Task: View this topic

Aspects to be addressed briefly by you for doing your 1-page Report on this Case 6 "Duncan Industries":

- laying out their present distribution & sales network

- computing DI's revenue streams in their marketing channels

- perusing the suggested growth strategies

- gauging the viability of their USA market-penetration strategy

- gauging the viabilities of their EU market-development strategies

Duncan Industries Market Opportunities in the European Union In Septenher 2000, Mark Duncin, President of Duncan Industrics, had just tuished reading a feasibility repoet on entering the Eurppean macket in 2001. Duncan Lndustrics manufactured surdect automotive holsts, a product used by gacages, service stitions, and other repair shops to lift cars for servicing? :The report, peepared by the conspany's madketing manager, Picrec Gagron, oudlined the opportunutles in the European Daion and the entry options availabe. Mark was not sure if his company was ready foc this move. While the company had been successful in expanding sales into the U.S. matket, he wondered if this success could be repeated in Europe. He thought that, with mose ctrort, sates could be increased in the Untted States. On the other hand, there were some positive aspects to the European idea. He began reviewing the information ia preparation for the meeting the following day with Fierre. Approximately 49,000 hoists were sold ench year in North America. Hoists were typi. cally purchased by any automotive outlet that serviced or repaired oxrs, inciuding new-car dealers, used-car dealers, specialty shops (c.b., mfler repair, tratismission repair, wheel alignacar), chains (e.g., Firestone, Goodyear, Ganadian Tire), and independent garages. It was estimated that new-car dealers purchased 30 percent of all units sold in a given year in general, the spectalty shops focused on otie type of repair, such as mufflers or rust proofing, while "not-specialiy" outlets thandled a varicty of repairs. While there was some crossover, in general Duncan Industries competed in the specialry shop segment and, in partieular, those shops that dealt with whecl alignment. This included chains such as Firestone and Canadiun Tire as well as new-car deaiers (c.g., Ford) that devore a certain percentage of their lifts to the wheel align ment business and independent garases that specialized in wheel aligument. The purpose of a hoist wus to lift an automebile into a position wlierc a mbechanic or service person could easily work on the car. The industry was domhared by two lange U.S firms, AHV Liles and Berne Manufucturing, who together held approximately 60 percent of the market. AHV Eifts, the largest fim with approximatily 40 percent of the market and annual sales of about $60 millon, offered a complete line of hoists (that is, inground, surfitce) but focused primarily on the in-ground market and the two-post suuface market. AHV 1ifts was the only company that had its own direct salesforce; all other companies used (1) only wholesalers or (2) a combination of wholesalers and company stilesforce ArV Lifis - offered standard hoists with few extra features and competed primarity on price Berne Manufacturing, with a market share of approximately 20 percent, also competed in the in-ground and two post suifice markets. It used a combination of wholesalers and company silespeople tund, like AHV Lifts, competed primarily on price. Most of the remaining firms in the industry were companies that operared in a regional market (c.g.s. California, British Columbia) and/or that offered a limited product line (c.g., four-post surface loolst). Duncan lidustrics had two competitors that manufactured scissor lifts. AEV lift marketed a scissor hoiss that had a diliterent lifting mechanism and did not inctude. the safety locking features of the Duncan lift. On 2verige, the AHV scissor lift wris sold for about 20 percent lens bhan the Duncan Let The second competitor, Mete L.ift, was a staall regtonil company with sales in Califomia and Oregon. It had a design thas was very similar to the Duncan Lift but lncked some of its safety features. The Mete Lift, regarded as a well matnufactured product, sold for about 5 pereent less than the Duncan Lift. Mark, a design engineer, had worked for eight years for the Canadian subsidiary of' an U.S. dutomotive holst manufuctures. Ducing those years, he had spent considerable time designing an alvove-ground (or surfice) automotive hoist. Although he was very enthusiastic about the unique aspects of the hoist, including a scissor lift and wheel alignment pads, senior management expressed no interest in the idei. In 1990, Mask left the company to starr his own business with the express purpose of designing and manu'acturing the hoist. He left with the good wishes of his previous employer, who