Consumer behavior (study case)

Answer the questions at the end of the story.

You may use references to help you illustrate in more detail your thoughts but I mostly want to see what you personally think are the correct answers.

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INS069

El Castillo:

The Eco-Fairy Castle

04/2013-5583

This case was written by Professor Jonathan Story, Emeritus Professor of International Political Economy at INSEAD. It
is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of
an administrative situation.

Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at
cases.insead.edu.

Copyright © 2009 INSEAD-Rensselaer

COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED
IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER.

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Nestled in the verdant hills of Cordoba, Argentina, El Castillo Hotel Resort Spa evokes the
kind of environment children conjure up from the fairy tales they hear – knights engaged in
battle defending the castle, the hills below filled with imaginary foes, towering porticos,
imposing towers – everything a fairytale castle should be. Its setting in Valle Hermoso
reinforces the ideal; the valley runs between Sierra Chica and the Gaspar and Achala peaks,
lined with endless rivers meandering through extensive forests of indigenous vegetation.

Exhibit 1
El Castillo

Even the surrounding town seems to invite comparisons to a fairy tale. The province in which
it is located, Cordoba, is known by several names, including La Docta (The Learned) for its
many universities, and Ciudad de las Campanas (City of Bells), a reference to the melodious
chimes of its numerous churches, both Franciscan and Dominican.1 The city of Cordoba
features a mix of colonial architecture and modern buildings, with green spaces such as the
Parque Sarmiento, designed at the end of the nineteenth century.

Yet the story of how El Castillo came into being is both more and less than a fairy tale, and
the challenge to live “happily ever after” has been rather more complicated in the real world
of international and ecological tourism.

1 Welcome Argentina, http://www.welcomeargentina.com/cordoba/index_i.html

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History of the Hotel, History of Argentina

Built in 1870 as the main house of Las Playas, what was then a typical Argentinean ranch, El
Castillo had several incarnations before being dedicated to the tourism industry. Don José
Ferrarini, an Italian immigrant, bought the ranch around the turn of the century and extended
the house, adopting the Florentine style that distinguishes it today.

During this period Argentina enjoyed increasing prosperity and prominence worldwide,
emerging as one of the ten richest countries in the world as a result of its strong agricultural
exports, ongoing foreign investments, and commitment to a strong infrastructure.2 The
population of the country swelled sevenfold and Argentineans enjoyed the fourth highest per
capita income in the world.

Don Ferrarini entrusted the task of directing the expansion to architect Fernando Rosas and
opened the doors to the magnificent building as a hotel in 1939. Just a few years later,
however, the enterprise was forced to close. Henceforth, the fate of the building hung in the
balance.

Meanwhile, the economy of Argentina was suffering. The worldwide depression of the 1930s
had prompted Argentina to adopt policies designed to minimise the country’s reliance on
exports, moving more towards industrial growth, government control over the money supply,
and tariffs to protect against imported manufactured goods. By 1945 it had lost its historically
strong position, declining from a wealthy nation with a strong economy to a country in a deep
recession in the mid-1950s. El Castillo lost its status as a grand hotel just as Argentina lost its
position as a prosperous, industrialised nation.

Argentina’s politics also proved turbulent, with the military regularly intervening. The
country’s leading political figure, Juan Perón, who had nationalised various industries to
finance extensive social reforms and public works (e.g., thousands of hospitals and schools),
in a new policy to make free healthcare and schooling available to all citizens, was deposed in
1955. He returned from exile in Spain in 1973, but died within a year of assuming power.
Another military coup soon removed his successor from office. Notwithstanding, official
estimates put the poverty rate at less than 7% in 1975.

In 1972 the Metallurgical Workers’ Union had bought El Castillo to use as a summer camp.
The lack of care that marked these years left deep scars on Don Ferrarini’s beloved estate.
Likewise, the military dictatorship that ruled Argentina from 1976 to 1983 left its own scars,
including the “Dirty War”, during which thousands of people disappeared as a result of
ruthless government oppression. Massive loans were taken out from both the International
Monetary Fund and private banks and almost half a million companies went bankrupt as the
economy underwent a rapid, corrupt and largely disorganised liberalisation.

2 U.S. Department of the State, “Background Note: Argentina,” February 2008,

http://www.state.gov/r/pa/ei/bgn/26516.htm (accessed July 16, 2008).

