Crown, Cork and Seal Case 1989
Crown, Cork and Seal Case 1989
Five Forces Analysis
Using Porter’s 5 Forces Analysis argue that given likely evolution and status of the metal industry in 1989, it is profitable to acquire all or part of Continental Can:
Internal Rivalry
Strong force
5 major competitors holding 61% (American National Can, Continental can, Reynolds Metal, Crown Cork and Seal, Ball Corporation)
Heavily compete on basis of price
Companies offering volume discounts
Industry operating margins falling – fell by 7% in 3 years to 4% in 1989. Industry profitability is therefore decreasing which increases competitor rivalry
Over capacity and shrinking customer base (i.e. customers choosing glass or plastic)
Price wars – “can manufacturers aggressively discounted to protect market share, therefore contributing to margin deterioration”
Industry analysts predict little growth potential for metal cans in 1990s
High exit barrier due to investments in specific equipment
ALSO non-price competition between can manufacturers
Many can manufacturers diversified across spectrum of rigid containers to supply all major end-use markets
Others diversified into non-packaging businesses such as energy (oil and gas) and financial services (e.g. American Can with insurance)
Continental Can broadly diversified, changing its name to Continental Group in 1986 – invested in energy exploration, research and transportation (weak profits, taken over by Peter Kiewit Sons)
As evident with both Continental Can and American National Can, “expansion into (other industries) proved a drag on company’s earnings” (p6)
Reynolds diversified into many different markets/industries. ALSO was instrumental in establishing new uses for the aluminium can (Spillover effect – “Make investment and find alternate use for product, investment spills over and has positive effect on you and your competitors”)
Reynold’s was world leader in can-making technology: high-speed can-forming machinery, faster inspection
Five Forces Analysis
Using Porter’s 5 Forces Analysis argue that given likely evolution and status of the metal industry in 1989, it is profitable to acquire all or part of Continental Can:
Internal Rivalry
Strong force
5 major competitors holding 61% (American National Can, Continental can, Reynolds Metal, Crown Cork and Seal, Ball Corporation)
Heavily compete on basis of price
Companies offering volume discounts
Industry operating margins falling – fell by 7% in 3 years to 4% in 1989. Industry profitability is therefore decreasing which increases competitor rivalry
Over capacity and shrinking customer base (i.e. customers choosing glass or plastic)
Price wars – “can manufacturers aggressively discounted to protect market share, therefore contributing to margin deterioration”
Industry analysts predict little growth potential for metal cans in 1990s
High exit barrier due to investments in specific equipment
ALSO non-price competition between can manufacturers
Many can manufacturers diversified across spectrum of rigid containers to supply all major end-use markets
Others diversified into non-packaging businesses such as energy (oil and gas) and financial services (e.g. American Can with insurance)
Continental Can broadly diversified, changing its name to Continental Group in 1986 – invested in energy exploration, research and transportation (weak profits, taken over by Peter Kiewit Sons)
As evident with both Continental Can and American National Can, “expansion into (other industries) proved a drag on company’s earnings” (p6)
Reynolds diversified into many different markets/industries. ALSO was instrumental in establishing new uses for the aluminium can (Spillover effect – “Make investment and find alternate use for product, investment spills over and has positive effect on you and your competitors”)
Reynold’s was world leader in can-making technology: high-speed can-forming machinery, faster inspection