had no objections to Mark's plans to start a new business. Over the next three years, Mark obtained fintuncing from a venture capital firm, opened a plant in lachine, Quebec, and began manufucturing and marketing the hoist, called the Duncan Lit, The Duncan Lift developed a reputition in the industry as the "Mercedes" of hoists; the unit was judged by maty as superior to competitive offerings because of its design. the quality of the workmanship, the safety features, the ease of installition, and the fiveyeak: watranty, Mart held tour patents on the Duncan Liff, including the lifting, mechaunism on the scisoor desien and the safery locking mechanixm. A number of versions of the product were designed tht made the Duncan lift silitabie (depending on the modeD for: a varicty of tasks, inchding rustproofing, muffier repairs, thd general mechandicul repours. In 1991, Duncan Industries sold 23 hoists and hatd sales of $172,500. During the early years, the majority of soles were to independeat service stations and garabes specialiaing in wheel alignment in the Quebec and Ontario market, Most of the units were sold by Piere, who was hired in 1992 to bandle the marketiug side of the operation. In 1994, Pitre besen using distrlbutors to sell the hoist co a wider geographic market in Canda. In 1996, he signed an agreement with a large automotive wholesuler to represent Duncan Industrles in the U.S. malket. By 1999, the company had sold 1,05d hoists and had sales of $9,708,000 (Exhibit 2). In 1999, about 60 percent of s.les were to the United Stutes with the remaining 40 percent to the Canadian market. EXHIBI T 2 Duncan Industries-Selected Financial Statistics (1997-1999) thandese, and thete salcs support staff (\$229,000). Swures Company secions. ERNC STRATCGY As of early 2000, Duncion Fhutustries had developed a reputation for a quality produce backed by good seryloe in the hoise lift marker, primarily in the wheel aligument scgment. The distribution sjstem eniployed by Dunctu Industries reflected the neod to engige in cxcoisive personal selling. Three types of distributors were used: a company szales force, Cantcian distributors, and a U.S. autnotive wholesaler. The company sales force consisted of four salespoople and Pierre. Their main tisk wis to service karge "direct" accounts. The initial step was to get the Duncan Lift approved by large chains and manufacturers, and then, having received the approval, to sell to individual dezlers or operators. For exarmple, if General Motors approved the hoist, then Duncan lndestries could sell it to individual General Motors dealers. Duncan Industries sold directly to the individual dealers of a number of large accounts including Genenal Motors, Ford, Clarysler, Petro-Cannda, Firestonc, and Groodyear. Duncan Industries had been success ful in obtaining manufacturer approval from the big three automobile manufacturers in both Canada and the United Statea. As welI, Duncan Industries hod also received approval from service compaties such as Canadian 'Tire and Goodyear. To date, Duncan Industries had not been rejected by any major account; however, in some cases, the approval process had taken more than four years. In sotal, the company sades force gencrated about 25 percent of the tuit sales each year, Sales to the large "direct" accuunts in the United States went through Duncan lndustries' U.S. whoiestler. The Canadian distributors sold, installed, and serviced units across Canda. Thest distributors handled the Duncan Lilt and carried a line of noncompetitive automotivex equipment products (fot example, engine diagnostic equipment, wheel balancing equipment and noncompetitive lifts. These distributors focused on the smaller chalns and the independent service stations and garages. The U.S. wholesaler sold a complete peoduct line to service stations as well as manufacturing some equipment. The Duncan Lift was one of five different types of lifts that the wholesaler sold, Although the wholesiler provided Duncin lndustrits with extensive distribution in the United States, the Duncan Lft was a minor product within the wholesaler's total tine. While Pierre did not have any actual figures, be thought that the Duncsa Lift probably accounted for less than 20 percent of the total: lift sales of the U.S. wholesaler. Both Mark and Pieree felt that the L1,\$. market had unrealized potentidl. With populztion of 264 million peopte and more than 146 million registered schicies, the U.S, market was almost 10 times the size of the Canadian market (population of 30 million, approxinately 14 million vehicles). Pierre noted that the six New England states (population over 13 million); the three largest mid-Atlatitic seates (population over 38mllion ), and the flure largest mid-Eastern states (population over 32 millicei) were all within a