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- New Entry Strategy into the U.S. Teflon Industry
Commodity MicroeconomicsCOMPANY: Mercer Management Consulting LOCATION: Washington, DC INTERVIEWEE: Will Wolf ‘97 CASE: Our client is one of three players in a commodity industry. There are six manufacturing plants operating in this industry. Two belong to our client, two each belong to the other players. One of our client’s plants is profitable, one is not. Both are operating at better than 80 percent capacity. Of the other plants in the industry, all but one are profitable. Without trying to “crack” the case -- no competitive analysis necessary -- tell me what you think our client might do to increase profitability. COMMENT: Knowing what we know about commodity industries, we should suspect that unprofitable plants means too much manufacturing capacity. We cannot control the other plants but we can control our own. I would want to study the scenario of shutting down our unprofitable plant in conjunction with skimming our most profitable customers and shifting them to the remaining plant. This should eliminate our cash sump while raising the price of the commodity (lower supply and same demand now clear at a higher price). Meanwhile we can focus on the most profitable customers and, as an added bonus, we will have a plant in mothballs as a credible threat against new entrants thinking of joining the fun at a new, higher price. New Entry Strategy into the U.S. Teflon IndustryFirm: Boston Consulting Group Round: Finals Interviewee: Todd Rief, KFBS'97 Interviewer: Michael Deimler Location: Atlanta Date: November 22, 1996 Situation Your client is a Japanese manufacturer of a fluoroplastic material that has unique and valuable characteristics in the manufacture of other metal goods. The material's properties include: heat, flame, and water retardant, chemically-resistant, non-conducting, bondable to other metallic surfaces, and extremely slippery. The material is traditionally sold downstream to the manufacturers of other metallic goods. Specifically, applications for the product, manufactured in slightly different ways, fall into three general categories: 1. Molding - The material is used as a surface to protect the underbelly of cars and space aircrafts for the automotive and aerospace industries. 2. Foaming - In a warmed state, the product "foams up" around the outside of copper wire and cable. It then hardens around the wire or cable, forming a durable, protective, outer shell. Customers of the foaming product are in the telecommunications industry. 3. Dispersing - The material is sprayed on the surface of pots and pans and other industrial metallic products to give the products a slippery, non-stick surface. Customers make metallic products of all varieties. The Japanese firm is considering re-entry into the highly profitable U.S. Teflon market. In fact, it has already committed to the construction of a manufacturing facility in Decauter, Alabama. What should the firm's basic market entry strategy be, and how should the firm best position its product? Solution What happened the first time the Japanese firm entered the U.S. market? The firm was hit with a price-dumping suit by the market leader, and after a lengthy court dispute, was forced to pay heavy penalties and withdraw from the U.S. market for 24 months. Now that that time has expired, the firm is attempting re-entry. What is the competitive landscape? The industry leader is DuPont, the originator of Teflon. They control 70% of the $600M U.S. market. There are also three smaller niche players in the market, each controlling 10%. Where are the market opportunities? The interviewee should probe for how the product differs in each of the three application areas. If he asks the right questions, here's what he will learn. The product has certain finishing and raw material variations that make it unique to each of the major application areas: molding, foaming and dispersing. Further within each major area, there are minor characteristics that differentiate the product to different customers. Upon telling the candidate this, a picture of competitor positions and market opportunities on an opportunity space map would be nice. See below. 
Market potential? Upon probing, the candidate learns that the market is subdivided as follows:
Where do the competitors reside in this picture? or, Why is the contribution higher for foaming? DuPont competes in all three markets. The three niche players compete in molding or dispersing (but not foaming). The reason is that only DuPont has perfected the science of foaming up the product, except for our client who can also do so. Therefore DuPont has a monopoly player status in this market. Here is where our client should position itself. Also, the candidate might question what the strengths and weaknesses of DuPont vs. his client are. DuPont has established relationships and brand recognition. His client has a superior manufacturing process, and product, with performance advantages. The market perceives these advantages from the last time the client was in the U.S.. The candidate would thus want to position his product as a performance leader. Discussion of cost structures? The candidate should attempt to think about how much the client can charge, and how much he will make. If he discusses cost structures, ask him to hypothesize about who might possess a cost advantage (DuPont or the client). Probably DuPont has a fixed cost edge given its established, partially depreciated plants. But might the Japanese make this product better, smarter, cheaper? Candidate could discuss variable costs: Labor (about equal between our client in Alabama and DuPont in Connecticut) Raw materials (about equal since they are commodities) Manufacturing costs (about equal since the minimum efficient scale is achieved at 10% total market share) Distribution costs (no size advantages for DuPont). Pricing? Press the candidate for how the product should be priced. Should they discount price (more share gain, but chance of getting hit with another price dumping suit, and also chance to get into a losing price war which DuPont is better able to handle), mirror price (less share gain, but less risks), or premium price (and chase the high end niche). He should arrive that a mirror strategy is probably best since you will tell them that there is no real justification for a premium price. One final note, if the candidate asks (and he should), he will learn that price discounts are always met by DuPont in its Teflon markets, so the likelihood of a price war is high if they discount price. Note..... if candidate selects discount pricing strategy, he probably missed the boat! Directory: 2012 2012 -> The Case Against the nypd’s Quota-Driven ‘Broken Windows’ Policing What Is It? 2012 -> Annual InStructional unit plan 2012 -> University of Hawai‘i Maui College dental assisting program review october 21, 2013 2012 -> Committee on the rights of the child the rights of all children in the context of international migration 2012 -> Background on the Haitian Earthquake 2012 -> The Collected Wisdom of Science Olympiad Coaches 2012 -> Federal Communications Commission fcc 12-81 Before the Federal Communications Commission 2012 -> Aa and na members Dying from Tobacco 2012 -> [Baby Crying] 01: 04 [Ching Download 0.9 Mb. Share with your friends:
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