Nakamura Lacquer Company

 

 

THE NAKAMURA LACQUER COMPANY

 

 

TEAM MEMBERS - GROUP 2 

S.No.  Name

Roll No.

Mobile No. No.

Email ID

1

Avantika Pathak

PGP22052

7310726110

[email protected] [email protected]  

2

Himani Upadhyay

PGP22254

8448409403

[email protected] [email protected]  

3

Pratyusha Garg

PGP22145

6396094289

[email protected] [email protected]  

4

Vanshika Garg

PGP22232

9971275530

[email protected]  [email protected]  

5

Akhil Manglani

PGP22019

9301858700

[email protected] [email protected]  

6

Arpit Pachauri

PGP22046

7060377800

[email protected]   [email protected]

7

Gagan Chopra

PGP22075

9958531423

[email protected] [email protected]  

8

Shivank Agrawal

PGP22193

7974576593

[email protected]   [email protected]

 

 

TABLE OF CONTENTS

S.No.

CONTENT

PAGE NO.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Introduction Case Summary SWOT Analysis of the company Situational Situati onal Analysis Decision Problem Objectives Criteria Options Evaluation Recommended Recommende d Decision

4 5 6 7 8 8 8 9 9 12

11. 12.

Action Plan Contingency Plan

12 13

 

Introduction The Nakamura Lacquer Company (NLC) of Kyoto, Japan, employed several thousand men and produced 500,000 pieces of lacquer tableware annually, with its Chrysanthemum brand  becoming Japan's best known and bestselling brand. The annual profit from operations wa wass 20%

The market for lacquerware in Japan seemed to have matured, with the production steady at 500,000 pieces a year. NLC did practically no business outside Japan. In May 2000, (much to your chagrin!) the ambitious and dynamic, Mr. Nakamura (Chairman,  NLC) received two offers from American companies wishing to sell lacquer ware in America.

The first offer was from the National China Company. It was the largest manufacturer of good quality dinnerware in the U.S., with their “Rose and Crown” brand accoun ting for almost 30% of total sales. They were willing to give a firm order for three years for annual  purchases of 400,000 sets of lacquer dinnerware, delivered in Japan and at 5% more than what the Japanese jobbers paid. However, Nakamura would have to forego the Chrysanthemum Chrysan themum trademark to “Rose and Crown” and also undertake not to sell lacquer ware The second offer was from Sammelback, Sammelback and Whittacker (henceforth SSW), Chicago, the largest supplier of hotel and restaurant supplies in the U.S. They perceived a U.S.. market of 600,000 sets a year, expecting it to g U.S go o up to 2 million in arou around nd 5 years. Since the Japanese government did not allow overseas investment, SSW was willing to budget $1.5 million for the next two years towards introduction and promotion. Nakamura would sell his “Chrysanthemum” brand but would have to give exclusive representation to SSW for five years at standard commission rates and also forego his profit margin toward paying back of the $ 1.5 million. million.

 

Case Summary The Nakamura Lacquer Company based in Kyoto; Japan was one of the many small handicraft shops making lacquerware for the daily use of the Japanese people. NLC has explored all the possibilities in the lacquer ware market within Japan and become the bestselling brand in Japan. Now, Mr. Nakamura wants to expand his business. But due to Govt. regulations, he cannot invest outside the country. American companies are aware of the situation and hence two U.S. based companies approach Mr. Nakamura with business  proposals through thr ough which he can eexpand xpand hi hiss business outside Japan. So now Mr. Nak Nakamura amura is in a dilemma whether to tie up with these companies or not. And if not, then how to expand his business.

 

SWOT ANALYSIS OF THE COMPANY

Strengths  

Best known company

 

Profitable Steady production

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Weaknesses  

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Confined to domestic market Limited increase in production capacity Political restriction in foreign investments

Opportunities  

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Demand in market outside Japan Overseas expansion

Threats  

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Emergence of other companies in the same industry US investors collab with other rivals if offer gets let down

 

 

Situational Analysis The Nakamura Lacquer Company : The Nakamura Lacquer Company based in Kyoto, Japan was one of the many small handicraft shops making lacquerware for the daily table use of the Japanese people.

Mr. Nakamura- the personality : In 1948, a young Mr. Nakamura took over his family  business. He saw an opportunity to cater to a new market of America, i.e. GI's of the Occupation Army who had begun to buy lacquer ware as souvenirs. However, he realized that the traditional handicraft methods were inadequate. He was an innovator and introduced simple methods of processing and inspection using machines. Four years later, when the Occupation Army left in 1952, Nakamura employed several thousand men, and produced 500,000 pieces of lacquers tableware each year for the Japanese mass consumer market. The  profit from operations was $250,000.

The Brand: Nakamura named his brand “Chrysanthemum” after the national flower of Japan, which showed his patriotic fervor. The brand became Japan's best known and bestselling brand, being synonymous with good quality, middle class and dependability.