dar's drive of the factory in Lachine. Mark and Pierre had considered setting up a sales office in New York to service these states, but they were concernot. that the U.S. wholesaler would not be willing to relinquish any of its territory. They had also considered working more closcly with the wholesaler to encourage it to "push" the Duncan Lift. It appeared that the wholesaler's major objective was to sell is hoist, not necessarily the Duncan Lift. Duncan Industries diseributed a catalogue-type package with products, uses, prices, and other roqutired information for both distribucors and users. In addison. Duncan Industries advertised in trade publications (for example, Arstolnc.) and Pienre? traveled to trade shows in Canada and the United States to promote the Duncan lift In 1999, Duncan Eifts sold for an average retai] price of $10,990 and Durcan lndus tries received, on avemge, $9,210 for each thit sold. This average reflected the mix of sales through the three distribution charnels: (1) direct (where Duncan Industriep received 100 percent of the sellits price), (2) Canadian distributors (where Duricnt Industries reccived 80 percent of the seling price), and (3) the U,S, wholesaler (whert Duncar lndustries received 78 percent of the selling price). Both Mirk and Pierre believed that the compary's success to date was based on strategy of offering a superior pruduct that was primarily targeted to the needs of spe cific customers. The strategy stressed continual product inprovements, quality wurl s. manship, and service. Personal selling was a key aspect of the stategy; salespeople could show customers the benefits of the Duncan Lift over competing products. Against this bockground, Mark had heen thinking of ways to continue the rapid growth of the company. One possibilty that kept coming up was the promise and potential of the European market. The fact that Europe became a single market in 1993 suggested that it was an.opportunity that should at least be explored, With this in mind, Mark asked Pierre to prepare a report on the possibility of Duncan Industrics enteriog the European market. The hightights of Pierre's report follow. Hastory of the Eurypean lindon The European Uaion (EU) had its busis formed from the 1997 Tretty of Rome," in which five countries decided it would be in their best interests to form an intemal market. These countries were Fraace, Spain, Italy, Germany, and Laxxembourg. By 1990, the ED) consisted of 15 countries (the additional ten were Austria, Delgium, Denmark, Finland, Greece, Lreland, the Netheriands, Poetugal, Sweden, and the United Kingdom) with a population of more than 376 milion people. Virtually alt barriers (physical, technical, and fiscal) in the European Community were scheduled to be removed for companies located within the EU. This allowed the free movement of goods, persons, services, und capital. In the last 15 years, many North-American and Japanese Arms had established themselves in the EU. The reasoning for this was twofold. Firsc, these companies regarded the community as an opportunity to increase global raarket share and profits. The market was atractive because of ths sheer size and lack of internal barricrs. Second, there was continung concem that companies not established within the EU would have difficulty exporting to the EU oue to changing standards and tariffs. To date, this concem has not materialized. Marthet Potemtiol. The key indicator of the potential murket for the Duncan Lift hoist wras the number of passenger cars and commerclal vehicles in use in a particular cotntry. Four countries in Europe had more than 20 million rehicles ia usc, with Germany having the largest domestic fleet of 44 millon vehicles followed in onder by Italy. France, and the United Kligdom.' The number of vehicles was an important indicator, since the more vehicles in use meant a grenter tumber of servlce and repair fucilitics that needed vehicle hoists-potentially the Dution lift. An indicator of the future veludie repair and service market was the number of new-vehicle registrutions. The registation of new vehicles was lmportant as this main tained the number of vehicles in use by replacing cars that had been retired Aggin, Germany had the most new cars registered in 1997 atd was followed in oeder by France, the United Kingdom, and Italy. Based primarily on the fact that a brge domestic market was important for inital growth, the selcetion of a European country should be linuited to the "Big Four" indus. trialized nations: Germans, France, the United Kingdom, or Inaly. In an international survey, companies from North America and Europe ranked European countries on a scak of 1 to 100 on market potential and investment-site porential. The results showed that Germany was fivored for both market potential and investment site