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Recent Past

Argentina missed out on the boom of the 1990s. Having lost its strong export capabilities and
facing protectionist European and US policies that limited its exports even further, Argentina
allowed in more and more imports, undermining its national industries and reducing
employment rates, while creating chronic fiscal and trade deficits. Unemployment rose to
25%, another 15% of the population worked only part time. In 2001, financial disaster struck
again. The government froze bank accounts to halt the flow of capital out of the country and
stem the growing debt crisis, and then proceeded to devalue the peso to approximately one
quarter of its former level (4 pesos = US$1). The poor suffered immediately from a massive
surge in consumer prices; wealthier segments of the population, whose assets were mostly
held in American dollars, subsequently saw their frozen accounts converted to pesos in 2002,
at which point they lost approximately 75% of their wealth. Faith in the political process
collapsed.

Yet despite this tumultuous environment, El Castillo began to see a resurgence. Tourism was
becoming a greater part of the Argentinean economy. In 2005, foreign tourism grew 12%
compared with 2004, becoming the third-largest source of income in the country. Tourism
represented a US$3,254.5 million market, equal to approximately 8% of Argentina’s total
export market. With 3.7 million visitors to the country in 2004, for the first time in years the
number of foreign arrivals exceeded the number of Argentineans who travelled abroad. Most
of these foreign visitors were European (31%), although North American tourists also
constituted a significant proportion (19.2%). Neighbouring countries such as Brazil and Chile
accounted for 28.5% of Argentina’s tourist industry, with the rest of the Americas
representing 14.1% of the market, and the remainder of the world making up the difference.3

In 2002, the Fabrega family purchased the premises of El Castillo and undertook a massive,
three-year restoration project, designed and managed solely by the family and relying purely
on local labour.

The Fabrega Family

Susana and Raúl Fabrega, a CPA and MD respectively, had never backed away from a
challenge. After serving as professors at Cordoba National University and San Luis National
University, they began developing and managing medical services (e.g., clinics, hospitals,
HMOs). In the meantime, they also raised their three children.

The oldest of these, brothers Edgardo and Fabián, were in the United States from the early
2000s, working as research scholars and studying at SUNY Albany and Rensselaer
Polytechnic Institute (RPI). Like their parents, they tended not to limit themselves to a single
interest; Edgardo took biology-related courses at SUNY and graduated with an MS in Electric
Power Engineering from RPI. Fabián undertook a non-degree graduate programme in
Organisational Studies at SUNY and began an MBA at RPI, which he ultimately completed at
Torcuato Di Tella University after returning home to help with the family’s project. The
youngest, Adriana, gained access to the competitive Economics programme at the University

3 Instituto Nacional de Estadistica y Censos [Argentine National Census],

http://www.indec.mecon.ar/default.htm (accessed June 20, 2008)

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of CEMA, in Buenos Aires, where she and her parents were living. The multitalented
threesome also played together in several bands and independently recorded three albums.

Despite the brothers’ enjoyment of life in New York, according to Adriana, “We were apart,
which was not good for us.” The family had always been close and the physical distance took
its toll. Edgardo and Fabián felt somewhat uncomfortable living in New York, spending
family money while their country was suffering a massive crisis. Perhaps, they thought, they
should all move away from Argentina and come to the United States.

But in May 2002, the Fabregas instead called the family together with a different idea: they
had decided to sell some stock in exchange for an old, ruined castle located in the Central
Hills of Argentina. Valued at $5,500,000 ($1 = US$1), the castle seemed, to both the outgoing
and creative Raúl and the artistic accountant Susana, like a great bargain.

Now What?

Buying a castle in the valley had been a dream for years. “Always, when we were kids, we
were talking about a hotel,” Fabián noted. But the economic situation in Argentina was more
nightmarish than dream-like, and it was in this context that the Fabregas needed to determine
what to do with their ruined castle. Adriana, already in the country, saw more of the building
than her brothers did and simply referred to it from the start as “a challenge”. Fabián
sheepishly admitted that, at first sight, he thought it was “good for nothing”.

They considered setting up a hospital, or perhaps a facility to house the elderly, choices that
seemed logical considering their work experience. But regardless of what they chose to make
of it, they quickly realized that they would need to begin the restoration immediately.

