate either effective or ineffective handling of an administrative situation. Funding was provided by
Banco de Chile.
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Ernestina Company
466-C10
looking for a job, she wanted to create jobs, which would give her economic
independence and autonomy. Around this time, she started to attend the Mothers’ Center,
a volunteer organization where housewives learned domestic skills like sewing, knitting,
cooking, and baking. The goal of the center was to train housewives in areas that would
allow them to work part-time and earn money for their families. Ernestina realized that
her own sewing and baking skills were excellent, and she had management skills as well.
The other women were eager to hear her ideas about how to generate income. After only
a few months, she became a sewing instructor at the center.
It was at this point that she bought a sewing machine, hoping to make money to support
herself and her two children, since she had recently separated from her husband. While
she was working at the center, she bought land and built a house where she set up a small
sewing workshop. Her first project was to bring together the housewives from the center
who had sewing skills and could offer fast, high-quality sewing and tailoring. They sold
their products and services every Sunday at a local fair. At first they only did simple
repairs and alterations, but soon they began to offer custom-made clothing, which
became the most popular part of the business. They differentiated themselves from the
competition with their unique designs and guaranteed satisfaction.
Ernestina’s business grew and with this growth came increased costs. She began to
encounter financing problems that threatened her business. She needed to find a way to
lower the cost of her materials while staying at the forefront of fashion.
Ernestina Company
After working with women from the center for two years, Ernestina decided to become
independent and hire her own team of seamstresses. Even with her knowledge of textiles
and business, Chile’s economic climate made it increasingly difficult to obtain the
financing she needed for growth. In the beginning, business was slow as she focused on
building a reputation as an independent company. She knew she had to improve her
product or else her business would fail.
She began exploring other opportunities. Since fishing was abundant in the region, she
came up with the idea of serving the fishing industry by analyzing its unique
requirements. After doing research, she got her first order from the fishing company
Eperva. As orders became larger and more frequent, Ernestina realized that she needed to
establish her business legally, so she applied for a patent and a license to operate a
business in Arica.
The increasing orders meant that she had to produce in high volume and achieve
economies of scale. To serve the needs of her customers in the quantities they demanded,
she applied for third-party loans. The next step was to branch out and offer her products
in the cities of Iquique and Mejillones, which also had large fishing communities.
Luckily there were no competitors at the time. She had found her niche.
In the meantime Ernestina continued to think about related businesses and decided to
enter the uniform business. She created several designs and presented proposals to
potential customers, customizing them to each company’s requirements.
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Ernestina Company
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Next Ernestina decided to start a fast food business near the casino in Arica. She knew
that many of her potential clients went to the casino on weekends and that they were
always looking for a fast food restaurant open late at night. This new business was
successful, and it also expanded her network of friends and contacts.
The political and economic situation in Chile was by this time more favorable, and
thanks to her fast food business, Ernestina was able to retain enough cash to buy
machinery. Her clothing business, now established, became known for making uniforms
and for high quality and fast service. Despite her success, however, Ernestina knew she
had to stay at the forefront of fashion in order to meet the demands of her customers.
Ernestina’s business was thriving. A strong economy allowed her to invest in more
sewing machinery and to seek suppliers that could offer low prices and reliable delivery.
Growth also required improvements in infrastructure and customer communication. She
received 3000 orders per month from the fishing business, which sent a signal to
competitors that this line of business was attractive.
As the market became saturated, Ernestina’s company faced stiff competition. One
particular competitor generated a great deal of disequilibrium. Its suppliers were clothing
manufacturers in Tacna, Peru, just across the border. They had developed the capacity to
quickly meet the needs of the market in Arica.
Ernestina’s business nonetheless continued to grow. With her new machinery she was
able to embroider institutional logos or other elements on uniforms. But since Arica was
a border town, it would be hard to survive against her most aggressive competitor. She
also faced the imminent closing of the local fishing industry. It was time for Ernestina to
find a new business alternative.
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Ernestina Company
Exhibit 1: Map of Chile
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Source: http://www.vivenciaandina.com/viajes-mapas-sudamerica/1
Arica is located in the north of Chile, 2,658 km from the capital, on the border of Peru
and Bolivia. It is known for extensive commercial relationships, mainly with the
neighboring city of Tacna, Peru, located only 54 kilometers away. The short distance
between Arica and Tacna has generated a continuous flow of commerce and culture
between the two cities.
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Ernestina Company
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Exhibit 2: Economic environment of Chile
In the mid 1970s, Chile created a market economy. One of its basic pillars was private
initiative and the responsibility to promote economic development. The economy of
Chile opened to international commerce, and the idea of comparative advantage became
a guide for selecting the economic sectors that would be developed. As a result many
industries that had previously been protected by the government needed to either reorient
their activities or cease to exist.
The process that followed was successful, although the social cost was high because of
the structural adjustments that had to be made. The country flourished, inflation
decreased, the labor market improved, and imports skyrocketed. Capital from foreign
investments returned to the country and increased in quantity, which allowed Chile to
handle the commercial deficit created by the increase in imports.
This was the situation in the early 1980s, but by 1982, Chile’s economy entered a
recession with dramatic consequences. The gross domestic product fell by twelve percent
and unemployment rose, forcing the government to create special employment programs.
Inflation became a problem, and there was a deficit in the external sector to which the
government was unable to respond.
Chile applied to international financial organizations for funds and for help negotiating
its external debt. At the same time it adjusted its economy to meet the requirements of
those organizations. The years 1982 and 1983 were very hard for the Chilean economy,
to the point where several major social uprisings took place. However, the difficult but
needed economic measures took effect, and in 1984 the economy improved, followed by
sustained development until 1998. In 1998 growth was stalled because of the crisis in
Asia, but it restarted the following year and continues today.
Source: Luis Mella Salinas, Economist. lmella@uta.cl
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Ernestina Company
Exhibit 3: Principles of creation-oriented behavior
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Source: Sarasvathy, S. D. (2008). Effectuation: Elements of Entrepreneurial
Expertise. Northampton, MA:Elgar.
EXHIBIT 4: Is an idea a good opportunity?
Source: Dew, Read, Sarasvathy, Wiltbank, and Ohlsson, Effectuation in Action,
Work in progress, March 2009, p. 36.
http://www.babson.edu/Academics/teaching-research/research-publications/chilean-cases/Documents about ernestina company...
can you please answer this question. taking into account the following view:
1. how opportunity was created?
2. the future development ?
Explanation / Answer
1) How opportunity was created?
The opportunity for Ernestina Silva to start Ernestina company has been created when Indam had been declare the bankrupt. Then Ernestina Silva finally took a decision to start a company of her own. She forayed into many businesses like clothing, fishing, and fast food.
The opportunity for clothing has evolved when she had the 'fire-in-the-belly' to start something of her own. With the help of few women where she earlier worked, she started clothing business by giving customized designs and creating embroidery logos. Then came the opportunity for the fishing.
Since fishing was famous in Chile, she took that as an opportunity to cater the fishing companies. That was a huge success for her, as the market was a niche. Then she found a new opportunity in the fast food. That was also an instant hit. This way, she could find new opportunities one after other and her business was a hit among her customers.
2) Future development - Ernestina Company.
Future development could be that the company may export its business to the other countries. They could have international trade relations in the other countries. Slowly, she could even expand her business and find a new scope and opportunities in the international markets. This way, she could achieve substantial share in other markets as well.
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