opportunities, while France, the United Kingdom, and Spain placed second, third, and fourth respectively. Laly did not place in the top four in either market or iwestment-site potential, Howevee, Itaty had a large number of vebicles in use, had the fourth liuggest population in Europe, and was an acknowledged leader in car technology and production. Iittle information was avallable on the competition within Europe. There was, as yet, no dominant nanufacturer as was the case in North America. At this time, there was one firm in Germany that manufactured a scissortype lift. The firm sold most of its units within the Germatr market. The only other avaidable information was that 22 firms in Italy manufictured vehicle lifts. Investanent Options Pierre felt that Duncas lndustries had turee options for expansion into the European market: licensing joint venture, or direct investment. The licensing option was a fea] possibility, as a French firm had expressed an interest in manufucturing the Duncan Lift In June 2000, Picrre had attended a tride show in Detrokt to promore the Duncan Lift. At the show he met Phillipe Beaupre, the marketing mandger for Bar Maisse, a Fuctench manutacturer of wheel alignment equipoent. The firm, locited in Cheiles, France, sold a range of wheel alignment equlpment throughout Eusope. The best-selling product was an electronic modular aligner that enabled a mechanic to use a sophistiched computer sy stem to align the wheels of a cat. Phillipe was seeking a North American distributor for the modular aligner and other products mnnufactured by Bar Maisse. At the show, Pierre and Philipe had a casual conversation where both expiained what their respective companies manufactured; they exchanged company brochures and business cards, and both went on to other exhibits. The next day, Phillipe sought out Pierre and asked if he might be interested in having Bar Maisse manuficture and market the Duncen Lift in Durope. Phillipe felt the tift would complemeat Bar Muisse's product line and the licensing would be of mutual benefit to both partles. They agreed to pursue the idea. Upon his return to Lachine, Pierre told Martk about these discussions and they agreed to explore this possibility. Pierre called a aumber of colleagues in the industry and asked then what they knew about Bar Maisse. About half had not heard of the company but those who had commented favorably on the quality of its products. One colleague, with European experience, knew the company well and sald that Bar Maisse's maniogement bad integrity and would make a good partner. In July, Piecre sent a letter to Phillipe stating that Duncan Industries was interested in further discussions; he enclosed various eonpany brochures including price lists and techrical information on the Duncan Lift. In - Late August, Phillipe responded, stating that Bar Maissc would like to entet a chreeyear licensing agreement with Dunean lndastries to manutacture the Duncan Lift in Europe. In exchange for the manufacturing rights, Bar Maisse was prepared to pay a royalty rate of 5 percent of gross sales. Piesre bad not yet responded to this proposale. A socond poesibity was a point verture. Pierre had wondered if it might not be better for Duncan industries to offer a counter proposal to Bar Muisse for a joint venture. He had not wodked out any details, but Piesre felt that Duncan Industries would kearn more about the Europenn market and probably make more money if they were an active parther in Europe. Pierre's idea was o. 50-50 proposal where the two parties shared the: investment tad the prodits. He exvisaged a situalion where Bar Maisse would manulatture the Dhancin Lift in its plant with technicat assistance from Duncan ludustrics. Pierre also thought that Duncan lndustries could get inolved in the marketing of the lift through the Bar Miisse distribution syster. Further, he thought that the Duncan Lif, with proper marketing, could gadn a reasonable share of the European marke. If that taappened, Pierre felt that Durcan Industrics was tikely to make greater returns with a joinc venture. The third option was direct investment, where Duncan tndustries would establish a manuficiuring fucility and set up a miusugement group to narket the lit Pierre had cuocacted a business nequaintence who bad recently been involped in twumuficruring fubrieated stect sheds in Germany. On the basis of discussions with his acquaintance, he estimated the coss involved in setting up a plant in Europe at (1) $250,000 tor capital equipurem (weiding machines crnes, other equipmeno: (2) $200,000 in inceemental costs to set up the plant, and (3) carrying costs to cover $1,000,000 in inventory and accounts recelvible. While the actual costs of renting a buisding for the fuctory wauld depend on the site locitlon, he estimated that mutual