The old building was in terrible shape. The union that had owned and run it as a hotel for the
past 40 years had not taken care of the facility; union hotels throughout the country had
gained a reputation for poor quality and a rigidly traditional style of management. Guests at
such hotels mostly consisted of union members, few of whom demanded amenities or
luxuries. Yet, the family felt, El Castillo still held some promise as a hotel.

In order to have a somewhat more objective perspective than their own, the Fabregas
contacted business people they had worked with previously, as well as experts in the
hospitality industry. Their responses were not favourable, and ran along the following lines:

• “You have to add some luxury value to the building, redoing the façade, the rooms,
because now it looks just like any ugly union vacation facility. Forget the castle style, as a
castle makes no difference whatsoever.”

• “You have to do a profitability study. This venture is high risk and will be difficult to
implement successfully.”

• “I don’t understand why you chose such a big building; a smaller and more modern
building would have been easier to start with.”

• One major Argentinean tourism operator said: “Susana, stop the blah blah about your
hotel being different from any other: I’ve been in the industry enough years to know that

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all hotels are simply hotels, all the same, all standard, and therefore you are just one more
among them.”

• A former financial consultant said: “What do you know about hotels? You might know
about hospitals, clinics and medicine, but about hotels, as far as I’m concerned, you don’t
know a thing.”

• A local business person chipped in: “I hope somebody goes to your hotel, because that
region is so poor.”

• A former local hotel owner commented: “So your sons are coming back to Argentina to
work at a hotel? What did they waste their time studying for?”

• A university professor suggested: “You have to do whatever it takes in order to keep your
kids away from Argentina, and especially to keep them away from that hotel and that
impoverished location. What did they study for in the first place?”

• Fabián’s ex-university classmates, when offered a managerial position at the El Castillo
start-up, replied: “I can’t accept this job because I seek to have a professional/career
growth.”

In short, there was widespread scepticism about the project and a general feeling that the
family had underestimated the skills necessary to run a hotel. All the tourism operators and
agencies they visited in Buenos Aires during the first year of opening turned down the offer to
work with them. They pointed to the lack of the family’s track record in the hospitality
industry, adding for good measure that “No affluent traveller would want to visit the region.”

Pressing Ahead

Nonetheless, the family decided to press ahead. Susana and Raúl, already on site, took charge
of the restoration process. The Fabregas soon settled on the hotel option. They hired and
directed a local labour force and personally purchased all the required equipment – from
construction materials to antiques. The restoration procedure was designed to pay careful
attention to El Castillo’s history and to use elements derived from existing features of the
building’s architecture. However, while realising the challenge of creating an exact replica of
the original features of the castle, they also adopted an eclectic furnishing aesthetic to
accentuate the hotel, resort and spa.

The labour force they hired had to meet three criteria: that workers live within 10kms of the
hotel, have some technical skill related to construction (e.g., builder, plumber, painter,
carpenter), and have no prior experience in the hotel industry. However, whereas Cordoba
City, approximately an hour away, contained the highest concentration of university students
as a percentage of the total population, the poorly educated people in the immediate vicinity
suffered from a significant lack of basic skills, including weak language skills and a lack of
familiarity with common tools.

Returning from the United States with his electrical engineering degree, Edgardo designed all
the systems: structural, electrical, plumbing, heating, cooling and lighting. Adriana and
Susana took on the accounting and finances, designed every detail of the décor, and painted
virtually every piece of art that would hang on the walls. Not to be left out, Fabián developed
the commercial product.

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Exhibit 2
Detail from a Painting by Adriana Fabrega

The almost four years that it took to complete the renovation were a major challenge, not just
for the Fabregas but for anyone doing business in Argentina. Without contacts in the hotel
industry or any powerful connections, the Fabregas could not get a line of credit, either from
the government or private banks. Indeed, bank deposits in 2008 still accounted for only 9% of
GDP. The entire project was financed by their personal holdings, including the sale of their
family home in Buenos Aires.

The following years saw Argentina undergo tough debt restructuring, including a single $9.8
billion repayment of the IMF debt, largely financed by the sale of Argentine bonds to
Venezuela in 2005. The economic crises had largely been resolved, exports began rising
again, the hotel restoration was almost complete, Edgardo and Fabián had returned from the
States and Adriana had graduated from university. El Castillo was ready for business.

