Master of Science in Finance
Final Assignment June 2011
The Timken Company
Student : Nguyen Hoang Ngoc Anh
Professor: Dr. John Heptonstall
Subject: Strategy and Financial
I. The bearing industry
Bearings industry of various sizes and specifications found their way into everything from space shuttles to household appliances, automobiles, dentist drills, roller skates, and computer disk drives. The bearing industry was facing a variety of complex problems. Policies favoring the steel industry were not always in the best interest of the bearing industry, which, as manufacturers of secondary steel products, was in the middle of the production chain. Because bearings were essential components of military and civilian machinery and equipment, the federal government had historically been a major customer.
By following the life Cycle we have the stages of the industry in U.S which Timken operates:
Start-up : Before 1990 , with increasing competition from Europe and Japan, the industry started a new segment .
Fast growth : between the stage 1990 to 1998 , Shipments of ball and roller bearings grew steadily and peaking in 1998 at more than $5.8 billion .1999 and 2000, the value of shipments remained relatively strong
Moderate growth: in 2001 ,the industry faced economic recession, decreased automotive demand, and the terrorist attacks on September 11, 2001. the value of shipments dropped dramatically , sinking to $5.3 billion, the lowest since 1995. There had been moderate growth in the sector in 2002, led by automotive production, which had risen 5% owing to sales incentives, including 0% financing .
Plateau and Decline : the bearings-industry demand was expected to soften as automotive demand had begun to decrease in late 2002 and was generally expected to remain flat for 2003. Thus, the bearings industry appeared to be in a cyclical trough from which many analysts predicted a more widespread recovery in 2003 of about 2% to 3% growth.
Bearings worldwide were doing significantly better. Orders had increased globally and were forecasted to grow 6.5% a year through 2005, to $42 billion. With supply levels remaining high worldwide, prices overall were stable and not expected to rise in 2003.
To more understand about this industry, we can use “PORTER FORCES model”
The threat of the entry of new competitors (Porter five forces analysis ),Profitable markets of this industry that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. A clearly evidence , the foreign competitors had taken business away from U.S. companies owing to their ability to sell bearings of equal quality at lower prices .
Moreover, The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit bers are low. Few new firms can enter and non-performing firms can exit easily. As bearings from China came into the United States, selling at below-market prices, the federal government had levied antidumping duties of up to 59.3%. Antidumping payments to Timken amounted to $50 million in 2002 ($30 million in 2001).
In addition, The bargaining power of suppliers manifested in the major industry players included Timken, SKF, and NSK, Ltd. Sweden-based Aktiebolegat SKF controlled 20% of the world market in bearings, which was more than twice the market share held by its closest competitors .This group of companies all emphasising quality and service may make the market less price-sensitive and decreasing the danger of anti-trust legislation.
The bargaining power of customers (buyers): There was many suppliers such as Timken, SKF, and NSK, Ltd. Sweden-based Aktiebolegat SKF , the buyers could make choice the appropriate...