Submitted to the faculty: Javed Ahmed
Submitted by: Bilqees Bano
Skil Corporation is a portable power tools manufacturer that was acquired by Emerson Electric Company in 1979. When Skil was first acquired, it had mediocre financial performance. Its main competitors in the portable power tool industry were Black & Decker, Sears, and some Japanese manufacturers. In 1979, the electric power tools were making up the majority of the portable power tool industry. 1. What is the analysis of the structure of the portable electric power tool industry? Is it structurally attractive?
Analysis of the structure of the Portable Electric Tool Industry
Industry Structure Attractiveness: Moderate / Low ROE=10%, Profit margin=4% on average
This is primarily because of High rivalry between competitors. Despite of the low threats from other factors impacting industry structure, the industry is currently witnessing heavy rivalry because of slow industry growth and high number of existing competitors.
2. How is the industry structure changing? For the better or the worst?
Changes in Industry structure in 1979
Some changes are as follow:
The Rivalry between competitors was gradually focusing on price because of continually reducing product differentiation. Companies like Makita are leading the pricing based rivalry to gain a quick market share (sometimes 20% to 30% below market price). This might impact the already low industry profitability badly if other companies follow suit and start pricing aggressively. Companies are investing heavily on automation to increase production efficiencies and volumes. Black & Decker is investing heavily on automation and computerization of processes. This would help them in reducing the cost of production and at the same time increase the quality of their products. At the same time they would aggressively target bigger market shares to break even on their investments. (Because they need large sales) A lot of integration was happening in the industry. Joint Ventures, Mergers and acquisitions were then popular words. As Emerson Electric Company acquiring Skil Corporation, Amstar acquiring Milwaukee and Robert Bosch acquiring Stanley. This is good for industry profitability as this would reduce competition and increase profiting production. Home centers were emerging as an important distribution channel clearly indicating the growth of the domestic/do-it-yourself consumer segment. The changes in industry structure in late 70s were indication of profitable and attractive future of portable electric power tool industry.
3. What is Skil competitive strategy? What is its relative position?
* Low cost strategy
* Broad differentiation strategy
* Change in product improvement
Use of battery power-- In 1960s cordless drill having nickel cadmium batteries were used but did not become commercially successful in early 1970s- Due to improvement in battery technology the sales of cordless tools growing rapidly in late 1970s
* Availability of lighter material such as Mg, aluminum, plastic * Decreased number of distribution channels
* Moved from stuck in the middle to FOCUS COST
* reduced product line
* redesigned/product families: STANDARDIZATION
* Decreased no. of plants; increased volume per plant More vol. Per model, more automation, vertical integration * Made automation flexible, more models/production line
Medium industry attractiveness
High number of competitors
Large market size
Medium competitive position
4. What strategic options does Skill have?
Strategic options for Skil Corporation are as following:
* Differentiation strategy
* Defensive strategy