The Market: The market for lacquerware in Japan seems to have matured, with the  production steady at 500,000 pieces a year. Nakamura did practically no bu business siness out outside side of Japan. However, early in 1960, when the American interest in Japanese products began to grow, Nakamura received two offers.

The Rose and Crown offer : The first offer was from Mr. Phil Rose, V.P Marketing at the

 National China Company. They wer weree the la largest rgest manufacturer of goo good d qual quality ity di dinnerware nnerware in the U.S., with their “Rose and Crown” brand accoun ting for almost 30% of total sales. They were willing to give a firm order for three eyes for annual purchases of 400,000 sets of lacquer dinnerware, delivered in Japan and at 5% more than what the Japanese jobbers paid. However, Nakamura would have to for ego ego the Chrysanthemum trademark to “Rose and Crown” and also undertaken to sell lacquer ware to anyone else the U.S. The offer promised returns of $720,000 over three years (with net returns of $83,000), but with little potential for the U.S. market on the Chrysanthemum brand beyond that period.

The Semmelback offer : The second offer was from Mr. Walter Sammelback of Sammelback, Sammelback and Whittacker, Chicago, the largest supplier of hotel and

 

restaurant supplies in the U.S. They perceived a U.S. market of 600,000 sets a year, expecting it to go up to 2 million in around 5 years. Since the Japanese government did not allow overseas investment, Sammelback was willing to budget $1.5 million. Although the offer implied negative returns of $467,000 over the first five years, the offer had the potential to give a $1 million profit if sales picked up as anticipated.

Meeting the order : To meet the numbers requirement of the orders, Nakamura would either have to expand capacity or cut down on the domestic market. If he chose to expand capacity, the danger was of idle capacity in case the U.S. market did not respond. If he cut down on the domestic market, the danger was of losing out on a well-established market. Nakamura could also source part of the supply from other vendors. However, this option would not find favor with either of the American buyers since they had approached only Nakamura, realizing that he was the best person to meet the order.

Decision problem  Whether to accept any of the two offers and if yes, which one of the two and under what terms of conditions?

Objectives To sustain in the market, the company has some short-term objectives and some long-term objectives. Short-term 

 

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to expand the existing business and grow beyond boundaries while making profitable decisions.

Long-term 

  The company should be to maintain its sales volume in the country as well as increase

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its presence in the global market so as to remain the market leader in the business where he has many competitors.

Criteria: (In descending order of priority):   Profit Maximization criterion : The most important criterion in the long run is profit

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maximization.

 

  Risk criterion: Since the demand in the U.S. market is not as much as in Japan.   Brand identity criterion: Nakamura ha hass painstakingly built up a brand bra nd name in

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Japan. It is desirable for him to compete in the U.S. market under the same brand name   Flexibility criterion: The cho chosen sen option should offer Nak Nakamura amura flexibility in manoeuvring the terms and conditions to his advantage. Additionally, Nakamura should have bargaining power at the time of renewal of the contract.   Short term returns : Nakamura should receive some returns on the investment he makes on the new offers. However, this criterion may be compromised in favour of  profit maximization in the long lon g run.?

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Options

1.  Reject both:  React both the offers and concentrate on the domestic market. 2.  Accept RC offer: Accept the Rose and Crown offer and supply s upply the offer by ccuttin utting g down on supplies to the domestic market or through capacity expansion expansion or both .

3.  Accept SSW offer: accept the SSW offer and meet it through cuttin cutting g down on supply to the domestic market or through capacity ca pacity expan expansion sion or both. Negotiate term of supply to anyone else in the U.S. to anyone else in the U.S.

Evaluation 

: This option would not meet the primary criterion of profit Further, the objective of growth would also not be met. met. Hence, this option is rejected.  

Reject both   maximization.

  Accept RC offer: The RC offer would assure net returns of $283,000 over the next

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three years. It also assures ass ures regular returns of $240,000 per year. However, Nakamura would have no presence in the U.S. with its Chrysanthemum brand name The RC offer would entail capacity expansion, expansion, as it would not be possible to siphon of 275,000 pieces pieces from the domestic market over three t hree years without adversely affecting affect ing operations there. At the end of three t hree years, Nakamura would have little bargaining power power with RC as it would w ould have an a n excess capacity of 275,000 pieces pieces and excess labour which it would want to utilize. utilize. In this sense the t he offer is risky. Further,

 

the offer is not flexible. Long-term profit maximization is  uncertain in this case a condition that can be controlled in the SSW offer. offer. Hence, this offer is rejected.

Pros Highest profit margin The profit offered in this industry are the highest as Phil Rose is willing us to pay an additional 5% on our current margin i.e. 20%. So, Nakamura will be generating huge surplu additional surpluss over his cost price, which is a good incentive for him to start selling his products in US.

