Skil Corporation
Question 1: What is your analysis of the structure of the portable electric tool industry? Has it been structurally attractive?
Degree of Competitive forces in the Portable Electric Power Tool industry
(Structural Analysis)
Barriers to Entry: High
The major barriers to entry in this industry were found in terms of 1. Technology, 2. Capital investment, 3. Economy of scale in manufacturing, and 4. Brand reputation in specific market segments & product categories.
Barriers to Entry (Technology/Capital Investment): Per the data given in the case study (Pg 3, Para 3), typically it required 2-4 years for a team of 4-6 engineers to develop a new tool. This also needed approx. $200,000-$700,000 per year investment in R&D and $250,000-$700,000 in tooling. Therefore it can be concluded that having the right technology and resources was a huge entry barrier for new organizations.
Barriers to Entry (Economy of Scale in manufacturing): All of the major cost components in manufacturing have significant economy of scale. The cost of molding, machining and die casting depended on the volume per part; cost of motor and final assembly depended on the volume per product family [Ref Pg. 6, Para 9]. However, it is interesting to note that, no manufacturer had the technology and scale to produce all the necessary components. Even in case of typical large manufacturers, only the critical components that directly affected the performance of the product where produced in-house and rest were purchased
from specialized suppliers. The cost of purchased components was determined by the volume of purchase.
Companies also had to bear large investments in R&D to come up with new product designs and had to spend extra for creating new manufacturing setup. Reduction of average variable cost was also possible through automation in manufacturing, which required capital investments.
Barriers to Entry (Brand Reputation): In 1979, portable tools market grew by
Degree of Competitive forces in the Portable Electric Power Tool industry
(Structural Analysis)
Barriers to Entry: High
The major barriers to entry in this industry were found in terms of 1. Technology, 2. Capital investment, 3. Economy of scale in manufacturing, and 4. Brand reputation in specific market segments & product categories.
Barriers to Entry (Technology/Capital Investment): Per the data given in the case study (Pg 3, Para 3), typically it required 2-4 years for a team of 4-6 engineers to develop a new tool. This also needed approx. $200,000-$700,000 per year investment in R&D and $250,000-$700,000 in tooling. Therefore it can be concluded that having the right technology and resources was a huge entry barrier for new organizations.
Barriers to Entry (Economy of Scale in manufacturing): All of the major cost components in manufacturing have significant economy of scale. The cost of molding, machining and die casting depended on the volume per part; cost of motor and final assembly depended on the volume per product family [Ref Pg. 6, Para 9]. However, it is interesting to note that, no manufacturer had the technology and scale to produce all the necessary components. Even in case of typical large manufacturers, only the critical components that directly affected the performance of the product where produced in-house and rest were purchased
from specialized suppliers. The cost of purchased components was determined by the volume of purchase.
Companies also had to bear large investments in R&D to come up with new product designs and had to spend extra for creating new manufacturing setup. Reduction of average variable cost was also possible through automation in manufacturing, which required capital investments.
Barriers to Entry (Brand Reputation): In 1979, portable tools market grew by