1. AXEON N.V. BEHAVIOURAL MANAGEMENT CONTROL Group C4: Anat Bar Pinchas
Mahesh Adhegaonkar
Gloria Marmol Acitores
Aranya Wangkaongtaveerauj

2. The Company Large Dutch chemical company.
Headquartered in Heerlen (the Netherlands).
Extensive product line of industrial chemicals.
24 factories.
Subsidiaries in three countries:
Saraceno (Italy) - 8% sales
Hollandsworth (UK) - 14% sales
KAG Chemicals (Sweden) - 6% sales
Management style: High degree of decentralisation and autonomy in decision-making.

3. What do you feel about the initial analysis
What do you feel about the initial analysis? Was there anything wrong with it?
Ian’s Proposal:
Evaluation seems realistic . (Sales, Costs).
Final value of the plant after 7 years can be lower.
Lack of scenario analysis (Price variations, Inflation).
Axeon’s Analysis:
New technology is not considered.
Plant will operate at full capacity .
(No room for capacity fluctuations)
Considering the shipment of AR-42 from Netherland at a cost of £ 2060 per ton, the NPV is £ 1,326,678,000 which is HIGHER than Ian´s proposal £ 916,000,000.

4. NO (Ian´s proposal has LOWER NPV.)
Is the construction of the new factory in the UK in the best interest of Axeon?
NO (Ian´s proposal has LOWER NPV.)
Considering the shipment of AR-42 from Netherland at a cost of £ 2060 per ton, the NPV is £ 1,326,678,000 which is HIGER than Ian´s proposal(£916,000,000).
Manufacturing in the Netherlands :
Economies of scale and synergies:
Variable costs: from £ 1900 to £ 1860
Overhead costs: from £ to £ 360
Immediate market penetration.
Workers are already trained (learning curve).
Estimated variable cost of mfg & shipment to UK
- £ 2060 per ton.
Then, why didn´t Axeon sell AR-42 in the UK before?

5. Why did Mr. van Leuven behave as he did?
Lack of information about capacities and costs that took time for evaluation of the project .
Considering £ 2060 per ton transfer price, the NPV is £ 1,326,678,000 which is HIGER than Ian´s proposal (£916,000,000).
Mr. van Leuven’s strategy can be…:
Extra Capacity utilization .
Integration of operations.
Problems:
Incoherence with strategy of decentralization.
Axeon’s analysis of proposal for manufacturing in the Netherlands was done too late.
Lack of motivation and morale of subsidiary management.

6. Transfer price method: Negotiated transfer price.
Discuss what transfer price should be established if AR-42 is supplied from the Netherlands to the UK.
Transfer price method: Negotiated transfer price.
(Max- £ 2,060 & Min- £ 2,000)
Both player has bargaining power.
Maximum transfer price should be £ 2060 (NPV will be £ 1,326,678,000)-Why UK should pay more?
Minimum transfer price should be £ 2000 (NPV will be £ 1,391,896,000)-Why UK should have more benefits?
Even if Axeon sells at £ 2000 per ton,it will be beneficial to cover fixed costs and utilise extra capacity.
Its strategic decision and thats why negotiation is reqd.

7. What is Axeon’s corporate strategy?
Acquiring companies in different geographical areas to enter other markets.
Having an extensive product line of industrial chemicals.
Having high degree of decentralization.
Giving autonomy to subsidiaries:
To decide what to sell and produce in their territories.
To bargain and reject products.
To propose the development of new products and build their own manufacturing plants.
Indirect control by having a managing director as a board member of subsidiary.
Projects should get approval first by the subsidiary and then by Axeon board of directors.

8. What do you believe to be the critical success factors in Axeon?
Extensive product range.
Use of external knowledge by acquiring specialized companies in different regions.
Hiring people with high expertise and experience.
Independence between the sales in different regions
(diversified risk).
Encouragement of the development of new products (R&D) in all the subsidiaries .

9. What do you believe are the key recurring activities in Axeon?
Assessment of new project proposals.
Acquiring new companies in other countries as subsidiaries.
Production of industrial chemicals.
R&D activities.
Negotiating with the subsidiaries for selling Axeon products.

10. Discuss Axeon in terms of its centralisation/decentralisation.
Formal strategy: Decentralization
Result of the company’s fast growth by acquiring other companies.
Motivation to make changes by giving autonomy to subsidiaries.
Real situation: Centralization.
Benefit from economies of scale, synergies.
Achieve higher integration.
Avoid competition between subsidiaries and Axeon.
Have a centralized process concerning the approval of projects.
Conclusion:
Axeon should be coherent between the definition and the real implementation of its strategy in terms of centralization.
Eventually, Axeon is still a centralized organization.

11. What should Mr. van Leuven do?
AR-42 should be supplied from Netherlands with negotiated transfer price.
Review the strategy in terms of autonomy, encouraging subsidiaries to propose new projects and the development of new products but centralizing the final approval of proposal.
Develop personnel control systems to avoid demotivation if a subsidiary’s proposal is rejected.
Pre-study phase of the project should be approved by Axeon and then, subsidiary should be given independence to plan the project and submit it for Axeon’s approval before execution.
Should design Reward system for subsidiary management executives according to market share responsibility even though the product is produced at Axeon.

12. Thank you!