Largest Manufacturer Manufacturer of Good Quality Dinnerware Since Phil Rose is already having a considerable share in good quality lacquerware market, so supplying our product to him will get the hold of promising & classy American population as we will be getting the advantage of mass coupled with high profit margin per unit. unit .

Cons Trading brand value for profits In the wake of additional 5% Mr. Nakamura is investing all his expertise developed over the years to an investor, who is compensating our competitive advantage just by offering few additional bucks on top of the profits Nakamura is already making.

No brand creation in foreign market. Phil Rose is expressly stating to provide the merchandise made under his company's trademark "Rose & Crown" and is not even allowing to sell any of our product either in individual capacity or by collaborating with any other brand during the same period. Due to this, our goodwill will always be under the curtain of "Rose & Crown" and Chrysanthemum will be unable to develop any individual identity in the market.

  Accept SSW offer: The SSW offer does not assure a firm order or any returns

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for the period of contract. Although, in its present form the offer is risky if the market in the U.S. does not pick up as expected, the offer is flexible. If Nakamura were to exhibit caution initially by supplying only 300,000 instead of the anticipated 600,000 pieces, pieces, it could siphon off the 175,000 required from the domestic market. If demand exists in the U.S., the capacity can be expanded. With this offer, risk is minimized. minim ized. Further, it would be competing on its own brand name. Distribution Distribution would be taken care of and long-term profit maximization maximization criterion would be satisfied as this option has the potential of $1 million in profits per year. At the time of renewal of the contract, co ntract, Nakamura Nakamura would w ould have immense bargaining bargaining power.

 

 

Computation of Profitability

Since Nakamura has a profit margin of 20% along with the fact that 10% of the amount generated through sale price will be used to pay Sammelbach and Whittacker, Chicago so our Sale Price will be computed in the same manner only.

Sale Price

$ 132.22

Commission

$ 13.22

 Necessary Expenses $ 5.00  Net Sale Price

$ 114.00

Cost Price

$ 95.00

Profit

$ 19.00 (20% of Cost Price)

Pros  

Since Walter Sammelback is considerate enough to take the initiative on his own, to  pay the full cost of introductio introduction n keeping the governmental norms of Japan in consideration, Nakamura won’t have to go through the   burden of shelling the initial cash out of his own pockets, which will entail feasibility for his business operations.   Mr. Walter is not creating any obstruction in the establishment of the goodwill of ‘Chrysanthemum’ due to which  Nakamura can establish himself in the American market beside Japanese market.   Profits may not be the best generated due to the standard commission and other

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charges, but once the lacquerware enters into the production domain of economies of scale, fixed cost will freeze at certain point and any number above will just reap the  profits for Walter Sammelbach’s Sam melbach’s company and Naka Nakamura. mura.  

Cons  

Only shortcoming which company will face is, Nakamura won’t be going home with as much profits as he might have got from other potential investors.   The uncertainty whether ‘Chrysanthemum’ would be successful in alluring the customers will prevail as Americans and Japanese both come from totally different cultures; hence their taste differs. One got its roots in West and the other being Asian (East).

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So, Walter Sammelbach is a promising investor in our eyes as he lets the creation of  brand image in American market and the issue of profitability will be solved in the coming years.

 

Recommended Recommende d Decision •

  Acceptance of offer made by Mr. Walter Sammelback, Sammelback and Whittacker, Chicago offer . 

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  This offer gives flexibility by manipulating the terms and condition for his advantage.

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  This offer satisfies the most important criterion of long run in profit maximisation  

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   No brand dilution and an d he can actually compete in the US market under his brand name.  

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This will result in the increase in brand equity and brand awareness within the international market. 

  Additionally, Nakamura should have bargaining power at the time of renewal of the contract.  

Action Plan  

Mr. Nakamura should identify the potential and untapped market where they can spread their wings doing a complete research to know the needs and wants of the new market, options already available to customers present that is future competitors, coming out with  better product then the available availab le ones.

 

In the first phase, NLC would supply SSW with 300,000 pieces. 150,000 of these would  be obtained by utilizing excess capacity capacity,, while the remaining would be o obtained btained from the domestic market. If the expected demand for lacquer ware exists in the U.S., NLC would expand capacity to meet the expected demand. The debt incurred would be paid off by the fifth year.

 

Follow the values for which you are known and trying to use that popularity to gain attention of the new potential customers. marketing it properly and living up to the customers expectation in terms quality, price and dependency.

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Contingency Plan  

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Mr. Nakamura should be cautious about their old customers also. don't get focus too much on coming up with new products and knowing the likes and dislikes of new customer that the older loyal ones start feeling ignored and then move towards rival companies.

 

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In case the demand is not as expected in the first year, NLC should not service the U.S. market and instead concentrate on increasing penetration in the domestic market