buidding rent inctuding heat, light, and insurance would be ubout $80,000, Pierre recognized that these estimates where suidelines, but he felt that the estimates were peobably within 20 percent of actual costs. Duncan Industries Market Opportunities in the European Union In Septenher 2000, Mark Duncin, President of Duncan Industrics, had just tuished reading a feasibility repoet on entering the Eurppean macket in 2001. Duncan Lndustrics manufactured surdect automotive holsts, a product used by gacages, service stitions, and other repair shops to lift cars for servicing? :The report, peepared by the conspany's madketing manager, Picrec Gagron, oudlined the opportunutles in the European Daion and the entry options availabe. Mark was not sure if his company was ready foc this move. While the company had been successful in expanding sales into the U.S. matket, he wondered if this success could be repeated in Europe. He thought that, with mose ctrort, sates could be increased in the Untted States. On the other hand, there were some positive aspects to the European idea. He began reviewing the information ia preparation for the meeting the following day with Fierre. Approximately 49,000 hoists were sold ench year in North America. Hoists were typi. cally purchased by any automotive outlet that serviced or repaired oxrs, inciuding new-car dealers, used-car dealers, specialty shops (c.b., mfler repair, tratismission repair, wheel alignacar), chains (e.g., Firestone, Goodyear, Ganadian Tire), and independent garages. It was estimated that new-car dealers purchased 30 percent of all units sold in a given year in general, the spectalty shops focused on otie type of repair, such as mufflers or rust proofing, while "not-specialiy" outlets thandled a varicty of repairs. While there was some crossover, in general Duncan Industries competed in the specialry shop segment and, in partieular, those shops that dealt with whecl alignment. This included chains such as Firestone and Canadiun Tire as well as new-car deaiers (c.g., Ford) that devore a certain percentage of their lifts to the wheel align ment business and independent garases that specialized in wheel aligument. The purpose of a hoist wus to lift an automebile into a position wlierc a mbechanic or service person could easily work on the car. The industry was domhared by two lange U.S firms, AHV Liles and Berne Manufucturing, who together held approximately 60 percent of the market. AHV Eifts, the largest fim with approximatily 40 percent of the market and annual sales of about $60 millon, offered a complete line of hoists (that is, inground, surfitce) but focused primarily on the in-ground market and the two-post suuface market. AHV 1ifts was the only company that had its own direct salesforce; all other companies used (1) only wholesalers or (2) a combination of wholesalers and company stilesforce ArV Lifis - offered standard hoists with few extra features and competed primarity on price Berne Manufacturing, with a market share of approximately 20 percent, also competed in the in-ground and two post suifice markets. It used a combination of wholesalers and company silespeople tund, like AHV Lifts, competed primarily on price. Most of the remaining firms in the industry were companies that operared in a regional market (c.g.s. California, British Columbia) and/or that offered a limited product line (c.g., four-post surface loolst). Duncan lidustrics had two competitors that manufactured scissor lifts. AEV lift marketed a scissor hoiss that had a diliterent lifting mechanism and did not inctude. the safety locking features of the Duncan lift. On 2verige, the AHV scissor lift wris sold for about 20 percent lens bhan the Duncan Let The second competitor, Mete L.ift, was a staall regtonil company with sales in Califomia and Oregon. It had a design thas was very similar to the Duncan Lift but lncked some of its safety features. The Mete Lift, regarded as a well matnufactured product, sold for about 5 pereent less than the Duncan Lift. Mark, a design engineer, had worked for eight years for the Canadian subsidiary of' an U.S. dutomotive holst manufuctures. Ducing those years, he had spent considerable time designing an alvove-ground (or surfice) automotive hoist. Although he was very enthusiastic about the unique aspects of the hoist, including a scissor lift and wheel alignment pads, senior management expressed no interest in the idei. In 1990, Mask left the company to starr his own business with the express purpose of designing and manu'acturing the hoist. He left with the good wishes of his previous employer, who had no objections to Mark's plans to start a new business. Over the next three years, Mark obtained fintuncing from a venture capital firm, opened a plant in lachine, Quebec, and began manufucturing and