Marketing Mix

So here they were: owners of a renovated castle in a beautiful but somewhat remote area,
having run out of money and lacking any experience in the hotel business.

Place

Its history and reputation made El Castillo a difficult sell as a luxury hotel. Who would
believe that a union facility had become a luxury spa and resort in just a few years? Moreover,
Cordoba, and indeed the entire Central Hills region, had suffered from decades of
underinvestment which had left the local infrastructure weak and unsupportive. The tourist
season lasted only three months per year and most visitors wanted inexpensive, value-based
hotels or cabanas (small, single dwellings for families that provided kitchens and separate

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rooms). Many people from Buenos Aires made short vacation trips to Cordoba to enjoy the
surrounding area of the sierras which was incomparably beautiful.

The Fabregas could recognise beauty but they knew little about hotels. And they had virtually
run out of cash after funding the extensive, ambitious renovation. What they did not lack,
however, was a spirit of innovation. “In such a storm,” Fabián philosophised, “you have to do
something!” Faced with all these obstacles, the Fabregas realised they would have to invent
something new.

Promotion

First, they determined to make their beautiful castle, of which they were so proud, a
destination in its own right. They would not rely on walk-in guests from among the value-
oriented tourists visiting the Central Hills, instead they would attract people to El Castillo
alone. To do so, they needed to ensure that guests could access a variety of amenities,
including resort, spa and dining facilities, highly personalised with all-inclusive services,
leisure programmes, and the constant attention of the family members. Thus, the formal name
of their castle became El Castillo Hotel Resort Spa.

Secondly, they chose to limit advertising to large but unobtrusive ads at six of the 12 gates of
Buenos Aires’s Newberry Airport, which served travellers inside the country, and a “subtle”
billboard outside Cordoba Airport to point guests to the resort. A few ads were run in national
newspapers, but otherwise they relied on word-of-mouth and unpaid write-ups in local travel
and tourism publications.

Thirdly, they developed a mission statement (see Exhibit 3) that reflected their unique
positioning as a hotel – one that did not necessarily need to fill each room every night, and
that would respect both the surrounding sierras and the architectural grandeur of the building.

Exhibit 3
El Castillo Mission Statement

Fourthly, during the tough years of the renovation, the family recognised the powerful
capabilities they possessed as a team. By combining the expertise they did have – medical,
university, and consulting – instead of focusing on their lack of experience in the hotel
business, they settled on a piecemeal organisational structure. They also took primary
responsibility for all aspects of the business, as Exhibit 4 shows.

Vision: To become an international icon of eco-tourism, while protecting and highlighting
the local culture.

Mission: To provide services that, by means of innovative techniques, help guests develop
their intellectual, artistic, sport and interpersonal skills.

Values: Respect for history, culture and nature. Passion for creative innovation in services.
Admiration for people’s creativity potential.

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• Edgardo, with his engineering background, directed Purchases & Projects and oversaw
building maintenance, new facility construction, and technology additions. He
implemented a just-in-time supply system throughout the hotel and received daily reports
from the area managers. Raúl offered support based on his vast experience of dealing with
suppliers.

• Adriana, as the Director of Operations, oversaw workflows, coordinated staff
responsibilities, and designed specific tasks for each area. The operations sector
outsourced the accounting and legal tasks to firms located in Cordoba City; part of the
reservation system was also outsourced. Susana supervised these outsourcing activities
and gave final approval for their work.

• Fabián, the Director of Marketing & Sales, developed programmes and marketing for both
of the divisions (Turismo Vacacional and Fabrega Organizational Center). An outside
press agency wrote articles for publication in major national newspapers and magazines.
Fabián also took charge of training the approximately 50 employees to ensure customer
centricity and gathered customer feedback.

