Baxton Case Study
Technology is a small to medium sized scissors type surface automotive hoists (used in servicing, repair and speciality shops) manufacturing company which is operating is USA as well as Canada. It competes in the specialty shop segment and, in particular, those shops that dealt with wheel alignment. The organization wants to exploit the various opportunities of entering Europe market or increasing its sales in USA Market and Industry Analysis: Hoists are typically of two categories mainly 1) In ground 2) Surface.
Approximately 49000 units are manufactured every year and the industry is worth $150 million (see exhibit 1) and has a very big potential to grow in the coming years. The industry has been dominated by 2 big firms AHV lifts and Berne manufacturing which hold approx 60% of the sales. The distribution system in the industry mainly consisted of 1. Direct sales force and 2. A combination of wholesale dealers and company sales force. The industry is price competitive whereas Baxton is not ready to compromise on price as it emphasis on quality of the product backed by good service.
Baxton has a market share of 2. 1% (exhibit 1) by volumes and 6% (exhibit 1) by sales in comparison to the total hoists manufactured in the USA. The distribution system present reflected the need to engage in the intensive personal selling since only 25% of sales was through company sales force. Evaluation of Alternative Courses of Action 1. Increase in US sales by setting up sales office: This implies an additional sales of $1428697 to break even which is ? th of its total sales of USA(exhibit 2) Pros • The company can have a better grip over the market IT engages itself in more direct selling which means that it can sell units at costs of $10990 without any hassles • Creating a brand image and showcasing its competitiveness with the key players Cons • Since the wholesalers contribute a good percentage of the sales they may not want to either want to sell it or demand higher margins than that present of 22% as of date. • If the company decides to increase the margins: the cost of production of a unit is $7931. 68 and the amount it receives is $8572 (see exhibit 2) and the margin is roughly around $600.
So the company will have to decide on the opportunity costs 2. Entering European Market with 3 alternatives a. A 3 year licence Agreement with Bar Maisse to manufacture lifts in Europe and have 5% royalty on gross sales: Baxton will earn $485400(9708000 *. 05) since Europe markets are similar to North America( see exhibit 3) which is a risk averse alternative and will help to introduce the brand but the trade off is compromise of design and future course if it decides to manufacture on its.
A 50-50 joint venture with Bar Maisse: Since the population and vehicles in use in European market is similar to that of North America (see exhibit 3) it will earn a profit of 674000(1348000/2). Opportunity to explore the market at the expense of Bar Maisse as it will bear set up costs and carry out R&D as advancement in technology may phase out the existing ones. c. To enter the market on its own: implies that it will have to achieve a break even sales of $10,250,000(see exhibit 4) .
Here it has a big opportunity to be one of the biggest players in the market but on the flip side it has taken 10 years for it to reach a sales figure of $9708000 in USA,so the time to achieve sales of around $10 million might be same or less. Another hurdle it has to pass is the cost of obtaining $9. 86 million to set up a plant (see exhibit 4). Also its venturing into a unknown territory which no or nil knowledge on the retailing of that territory Conclusions and Recommendations Enter into a joint venture as it will help Baxton to understand the market and identify the additional needs if there are any.