Dutch Chemical

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R |
AXEON N.V. |
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Case Analysis |

R |
AXEON N.V. |
|
Case Analysis |

Table of Contents

Axeon N.V Overview 2
SITUATION ANALYSIS 2
ENVIRONMENTAL ANALYSIS 3
EXTERNAL SIZE UP 3
INTERNAL SIZE UP 3
ISSUE DESCRIPTION 3
SWOT ANALYSIS FOR NEW FACTORY 5
FINANCIAL ANALYSIS 6
Manufacture product in UK 6
Manufacture product in Netherlands 7
ALTERNATIVE 1: 8
Build the manufacturing plant in U.K. 8
ALTERNATIVE 2: 9
Manufacture more product in Netherland and sale it to cost to Hollandsworth 9 RECOMMENDATION 10
QUESTIONS 11
QUESTION #1 11
QUESTION #1b 11
QUESTION #1c 11
QUESTION #2 12
EXHIBITS 13

AXEON N.V.
Case Analysis

Axeon N.V Overview
Axeon N.V. is a producer of industrial chemicals with 24 manufactory sites around Europe, and headquarters in Heerlen, Netherlands. It has acquired several companies within Europe to facilitate regional market penetration.   By 1996 total sales from each subsidiary is shown in the table below.

Company Name | Location | Total Axeon’s sales (%) | Total revenues | Axeon | Netherlands | 72% | £823 MM |
Saraceno | Italy | 8% | £91 MM |
Hollandsworth | United Kingdom | 14% | £160 MM |
KAG | Sweden | 6% | £69 MM |

As determined through Axeon’s management philosophy, Axeon is a decentralized organization where the subsidiaries are empowered to make decisions on what to sell in their respective regions.

SITUATION ANALYSIS
Anton van Leuven, Managing Director of Axeon N.V., was faced with a difficult decision.   He received an investment proposal from Ian Wallingford, Managing Director of Hollandsworth, Ltd one of Axeon’s subsidiaries in Europe. The proposal was to build a new manufacturing plant in the UK to produce AR-42; a product that Axeon sells through Europe but not yet in the U.K.

ENVIRONMENTAL ANALYSIS
EXTERNAL SIZE UP
During 1998, the world was going through a global financial crisis due to the Asian markets crisis., by October, when Anton Van Leuven was determining next steps,   , the crisis had begin to subside and was starting to show some improvement after significant market declines   (the S&P 500 index lost 200 points, 16%, in July 1998). One important factor under consideration was the location of producing AR-42 for the U.K. market.   If Axeon decided to manufacture AR-42 in the Netherlands for sale in the U.K., transport and custom were estimated at 10%, which would direct impact the variable cost per ton. The Chemical industry for industrial coatings was based on a low cost, high volume strategy, which forced producers to focus on cost cutting measures.

INTERNAL SIZE UP

Axeon’s senior leadership team emphasizes a high degree of decentralization. Furthermore, Axeon has grown through inorganic growth due to the acquisitions in Europe. In addition, they let subsidiaries prepare business cases, select products to be sold, sourced, or manufactured. At times decentralization was so strong that sister companies were allowed producing products that would directly compete with Axeon’s Dutch products.

ISSUE DESCRIPTION

The issue that Anton van Leuven faces is the approval of the proposal to build a manufacturing plant in the UK to facilitate local sales of the AR-42 product.   Specifically, product and marketing business units of Axeon perceived the sales projections as optimistic.   Anton Van Leuven required further justification to proceed with the proposal.

SWOT ANALYSIS FOR NEW FACTORY

Strengths   * Local production and close to target market   * Knowledge of local market   * Proven new way to apply and store product so it would be financially attractive to customers | Weaknesses   * UK staff are inexperience with AR-42,     * The market numbers appear too   optimistic,     * Variable cost does not adequately reflect training requirements. | Opportunities   * Currently there is no AR-42 in the U.K. market This could be a revolutionary product if inserted with proper marketing and pricing strategies     * Customer trials show...
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