marketing the hoist, called the Duncan Lit, The Duncan Lift developed a reputition in the industry as the "Mercedes" of hoists; the unit was judged by maty as superior to competitive offerings because of its design. the quality of the workmanship, the safety features, the ease of installition, and the fiveyeak: watranty, Mart held tour patents on the Duncan Liff, including the lifting, mechaunism on the scisoor desien and the safery locking mechanixm. A number of versions of the product were designed tht made the Duncan lift silitabie (depending on the modeD for: a varicty of tasks, inchding rustproofing, muffier repairs, thd general mechandicul repours. In 1991, Duncan Industries sold 23 hoists and hatd sales of $172,500. During the early years, the majority of soles were to independeat service stations and garabes specialiaing in wheel alignment in the Quebec and Ontario market, Most of the units were sold by Piere, who was hired in 1992 to bandle the marketiug side of the operation. In 1994, Pitre besen using distrlbutors to sell the hoist co a wider geographic market in Canda. In 1996, he signed an agreement with a large automotive wholesuler to represent Duncan Industrles in the U.S. malket. By 1999, the company had sold 1,05d hoists and had sales of $9,708,000 (Exhibit 2). In 1999, about 60 percent of s.les were to the United Stutes with the remaining 40 percent to the Canadian market. EXHIBI T 2 Duncan Industries-Selected Financial Statistics (1997-1999) thandese, and thete salcs support staff (\$229,000). Swures Company secions. ERNC STRATCGY As of early 2000, Duncion Fhutustries had developed a reputation for a quality produce backed by good seryloe in the hoise lift marker, primarily in the wheel aligument scgment. The distribution sjstem eniployed by Dunctu Industries reflected the neod to engige in cxcoisive personal selling. Three types of distributors were used: a company szales force, Cantcian distributors, and a U.S. autnotive wholesaler. The company sales force consisted of four salespoople and Pierre. Their main tisk wis to service karge "direct" accounts. The initial step was to get the Duncan Lift approved by large chains and manufacturers, and then, having received the approval, to sell to individual dezlers or operators. For exarmple, if General Motors approved the hoist, then Duncan lndestries could sell it to individual General Motors dealers. Duncan Industries sold directly to the individual dealers of a number of large accounts including Genenal Motors, Ford, Clarysler, Petro-Cannda, Firestonc, and Groodyear. Duncan Industries had been success ful in obtaining manufacturer approval from the big three automobile manufacturers in both Canada and the United Statea. As welI, Duncan Industries hod also received approval from service compaties such as Canadian 'Tire and Goodyear. To date, Duncan Industries had not been rejected by any major account; however, in some cases, the approval process had taken more than four years. In sotal, the company sades force gencrated about 25 percent of the tuit sales each year, Sales to the large "direct" accuunts in the United States went through Duncan lndustries' U.S. whoiestler. The Canadian distributors sold, installed, and serviced units across Canda. Thest distributors handled the Duncan Lilt and carried a line of noncompetitive automotivex equipment products (fot example, engine diagnostic equipment, wheel balancing equipment and noncompetitive lifts. These distributors focused on the smaller chalns and the independent service stations and garages. The U.S. wholesaler sold a complete peoduct line to service stations as well as manufacturing some equipment. The Duncan Lift was one of five different types of lifts that the wholesaler sold, Although the wholesiler provided Duncin lndustrits with extensive distribution in the United States, the Duncan Lft was a minor product within the wholesaler's total tine. While Pierre did not have any actual figures, be thought that the Duncsa Lift probably accounted for less than 20 percent of the total: lift sales of the U.S. wholesaler. Both Mark and Pieree felt that the L1,\$. market had unrealized potentidl. With populztion of 264 million peopte and more than 146 million registered schicies, the U.S, market was almost 10 times the size of the Canadian market (population of 30 million, approxinately 14 million vehicles). Pierre noted that the six New England states (population over 13 million); the three largest mid-Atlatitic seates (population over 38mllion ), and the flure largest mid-Eastern states (population over 32 millicei) were all within a dar's drive of the factory in Lachine. Mark and Pierre had considered setting up a sales office in New York to service these states, but they were concernot. that the U.S. wholesaler would not be willing to relinquish