Exhibit 4

Organisation of El Castillo

Area
Purchases &

Projects
Operations

Marketing &
Sales

Family member
in charge

Edgardo & Raúl Adriana & Susana Fabián

Responsibilities

• Food &
beverage

• Meeting rooms
• Maintenance
• New facilities

• Spa & leisure
• Housekeeping
• Restaurant & bar
• Accounting &

legal supervision

• Front desk
• Sales channels
• Educational

programmes

Product

If tourists – the most common consumers of tourism industry offerings such as hotels – only
came to Cordoba during a three-month season, then El Castillo would have to be more than a
traditional hotel. Therefore, the family created two separate business units, one focused on the
280 days of the year that El Castillo would be dedicated to corporate events, and another
devoted to the tourist season (January, February, and July) that would target family
vacationers, primarily from Buenos Aires. For the bulk of the year, El Castillo would offer
corporate clients exclusive use of its 45 guest rooms (including seven suites) and various
other amenities in the castle (see Exhibit 5).

The new company counted among its assets its relatively easy access to Buenos Aires (i.e., a
one-hour flight and then an hour drive through the mountains), the original and historic
environment, and the building’s cutting-edge technology. The facility balanced respect for the
original hotel structure with high-tech innovations, including internet access and Wi-Fi

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802.11n data transmission, solar-based lighting, and air temperature control units rated at 13
SEER with environment friendly refrigerant.

At the same time, in an effort to create a space in which guests could feel cut off from their
usual, everyday activities, there were no television sets or refrigerators in the rooms, and
telephones were only for internal communication. This decision also helped reduce the
amount of unnecessary electromagnetic interference created by excess electrical currents.
Edgardo pointed proudly at the wiring attached to the outside of the edifice, noting that only
2% of it ran inside the building.

To minimise noxious emissions (i.e., volatile organic compounds, such as formaldehyde,
ethylbenzene, toluene, xylene, acetonitrile, styrene, trichloroethylene, azulene, benzene,
diphenyl ether, and dodecane) known to derive from carpeting and other synthetic fibres, the
hotel employed hard surfaces wherever it could: parquet flooring, hardwood furniture,
chandeliers made of cast iron and handcrafted ironwork, and so forth.

The wine cellar comprised a constant list of at least 300 vintages, although Fabián would
expand the list on request or for special occasions. All meals were cooked on site using, as far
as possible, local ingredients including home-grown produce, meat, and fish. At one point, El
Castillo tried outsourcing the kitchen duties to a local restaurant but found it impossible to
maintain the quality levels they demanded.

The use of aromatherapy characterized different areas of the hotel: the front hall smelled of
chocolate, the rooms of roses, and the gym facilities of watermelon. The artwork hanging
throughout the halls and rooms was produced by Adriana or Susana, photographed by Fabián,
painted by local artists, or given to the family as gifts by guests.

Basic services in every corporate package included all meals and drinks; meeting room access
with audiovisual equipment and technical assistance; outdoor sports (e.g., swimming, tennis,
guided walks); an indoor lounge, home theatre, music rehearsal space, art studios for guests to
express their creativity; and access to spa facilities such as a sauna, yoga room, solarium and
well-equipped gym. In addition, the hotel did its utmost to cater for the particular demands of
its corporate clients – they could book a medieval-themed dinner, wine tastings in El
Castillo’s Argentine-sourced wine cellar, tango or folk dancing lessons, and golf packages.
The only time Fabián could recall turning down a corporate client’s request was when a group
asked for female dancers as entertainment – “I don’t even know where to find such things!”
he protested.

During most stays, the Fabregas provided at least one after-dinner show, with Edgardo
playing his saxophone, Fabián strumming the guitar, and Adriana singing, while Raúl took
photos of the performers and the crowd and Susana applauded.

Efforts designed to attract and satisfy corporate customers led to the addition of a third
division early in 2007, El Castillo Consulting, which has become the most profitable sector of
the business. The programme focused on organisational training and teamwork, using the
vacation atmosphere to move attendees away from their traditional modes of interaction.
Seminars featured theoretical research and models of teamwork presented through role-
playing, sports and art-themed exercises. The combined educational centre/hotel/spa/resort
was given over exclusively to each organisation that booked a stay.

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After an academic visit of the Rensselaer Polytechnic Institute’s EMBA to El Castillo in
August 2008, the Fabregas redefined their product in two divisions (see Exhibit 5):

• Holiday Tourism: family programmes with activities based on arts, sports and other
cultural workshops. To stress the “educational part”, all activities are provided in a
workshop or class fashion (without mentioning that a “class” will take place, but rather
using the words “activity” or “workshop”).

