Question 1

Acme Vision currently sells one product, and has another under development:

InfraBin. Infrared assisted binoculars with automatic focusing. This has been a market leader in the UK for 10 years and has the highest market share. It was launched in Japan three years ago.

Twitcher. This is a version of the InfraBin specifically designed for bird watching, which has been under development for three years; the plan is to launch it in the UK, Japan and the US two years from now.

Acme has invested $45 million in Japan, mainly in plant and equipment, and it incurred losses amounting to $5 million in the first two years of operation. The InfraBin has now moved into profit, but there is uncertainty among the board as to whether it will ever generate an acceptable return on the investment, and this raises the question of what the prospects for the Twitcher are likely to be.

The rationale for expanding into Japan was that the UK market had stopped growing, while the Japanese market was much larger, and it was growing fast. The market development for the InfraBin has been rapid, to a point where Japanese sales are now very close to UK sales, but the Japanese market is fragmented, and Acme Vision finds itself with a much lower market share than it anticipated. It is competing against many binocular makers which keep introducing new product features that consumers really seem to like. Acme Vision has not attempted to copy these or to introduce new features of its own. In Japan there is currently around 30% excess production capacity, which contributes to the higher unit cost. This would certainly come down if sales could be increased. When making the decision to enter the Japanese market, the board decided not to export to there but felt that acting local would enable more effective penetration of the market and lower costs, given the relatively high labour productivity in that country. However, Acmes UK managers have had difficulty with the accepted codes of labour practice in Japan.

Required:

1) Using the process model, comment on the business conditions in the UK and Japan, and the performance of each national operation, and assess whether there are prospects for the InfraBin in Japan to make the same return on investment as in the UK. Comment briefly on the prospects for the Twitcher and its potential contribution to Acme.

2) What action would you suggest Acme Vision should take to generate value for the company as a whole in the short and long run?