any of its territory. They had also considered working more closcly with the wholesaler to encourage it to "push" the Duncan Lift. It appeared that the wholesaler's major objective was to sell is hoist, not necessarily the Duncan Lift. Duncan Industries diseributed a catalogue-type package with products, uses, prices, and other roqutired information for both distribucors and users. In addison. Duncan Industries advertised in trade publications (for example, Arstolnc.) and Pienre? traveled to trade shows in Canada and the United States to promote the Duncan lift In 1999, Duncan Eifts sold for an average retai] price of $10,990 and Durcan lndus tries received, on avemge, $9,210 for each thit sold. This average reflected the mix of sales through the three distribution charnels: (1) direct (where Duncan Industriep received 100 percent of the sellits price), (2) Canadian distributors (where Duricnt Industries reccived 80 percent of the seling price), and (3) the U,S, wholesaler (whert Duncar lndustries received 78 percent of the selling price). Both Mirk and Pierre believed that the compary's success to date was based on strategy of offering a superior pruduct that was primarily targeted to the needs of spe cific customers. The strategy stressed continual product inprovements, quality wurl s. manship, and service. Personal selling was a key aspect of the stategy; salespeople could show customers the benefits of the Duncan Lift over competing products. Against this bockground, Mark had heen thinking of ways to continue the rapid growth of the company. One possibilty that kept coming up was the promise and potential of the European market. The fact that Europe became a single market in 1993 suggested that it was an.opportunity that should at least be explored, With this in mind, Mark asked Pierre to prepare a report on the possibility of Duncan Industrics enteriog the European market. The hightights of Pierre's report follow. Hastory of the Eurypean lindon The European Uaion (EU) had its busis formed from the 1997 Tretty of Rome," in which five countries decided it would be in their best interests to form an intemal market. These countries were Fraace, Spain, Italy, Germany, and Laxxembourg. By 1990, the ED) consisted of 15 countries (the additional ten were Austria, Delgium, Denmark, Finland, Greece, Lreland, the Netheriands, Poetugal, Sweden, and the United Kingdom) with a population of more than 376 milion people. Virtually alt barriers (physical, technical, and fiscal) in the European Community were scheduled to be removed for companies located within the EU. This allowed the free movement of goods, persons, services, und capital. In the last 15 years, many North-American and Japanese Arms had established themselves in the EU. The reasoning for this was twofold. Firsc, these companies regarded the community as an opportunity to increase global raarket share and profits. The market was atractive because of ths sheer size and lack of internal barricrs. Second, there was continung concem that companies not established within the EU would have difficulty exporting to the EU oue to changing standards and tariffs. To date, this concem has not materialized. Marthet Potemtiol. The key indicator of the potential murket for the Duncan Lift hoist wras the number of passenger cars and commerclal vehicles in use in a particular cotntry. Four countries in Europe had more than 20 million rehicles ia usc, with Germany having the largest domestic fleet of 44 millon vehicles followed in onder by Italy. France, and the United Kligdom.' The number of vehicles was an important indicator, since the more vehicles in use meant a grenter tumber of servlce and repair fucilitics that needed vehicle hoists-potentially the Dution lift. An indicator of the future veludie repair and service market was the number of new-vehicle registrutions. The registation of new vehicles was lmportant as this main tained the number of vehicles in use by replacing cars that had been retired Aggin, Germany had the most new cars registered in 1997 atd was followed in oeder by France, the United Kingdom, and Italy. Based primarily on the fact that a brge domestic market was important for inital growth, the selcetion of a European country should be linuited to the "Big Four" indus. trialized nations: Germans, France, the United Kingdom, or Inaly. In an international survey, companies from North America and Europe ranked European countries on a scak of 1 to 100 on market potential and investment-site porential. The results showed that Germany was fivored for both market potential and investment site opportunities, while France, the United Kingdom, and Spain placed second, third, and fourth respectively. Laly did not place in the top four in either market or iwestment-site potential, Howevee, Itaty had a large