• Fabrega Organizational Center: for executive meetings and tailored educational
programmes. It is important to mention that the programmes are developed and delivered
by the same team that created El Castillo (i.e., the Fabregas). Currently, the Fabregas are
working on developing a partnership with an American university to deliver specific
programmes (for example, there is a chance of delivering the Lally School’s Apollo
healthcare and other programmes in 2009).

Price

Pricing varied according to the month and, during the family season, the age of the guests. On
average, an adult guest paid approximately $150 per night, and the hotel offered a discounted
rate for children from 40% to 60% off the adult rate. For example, an all-inclusive, seven-
night stay in January, February, or July would cost a family $1,120 per adult, $858 per child
aged 7-12 years, and $705 per child aged 2-6 years. During the Easter season, however, prices
increased somewhat, with the basic adult room rate around $200.

The corporate-oriented division did not post prices but instead provided quotes for each
company that booked space, depending on the timing, number of guests, and additional
amenities chosen. To determine each price quote, El Castillo considered the per-person rate
but also the hours of a stay rather than days. If a corporate client arrived in the evening on the
first day of the group’s stay, for example, the hotel charged it for only the portion of the day it
had used the facilities.

Corporate guests have included Abbott Laboratories, Arcor, Cargill, Coca-Cola, IBM, the
James S. McDonnell Foundation, Lan, Monsanto, Merck Laboratories, Moët & Chandon,
Müchener Rück, Novo Nordisk, Repsol-YPF, Sykes, and Syngenta.

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Exhibit 5
Description of El Castillo Divisions

EL CASTILLO HOTEL RESORT SPA

Division
EL CASTILLO

Turismo Vacacional
EL CASTILLO

Fabrega Organizational Center

Season
January, February,

July
280 days a year

Services
All inclusive

+ family workshops

All inclusive – Exclusive use
+ Executive meetings

+ Tailored, proprietary educational and training
programmes

Main
Customers

Families from
Buenos Aires

International companies, non-profit organisations,
government ministries

Riding the Wave: Ecotourism at El Castillo

The Fabregas undertook the renovation of El Castillo with an eye to respecting the castle’s
past and enhancing the local community. In doing so, however, they also recognised the
suitability of the site for another essential means of attracting a new kind of guest, one who
valued respect for the environment: “ecotourists”.

Ecotourism represents a particular form of corporate social responsibility (CSR), a concept
that first emerged in the 1950s as a description of voluntary practices but has since developed
to refer to explicit commitments in response to stakeholder pressures. Even as it has gained
widespread support and worldwide adherents, it has yet to be defined conclusively. Various
versions of corporate “doing good” exist, and companies have claimed some, all, or a
combination of these versions as their form of CSR.

One definition offered in recent literature calls CSR a “stakeholder-oriented concept that
extends beyond the organisation’s boundaries and is driven by an ethical understanding of the
organisation’s responsibility for the impact of its business activities, thus seeking in return
society’s acceptance of the legitimacy of the organisation.”4 The Fabregas also turned to the
Instituto Argentino de Responsabilidad Social Empresaria (Argentinean Institute for CSR),
which published four steps that companies must fulfil to be considered socially responsible.
El Castillo summarises its commitment, as shown in Exhibit 6.

4 François Maon, Adam Lindgreen, and Valérie Swaen, “Designing and Implementing Corporate Social

Responsibility: An Integrative Framework Based in Theory and Practice,” Journal of Business Ethics (in
press)

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According to Patricia Debeljuh of the Center of Advanced Studies at an Argentine business
school, CSR was vital in Argentina because “governmental paternalism has failed, and the
business sector plays a central role in the expectations of civil society, which has started to
demand greater participation and social commitment from companies. The company is no
longer a closed system preoccupied only with generating profits. It has become an open
system, much more influenced by social needs and requirements.”5

Exhibit 6
El Castillo’s CSR

Stakeholders

Local Community. El Castillo hires only local workers to fill the approximately 50 staff
positions in the facility. Although there is an overall a literacy rate of 97% among residents of
the area within 10kms of the hotel, a vast rural section of the sierras (see Exhibit 7) are
undereducated. Elementary education is the most common level of schooling achieved.

