Man Lal relaxed in business class as the aircraft skimmed across the Uriel Mountains. Generally, he considered himself a contented man. He had successfully built his company, Ling, to be the largest light bulb manufacturing company in the world, with global revenues of $750m. From its factories in Lindisztan it supplied a worldwide market for LED (light emitting diodes) light bulbs. Lal congratulated himself on the fact that he had quickly spotted the potential of LED light bulbs and had entered large-scale production whilst his rivals were still focusing their production on candescent and halogen bulbs. The world now realized that LED light bulbs provided a cheaper, more energy efficient, greener solution than all of its alternatives. To that end, many countries had passed legislation requiring domestic and business consumers to replace candescent light bulbs with greener equivalents. In fact, he was on his way right now to Skoda, a country which had passed efficient lighting legislation which, from 2017, banned the use of candescent bulbs in commercial premises and outlawed their production and importation after that date. Domestic consumers were expected to replace their candescent bulbs with newer technology as their bulbs failed. Man Lal confidently expected that LED would be, for many, the newer technology of choice. The visit to Skoda was of great significance to Man Lal because it was here that he did his business studies degree at Scudamore University. Indeed, he was due to give a lecture to the staff and students of the university the following day and he felt great personal pride in returning to describe the extent of his success and the fulfilment of his personal ambitions. He was also planning to visit a company called Flick Which Ling was considering acquiring. This would be a new growth method for Ling. Up to now its worldwide expansion had been achieved by establishing wholly owned distribution companies in each targeted country. All production had remained in Lindisztan. However, for various reasons, Ling was now considering entering the Skoda market by acquiring one of its light bulb producers, Flick.

In fact, remembering this brought a slight frown across Man Lals face. To help fund his global expansion, he had sold 49% of Ling to institutional investors. These institutional investors required growth and high dividends and he was having difficulty meeting their demands. There was now very little growth in the domestic Lindisztan market and the distribution approach used to expand into foreign countries was taking a long time to mature. The investors were demanding quicker growth and acquisitions appeared to promise this. Despite paying high dividends over the last few years, the company still had significant retained profits and this was another issue for the institutional shareholders. They felt that this money should be used to promote growth and have agreed to a $400m acquisition fund. So, thought Man Lal, what better place to start those acquisitions than Skoda, the place where I studied as a poor overseas student so many years ago. However, he had to admit to himself, he was still much happier with organic growth through setting up his own distribution companies. Ling had made a few acquisitions in Lindisztan, but had never bought a foreign company and he was worried about the risk of failure.

Turbulence buffeted the aircraft as it made its final descent into the capital of Skoda. To distract himself, Man Lal picked up the latest copy of Lighting Tomorrow, the research magazine of the light bulb industry. He skims read an article on tubular daylight lighting which promised to reduce the need for electric lighting by introducing more daylight into a building. Effective daylighting (it said) is achieved through the strategic placement of skylights and windows, as well as lighting controls which monitor available daylight and respond as needed to decrease or increase electric lighting. Perhaps I need to look into this, thought Man Lal.

At the airport, Man Lal took a taxi to his hotel. He could not help but notice that Skoda was not as neat and tidy as it used to be. A lot of shops and buildings had been closed down and there were graffiti across many buildings and bridges. Skoda for Scudders, said one, Skoda jobs for Skoda people, said another. Man Lal remembered now that the Skoda nationalist movement had become increasingly popular. He mentioned this to the taxi driver. Yes, he said, Most people are fed up with Skoda being pushed around by the International Financing Consortium (IFC), we want prosperity and jobs for people who grew up here.

Slightly unnerved, Man Lal checked in at the hotel. He switched on the television. He watched with interest as Nikolas Perch, the newly elected nationalist leader of the Skoda government, outlined his plans for the future.

We are committed to a return to prosperity, he said. To achieve this we have to make some short-term adjustments which may be unpopular with our trading partners. We are currently considering the imposition of import taxes as a way of protecting our home industry. We wish to create a protected commercial environment here in Skoda in which our companies can prosper.