number of vebicles in use, had the fourth liuggest population in Europe, and was an acknowledged leader in car technology and production. Iittle information was avallable on the competition within Europe. There was, as yet, no dominant nanufacturer as was the case in North America. At this time, there was one firm in Germany that manufactured a scissortype lift. The firm sold most of its units within the Germatr market. The only other avaidable information was that 22 firms in Italy manufictured vehicle lifts. Investanent Options Pierre felt that Duncas lndustries had turee options for expansion into the European market: licensing joint venture, or direct investment. The licensing option was a fea] possibility, as a French firm had expressed an interest in manufucturing the Duncan Lift In June 2000, Picrre had attended a tride show in Detrokt to promore the Duncan Lift. At the show he met Phillipe Beaupre, the marketing mandger for Bar Maisse, a Fuctench manutacturer of wheel alignment equipoent. The firm, locited in Cheiles, France, sold a range of wheel alignment equlpment throughout Eusope. The best-selling product was an electronic modular aligner that enabled a mechanic to use a sophistiched computer sy stem to align the wheels of a cat. Phillipe was seeking a North American distributor for the modular aligner and other products mnnufactured by Bar Maisse. At the show, Pierre and Philipe had a casual conversation where both expiained what their respective companies manufactured; they exchanged company brochures and business cards, and both went on to other exhibits. The next day, Phillipe sought out Pierre and asked if he might be interested in having Bar Maisse manuficture and market the Duncen Lift in Durope. Phillipe felt the tift would complemeat Bar Muisse's product line and the licensing would be of mutual benefit to both partles. They agreed to pursue the idea. Upon his return to Lachine, Pierre told Martk about these discussions and they agreed to explore this possibility. Pierre called a aumber of colleagues in the industry and asked then what they knew about Bar Maisse. About half had not heard of the company but those who had commented favorably on the quality of its products. One colleague, with European experience, knew the company well and sald that Bar Maisse's maniogement bad integrity and would make a good partner. In July, Piecre sent a letter to Phillipe stating that Duncan Industries was interested in further discussions; he enclosed various eonpany brochures including price lists and techrical information on the Duncan Lift. In - Late August, Phillipe responded, stating that Bar Maissc would like to entet a chreeyear licensing agreement with Dunean lndastries to manutacture the Duncan Lift in Europe. In exchange for the manufacturing rights, Bar Maisse was prepared to pay a royalty rate of 5 percent of gross sales. Piesre bad not yet responded to this proposale. A socond poesibity was a point verture. Pierre had wondered if it might not be better for Duncan industries to offer a counter proposal to Bar Muisse for a joint venture. He had not wodked out any details, but Piesre felt that Duncan Industries would kearn more about the Europenn market and probably make more money if they were an active parther in Europe. Pierre's idea was o. 50-50 proposal where the two parties shared the: investment tad the prodits. He exvisaged a situalion where Bar Maisse would manulatture the Dhancin Lift in its plant with technicat assistance from Duncan ludustrics. Pierre also thought that Duncan lndustries could get inolved in the marketing of the lift through the Bar Miisse distribution syster. Further, he thought that the Duncan Lif, with proper marketing, could gadn a reasonable share of the European marke. If that taappened, Pierre felt that Durcan Industrics was tikely to make greater returns with a joinc venture. The third option was direct investment, where Duncan tndustries would establish a manuficiuring fucility and set up a miusugement group to narket the lit Pierre had cuocacted a business nequaintence who bad recently been involped in twumuficruring fubrieated stect sheds in Germany. On the basis of discussions with his acquaintance, he estimated the coss involved in setting up a plant in Europe at (1) $250,000 tor capital equipurem (weiding machines crnes, other equipmeno: (2) $200,000 in inceemental costs to set up the plant, and (3) carrying costs to cover $1,000,000 in inventory and accounts recelvible. While the actual costs of renting a buisding for the fuctory wauld depend on the site locitlon, he estimated that mutual buidding rent inctuding heat, light, and insurance would be ubout $80,000, Pierre recognized that these estimates where suidelines, but he felt that the estimates were peobably within 20 percent of actual costs