5 Knowledge@Wharton, “In Latin America, Companies Are Becoming More Interested in Corporate Social

Responsibility,” November 15, 2006,
http://www.wharton.universia.net/index.cfm?fa=viewfeature&id=1259&language=English (accessed July
2, 2008)

For the exclusive use of A. Torres, 2020.
This document is authorized for use only by Angie Torres in MAR5505 taught by Christos Christou, Florida National University from Sep 2020 to Oct 2020.

Copyright © 2009 INSEAD-Rensselaer 13 04/2013-5583

Exhibit 7
Sierras around El Castillo

El Castillo insists on making all employees “white” – that is, legally on the books instead of
paying them under the table (i.e., on the black market). The family claims that whereas most
hotels employ a predominantly black market labour force, “Here, everyone is legal.” This
means that the company pays payroll taxes to the state for health and workers’ compensation
benefits, for example, although their take-home pay is lower than black market rates.

The Fabregas proudly cite a key beneficiary of El Castillo’s dedication to the local
community: Sandro Sanchez started working as a window painter during the restoration but
soon expressed an interest in cooking. With the Fabregas’ encouragement, he has since earned
two school degrees and is now the executive chef for the resort. However, other employees
have had trouble adjusting to the family’s demands for “perfection”.

Guests. As noted previously, the renovation attempted to eliminate noxious emissions and
create a sense of tranquillity. Furthermore, El Castillo offers drinkable water from a natural
spring on its property and herbs and vegetables grown in its organic gardens.

A meeting room currently under construction will feature an under-floor cooling system that
uses cold water from an outdoor swimming pool.

Government. The local Cordoba province ranks El Castillo as a three-star hotel because it fails
to provide televisions in each bedroom. An inspector suggested they simply add wiring to the
rooms to make it look as though they could offer televisions, but the Fabregas rejected that
option as untenable. The poorer ranking has significant implications for the hotel’s tax status,
denying certain benefits that it could earn with a higher rating. The hotel is engaged in
negotiations with the government regarding this issue but recognises that “We don’t fit in a
specific place” with regard to rankings.

For the exclusive use of A. Torres, 2020.
This document is authorized for use only by Angie Torres in MAR5505 taught by Christos Christou, Florida National University from Sep 2020 to Oct 2020.

Copyright © 2009 INSEAD-Rensselaer 14 04/2013-5583

Environmental Impact

• Waste minimisation efforts include just-in-time supply systems and the extensive use of
recycled or reclaimed furniture.

• Furniture and fittings predominantly use non-synthetic, natural materials, such as wood.

• Solar energy supplies lighting wherever possible. The solar panel immediately outside the
hotel provides approximately 300 watts of energy.

• El Castillo has adopted organic principles and production for gardening, including the
recycling of water from the pool and collection of rainwater.

• The garden provides various supplies for the kitchen, including herbs such as thyme,
chives, and sage; vegetables such as tomatoes, lettuce and pumpkins, and citrus fruits
(although the new fruit orchard is not yet prolific).

• Heating and cooling systems are high-efficiency.

• An efficient under-floor heating and cooling system will be in place for a new meeting
room.

Conclusion

Among its strengths, El Castillo emphasizes that it is the only ecotourist facility in Argentina.
It also notes its unique product offering and its strong customer satisfaction ratings, which
place it among the top hotels in the country. Rapid growth has characterised its first few years
– in the second year alone, El Castillo’s sales grew at a rate of 280%, and more than 80% of
the families who visited during the Easter holiday were repeat customers.

So is El Castillo set? Can it simply continue to do what it has been doing? Or are there threats
and opportunities that may be waiting in the wings, like a gremlin in the halls of the fairy-tale
castle?

Case Questions

1. What are the lessons to be learnt from the El Castillo story in terms of business risk;
development of an original product in a traditional industry; culture and vision;
multitasking teams; overcoming negative forecasts; and innovativeness in the interface
with stakeholders?

2. What are the threats and opportunities facing El Castillo on local and global markets?
3. Following on from this, how does the Fabrega family deal with the challenges of

doing business in their locality, and in Argentina?

4. What do you consider the future holds for El Castillo? What actions do you
recommend?

For the exclusive use of A. Torres, 2020.
This document is authorized for use only by Angie Torres in MAR5505 taught by Christos Christou, Florida National University from Sep 2020 to Oct 2020.