We must also ask our citizens to continue with their energy saving measures. As you know, the government has agreed that all street lighting will be turned off from 2300 hours to 0500 hours. I have also decreed that all government offices must proactively embrace energy saving lighting and heating. In the same way, I expect our citizens to look at ways of saving money and energy.

The government also recognizes that the country continues to be in a recession, and that disposable income is falling for all people. However, I cannot condone the recent demonstrations against, and boycott of, foreign goods and food products. We must rebuild our country peacefully and legally. I would ask all citizens to support me in this.

Just then, the air conditioning failed and the television went off. Another energy failure in Skoda. There were three further failures that night. The hotel manager apologized to Man Lal in the morning. I am sorry, he said but despite higher energy prices, this is an increasing feature of life in Skoda. Skoda electric light bulb industry

All electric light bulbs are largely made out of glass and metal and this is likely to remain the same in the foreseeable future. In Skoda, 90% of glass is produced by three companies. However, for all of these three companies, light bulb manufacturers are unimportant customers. Most glass manufacture goes to the construction industry; light bulb manufacturers take less than 05% of the countrys glass production. Metal manufacture in Skoda is dominated by one company, Omni Metal. Most metal is sold to the automobile industry. Light bulb manufacturers take less than 01% of Omni Metals production. However, the quality of glass and metal required by the light bulb manufacturers is quite standard, so switching between suppliers is, in theory, relatively easy. Light bulb manufacture takes place in factories which require substantial initial investment and have no obvious alternative use.

In Skoda, light bulbs are low cost commodity products which are replaced infrequently by domestic consumers. Commercial consumers change their light bulbs a little more often and some businesses have recently switched all their bulbs to LED to save energy, reduce costs in the long term and to reflect their aspirations as green businesses. There is very little brand awareness in the light bulb market and all the light bulbs have to fit the standard sockets used in the country.

Electric light bulb manufacture in Skoda is dominated by the five companies listed in Table One. Two years ago a large American light bulb manufacturer, Krystal, attempted to enter the market. The five dominant companies in the industry reacted to this by cutting prices, running marketing campaigns which emphasized the benefits to the country of home-based production and lobbying supermarket groups to not stock products produced by the new entrant. Krystal withdrew from the market after six months. When not focused on fighting new entrants, the five main competitors are regularly involved in price cutting, disruption of competitors distribution channels and aggressive marketing.

Company Revenue (2015) Revenue (2010)

Voltage $85m $80m

Lite World $80m $80m

Flick $70m $65m

ABC $65m $60m

L2L $60m $60m

Other companies $140m $145m

Total $500m $490m

The products produced by the Skoda light bulb industry are largely sold through supermarket groups (50%), household product superstores (30%) and large electrical chains (10%). The rest of the production is sold through small shops, except for a tiny percentage of production (less than 1%) which is sold directly to large organizations, such as government departments. However, light bulbs do not constitute a large sales item for any of these distribution channels. In fact, in a recent report, light bulb sales were one of the products which contributed less than 01% of a major supermarkets revenue.

The light bulb companies in Skoda have largely focused on candescent (60% of production) and halogen (30% of production) technologies. Man Lal intends to fund the updating of the production facilities at Flick to allow the production of LED lights, alongside the continued production of candescent and halogen light bulbs. He wants to achieve this before domestic competitors in Skoda gear up their own LED light bulb production. He believes that Lings competencies in LED manufacture will give Flick a head start. Initial discussions with Flick suggest that the company is open to acquisition and a bid price has been agreed which is acceptable to both parties.

Required:

(a) Analyze the macro-environmental factors affecting the Skoda light bulb industry using a PESTEL framework. Your analysis should reflect the fact that Ling might enter this industry directly by setting up a distribution company for its products or through the acquisition of Flick.

(b) Assess the attractiveness of the Skoda light bulb industry using Porters Five Forces framework.

(c) Use Swot analysis where necessary to identify internal and external capabilities or any deficiencies that the Skoda light bulb industry might experience. Include in your analysis the possibility of Ling might acquire Flick.