American Connector Company Case

Topics: Cost, ACC, Costs Pages: 4 (1299 words) Published: October 3, 2008
American Connector Company Case
Severity of Threat by DJC
The American Connector Company (ACC) should be extremely concerned with the im-pending entrance of DJC to the US landscape. Any new entrant will most likely be of the mentality to try and take as much market share as quickly as possible. This course of action usually involves a period of time when the new company will plan on operating at a loss, and will thereby be will-ing to price below market average with small margins. Realization of this threat would immedi-ately disrupt ACC’s pricing strategy and could affect long term profitability. The threat of lower prices is compounded by the intensity of the current competitive mar-ket. ACC should be concerned with any new competitor, but specifically the operational excellence that (discussed later in this case) DJC has demonstrated could greatly affect ACC’s competitive-ness in the market. When and if DJC or any other competitor enters the marketplace, ACC will have a limited amount of time to evaluate its next course of action; disregarding the arrival of a formidable competitor like DJC will prove to be a foolish decision. Cost Differences between DJC/Kawasaki and ACC/Sunnyvale

While they are currently operating in different markets, DJC has a significantly lower cost per thousand units than American Connector Company, by about 23%. Breaking this down further, $0.99, or 8% of ACC’s cost differential comes from volume differences. DJC produces 700 million units per year, as compared to ACC’s 420 million units. Operational inefficiency contributes to $3.93, or 33% of the cost differential. The remaining portion of cost is $7.09, or 59%, contributed by the strategic position of product customization offered by ACC. In terms of actual effects, the sluggish demand in the U.S. causes a drop in volume and would affect depreciation of capital. As fewer units are produced per machine in the U.S. environ-ment, the cost of the machines and depreciation is spread...
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