Computron Inc

REPORT ON THE GROWTH AND EXPANSION POLICY IN THE EUROPEAN DOMAIN OF COMPUTRON INC.

INSTITUTE OF PETROLEUM MANAGEMENT, GANDHINAGAR

Submitted to: Prof Sanjay Gupta Date of Submission: 15.09.2008 Submitted by: Joydeep Mukherjee Roll No: 20081020

To: Mr Thomas Zimmerman (Manager, European Sales Division, Computron Inc.) From: Joydeep Mukherjee Date: 15 September, 2008. Subject: Evaluation of the Opportunities and Challenges faced by the company The report presents an outlook of the action plan for future growth of Computron Inc in Europe. The analysis has been done keeping in mind the opportunities in the present context, especially the deal with Konie & Cie., AG. Regarding challenges, the feasibility of the new plant in Frankfurt, Germany and the competition faced by upcoming rivals have been duly considered.

Executive Summary: The mode of expansion of the company in the European market is the crux of the issue. The company has started its manufacturing in Germany which has reduced the product’s price but further reduction can be done in basis of R&D cost and transportation cost. Factors like compromise on quality of the product, break even analysis pertaining to the investment made, effect of price reduction on brand image and increment in market share both in the German as well as European market has been considered. The effective policy would be to only manufacture cost effective products in the German manufacturing unit with a different brand name.

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Situation Analysis: European market of the digital process control computers contributed 11% of sales of the company in this fiscal year and in upcoming years a significant growth is expected. The Germany market itself is poised to increase at a rate of 25%/year. The company is at crossroads with investment in Europe; specifically in Germany is on cards. The new found business opportunity along with the trusted brand name has given the company a solid platform to build further on its quality product and brand image. The additional cost, for example import duties and transportation cost will not deter the company to compete on the price quotient too. Market security will provide the company the boost required to go on with the investment at a much rapid manner. Konie & Cie., AG provides an option, but the company has to take into consideration capacity and commissioning time for the new plant, the long term impact on brand image, break even analysis of the investment made as well as future profits before deciding on the path of expansion in European market.

Problem Statement: Determine a course of action for the growth and expansion of the company in European market with respect to pricing of products, maintaining quality and brand image, attaining market security, fending of competitors as well as holding on to large consumers and looking at long term profitability of the decision.

Statement of Options: The modes of expansion that the company can follow with respect to the opportunity in Konie & Cie., AG and also in long term view of the growth in the European market:1. Special low cost production only for the deal with Konie & Cie., AG. With setup of the plant in ongoing process there is no issue of major changes. 2. Change in policy with respect to European manufacturing unit. Only low cost and lesser quality products manufactured, under a new name, “Computron 999X”. Branded goods can be imported from the USA plant.

Criteria of Evaluation: The following criteria are relevant in evaluating any of the options mentioned; a) The level of changes in the price, i.e. the compromise on the 33 1/2 % mark up. b) Compromise on quality, i.e. precision, dependability, flexibility and ease of operation of the product. c) Break even period of the investment in setting up the new plant in Germany. d) Effect of price reduction if any on the brand image of the product. e) Increasing the market share in Germany from the present value of 30%. f) Effect on the whole European market, other than Germany, i.e. England, Sweden etc.

Evaluation of Options: Special low cost production only for the deal with Konie & Cie., AG. With setup of the plant in ongoing process there is no issue of major changes: For this deal the price can be reduced up to $498,080 as per Table 1 in the Exhibit, but we can only reduce till $523,200 which will be enough for clinching the deal. The rest will be the economic profit earned for the company. As per the requirement of the client, dependable and low cost process control computers with no long term value can be provided. Flexibility, precision can be sacrificed, thereby reducing the production cost.

Break even will be achieved faster, as the company gets immediate orders to work on. Again the company can acquire new deals from Konie & Cie., AG for high end products and charge the original price, in the process increasing their marginal returns. A chance of brand image getting damaged is possible by the launch of product not matching to the “Computron” standard. Only through effective market segmentation it is possible to curtail the damage. This deal will act as a leverage to acquire new deals with other companies; gradual increase in market share is imminent. The transport cost will decrease for other European markets though import costs remain the same. Brand will get to explore further opportunities with the proximity to other markets.

Change in policy with respect to European manufacturing unit. Only low cost and lesser quality products manufactured. Branded goods are imported from the USA plant: As the previous option, we see that a feasible cut of around $124,320 (as per Table 1) is possible and the cost effective product will cost $498,080. With the change in policy, cost effective products will be manufactured. Compromise on precision and flexibility can be effected. Markets for such products have to be ascertained and product must be launched there. Break even will be attained at a later period than the first option as the marginal returns will be lesser than in first option. The product being marketed in a different name, the brand image will not be tarnished. The option can open up newer avenues in the market for cost effective digital process computers. Effective after sales service can be provided to the client for long term contracts at a suitable cost. The competitors can now also be challenged in the price front. The markets outside Germany can be supplied according to requirement of the client. For high end products, the USA division can keep on supplying and for cost effective products the Frankfurt can take on the onus of supplying.

Recommendation: A change in policy for the manufacturing unit in Frankfurt, Germany is recommended. This way we expand our domain and also bag the deal with Konie & Cie., AG., to start manufacturing the product whenever our plant is commissioned. The brand image persists and the clients get to choose the trade off between price and quality of the product.

Plan of Action: •

Identify the markets which have demand for the cost effective products.

•

Start promoting the new brand, Computron 999X, focus on marketing the cost effective factor.

•

Go in for long term secure deals with large customers and if they opt for high end products, inform USA division accordingly.

•

Start the after sales and service division of the company, as it will be of more importance with respect to products being not of highest quality.

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Exhibits:Normal price of the product Costs that can be lessened:

$622,400

Transportation(50% of transportation & installation cost) Import Duty R&D Cost Net Price feasible for the company for Germany market

$16,800 $76,800 $30,720 $498,080

Table 1: Calculation of the feasible price of the product