Feasibility of commercial instant noodle production in Argentina: a journey to a fascinating value-added product

Abstract

There is an opportunity to develop an instant noodle manufacturing plant in Argentina to manufacture and market branded and private-label instant noodles. This opportunity has arisen from a number of factors. First, the increasing time compression that confronts consumers has created an emergence of consumers who are looking for quick meals that are also healthy. Second, the growing incomes that are being experienced across all income classes have created a demand for processed food products across all consumer markets. Third, potential competitors are not seeing the market trends and, thus, create an opportunity to gain a first mover advantage in this burgeoning market. Finally, the policies that are being developed by the government have created an import-replacement mentality that presents significant opportunities to build specific strategic alliances to seize an opportunity such as this one. This thesis presents the feasibility of seizing this opportunity to build a manufacturing facility to produce and market instant noodles in Argentina. It assesses the technical and economic dimensions of the feasibility process and presents financial analyses of the potential outcome for investors. The researcher is leading the project and participating in the investment process. Therefore, the outcome of this thesis has direct implications for the wellbeing of the researcher beyond partial fulfillment of degree requirements. The results show that the opportunity is credible and profitable over a 20-year period. The Net Present Value of the investment is positive and its Internal Rate of Return of 26 percent is higher than the company’s hurdle rate of 15 percent. To this end, it suggested that the investment must go ahead. However, the sensitivity analysis shows that at the initial production level of 60,000 packets per shift, the project is very sensitive to the number of shifts that are run per day. Indeed, if the company runs one shift for the first three years instead of the first two years and two shifts for the next three years instead of Years 3 and 4, the project is not economically feasible. On the other hand, building a larger plant, one that produces 120,000 packets per shift, protects the plant from this vulnerability. The internal rate of return is 40 percent and the NPV is in excess of $5 million over 20 years. Therefore, the recommendation is to build the larget plant and enhance the robustness of the plant.