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Group A2 Stefan Nordh Hans Calmfors. What do you feel about the initial analysis? Was there, in your opinion, anything wrong with it? Weak arguments regarding.

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Presentation on theme: "Group A2 Stefan Nordh Hans Calmfors. What do you feel about the initial analysis? Was there, in your opinion, anything wrong with it? Weak arguments regarding."— Presentation transcript:

1 Group A2 Stefan Nordh Hans Calmfors

2 What do you feel about the initial analysis? Was there, in your opinion, anything wrong with it? Weak arguments regarding why the UK plant should be built. Since AR-42 is currently produced in the Netherlands, it should have been natural for Mr. Wallingford’s to use this as a possibility to benchmark his own plans for the construction of the UK-plant and increase his overall credibility. It is unclear what Mr. Wallingford based his sales forecast of 400t/yr upon. Axeon’s production manager saw a large knowledge gap regarding the production process that needed to be crossed to start production in the UK. No sensitivity analysis has been made. At least we believe a best- vs. worst-case analysis should have been made. Why not start off sourcing AR-42 from the Netherlands and thereby exploring the potential of the UK market? If Mr. Wallingford’s 400t/yr forecast seems correct, proceed building the plant as a stage 2 say a year or two from now? An ideal way to reduce risk.

3 Is construction of the new factory in the UK in the best interest of Axeon? Uncertainty of the 400t/yr sale forecast makes the investment of a plant in the UK high risk. According to exhibit 3, building a new plant seems to be only slightly more profitable compared to the extra costs related to shipping AR-42 to the UK from the Netherlands All the knowledge required to produce AR-42 in the UK is currently located in the Netherlands. It is unclear how much resources it will take to transfer these skills to Hollandsworth staff in the UK. In summary: There is a significant risk involved in this project compared to the rather low margins of profit that can be made from the UK factory. Our suggestion: Produce the needed amount of AR-42 in the Netherlands and ship it to the UK during a test period If the sales forecast seems to be correct after a year or two, take the decision of building the new plant at this point.

4 Why did Mr. Van Leuven behave the way he did? We believe the Axeon board disapproved mainly with Mr. Wallingford's 400t/yr sale forecast and especially the fact that it seems badly substantiated in terms of facts. Axeon’s production manager saw a large knowledge gap regarding the production process that needed to be crossed to start production in the UK. Mr. Van Leuven probably adopted a far too encouraging line about Mr. Wallingford’s offer. In other words, he simply promised Mr. Wallingford too much and too early which he might have realised when returning back to the Netherlands and presenting the offer to the board. Mr. van Leuven probably bears a quite large part of the friction seen in this project and a key problem might be his own fear of confessing his initial mistake or at least way too optimistic position.

5 Discuss what transfer price should be established if AR-42 is supplied from the Netherlands A critical factor when determining the transfer price: Axeon will be selling AR-42 both directly to end-market, as well as internally to it’s subsidiaries. The ordinary market mechanisms will have to influence the transfer price? One way to handle the transfer price is to set up a test period. A period of e.g 3 years to understand the U.K market Decide to build a plant or not Hollandsworth must pay a negotiated accumulated mark-up for the delivered AR- 42 if the decision is taken Year 1Year 2Year 3 Hollandsworth buys from Axeon 400 ton and pays the variable costs £ (test period over) Mark up fee 30 %824000*0,3= Accumulated mark-up fee£ £ Holandsworth pays Axeon (if plant is to be constructed) £

6 What is Axeon´s corporate strategy? Generating profit and thereby adequate return to shareholders. This will be met by: Expansion and taking advantage of regional expertise by acquiring foreign companies and letting these handle all Axeon’s sales in their assigned territory. Adopting a high degree of decentralization giving subsidiary managers considerable autonomy in deciding what to sell. Focus on divisional revenue growth and internally set ”economic profit targets” set as part of Axeon’s annual planning and bugeting process. This also seems to be in line with Axeon’s decentralization strategy mentioned above. Prioritize a high level of customer satisfation by developing products in close dialog with them and their needs.

7 What do you believe to be the critical success factors for Axeon? Sale volumes Product performance (For example AR-42 is designed to be a far superior agent in relation to it’s competitors in terms of storage and application) Product development Efficient use of Axeon’s subsidiaries to successfully penetrate new markets and develop a close understanding of regional differences and opportunities. Proper identification of customer needs and thereby new markets.

8 What do you believe are the key recurring activities in Axeon? Continous market monitoring – both involving existing customers, but also the potential of expanding into new markets. Product research and development Development of the company’s human assets and personell skills Decisions related to company expansion and new investment opportunities Decentralization (?)

9 Discuss Axeon in terms of its centralization / decentralization Clear ambition of decentralization Decentralization might be a questionable strategy given the standardized type of products Axeon is producing. (Low level of product-differentiation?) The ambition of decentralizing decreases if the proposal of a UK plant is turned down. On one hand, overall company profit might be the most important issue in the long term. On the other, key staff (Mr. Wallingford?) and others with him might be lost in a turndown due to severe disappointment. Perhaps Axeon’s board are partially responsible by communicating an unclear or vague decentralization strategy. Keeping motivated staff members might also be key factors in this case even if it means taking a higher economical risk.

10 What should Mr. Van Leuven do? Order a more thorough analysis of the potential of the UK market. Further define Axeon’s decentralization strategy, especially concerning what parts of the company’s activities that should be decentralized and which ones should not. If after the analyze of Axeon’s decentralization strategy, this strategy remains important, perhaps consider to build the UK plant even if the proposal does not economically optimal. Otherwise he will risk to undermine his own corporate strategy. Consider that a decision to produce AR-42 in the Netherlands might discourage Mr. Wallingford to a point where he might move on to a competitor. Can Axeon afford to loose him? He could propose an initial sourcing of AR-42 from the Netherlands but promise Mr. Wallingford to build the UK plant in case his initial sales forecast is met within say a year or two. If a decision is made to source from the Netherlands, perhaps he could try to keep Mr. Wallingford as a highly motivated team member by appointing him a high-level position in Axeon?


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