Crown Cork & Seal in 1989 Business strategy - Case Study Example

? Crown Cork & Seal in 1989 Case Study Analysis Executive Summary Crown Cork and Seal was a metal cans manufacturer in the US market. The case is allabout the industry of metal cans manufacturing in the US market in the period of 1989. The Crown Cork and Seal Company came into existence because of the idea of a foreman who worked in a machine shop of Baltimore. With aggressive competition the company was almost bankrupted in 1920s followed by being bought by Charles McManus, a competitor in the year of 1927. In 1957, Connelly took the charge of presidency in Crown Cork and Seal Company and thus turned the organizational financial distress into one of the five market leaders in the cans manufacturing industry. The main emphasis of Connelly’s strategy was on customer service, cost efficiency and quality as the significant inputs for the strategy of Crown in the upcoming decades. His strategy had focused on changing the main ingredient of can i.e. steel to aluminium, in order to adapt the increasing demand of aluminium cans in the markets. In this case analysis, the Crown Cork and Seal Company is analyzed externally as well as internally along with the overall industrial analysis. The company was able to sell large volumes of metal cans around US as well as in the international markets with the aid of joint ventures. In addition to this, the company was threatened by various substitute products including aluminium, glass, etc. Furthermore, an essential weakness of the company is investigated along with various strengths. The company has various potential opportunities that would enable it to accomplish its preset targets. A potential threat of in house can manufacturing has also investigated in the analysis. 1. External Analysis a) General Environment Analysis The demographic analysis: It entails various techniques which assist in measuring the distribution as well as dimensions of products. In accordance with the case, Crown Cork and Seal sold more than 120,795,000 metal cans in 1989 (Corey E., 1975). Economic: The economic analysis deals with the opportunity costs of resources being used along with attempting to measure the social and private costs as well as benefits in monetary terms of a project to the economy. The Crown Cork and Seal attempted to locate its business towards the areas that were closer to the customers. For the purpose of forecasting of the transportation costs of the company, the distance of about 150 to 300 miles was considered to be economical between the location of customers and the placement of plant. In addition to this, the company managed to decrease its transportation cost that was roughly estimated to be 7.5%. In addition to this, the company changed its ingredient of making cans from the use of steel to aluminium. This resulted in decreasing the weight of the cans along with reduction in the shipment cost of these cans relative to the cans produced before by the company. Furthermore, due to the shipment of steel cans in the international markets, the company suffered uneconomical circumstances due to the increase in shipment costs. For this reason, the company attempted to make joint ventures in terms of affiliation with US can manufacturers, foreign subsidiaries as well as local foreign firms in order to cater the foreign markets (Bradley S., 2005). Political: Political environment can be referred to as an immediate impact of the political parties possessing authority, representing the popular perceptions given by the citizens of the area (Export Help). It has been seen that the developments of legislations were unfavorable for metal can industry in USA (Bradley S., 2005). Social Cultural Environment: In this case, the chief executive officer attempted to bring together two companies possessing distinctive cultural and social backgrounds irrespective of the fact that the past mergers were undoubtedly unsuccessful. This impossible challenge was accepted by Avery in order to capture the markets of Canada and to expand its operations further. Moreover, there were numerous environmental pressures in the industry along with the latest social trends pointing out the necessity of aluminium (Bradley S., 2005). Technology: Technological modernization refers to the increment in knowledge, the advancement in skills, or discovery of an improved method that can increase the capability of the people in order to achieve any given task (Export Help). In the case, Crown Cork & Seal innovated by commencing the use of two-piece by replacing the three-piece being used before. Moreover, the way of producing cans was changed as the aluminium cans replaced the steel cans which were light in weight relative to the prior steel cans. This ensured reduced transportation costs and thus assisted in increasing the efficiency of the company (Bradley S., 2005). Global: Global analysis deals with the circumstances related to the entire world. In the case, there was intense opportunity for the company in the international markets of increasing sales. This was due to two significant reasons. Firstly, the people of the areas were not properly aware about the possible technology being used in the canning industry. Secondly, the number of firms manufacturing cans is limited in international markets (Bradley S., 2005). (b) Industrial Analysis Threat of new entrance: There were numerous threats faced by the company due to the entrance of new firms in its markets. Firstly, the in-house manufacturing of the food manufacturers as well as brewers was the major threat for the company as throughout 1980s brewers found easier and beneficial to manufacturer their own cans and thus reduce outsourcing costs along with the advantage of single labelled running production in the market. Secondly, it has been seen that the entrance of new can manufacturing firms had high barriers due to limited number of suppliers of the most demanded raw material i.e. aluminium but limited number of customers might trust any new entrant for the demand of cans for their products to be packed as they usually purchase from many manufacturers simultaneously. Lastly, classic two-pieces can line costs $20-$25 million whereas three-pieces can line costs around $1.5-$2 million so capital investment is seemed not to be the barrier for any new entrant (Bradley S., 2005). Bargain power of supplier: There are only three major suppliers namely, the Alcoa which is the biggest producer of aluminium worldwide, Alcan which markets primary aluminium worldwide in the greatest volume and Reynolds Metals that produces aluminium being the second largest producer. Due to this the bargaining power is possessed by the suppliers as they were more concerned with aluminium production and possess huge resources of aluminium as well (Bradley S., 2005). Bargain power of buyer: There are four major buyers which restrict the bargaining power to themselves. The similarity of products hinders the buyers from switching cost. The customers were huge enough and well concerned through consolidation and made bulk purchases of cans thus keep relations with various can suppliers. Customers can threaten the can manufacturer of backward integration but metal manufacturers on contrast threaten of forward integration. Metal manufacturers were placed nearer to customers in order to reduce cost of transportation but threat of non-renewing of contracts by customers can result in huge losses for metal can manufacturers (Bradley S., 2005). Threat of substitute products: The Crown Cork & Steel Company uses steel in producing cans, therefore, the use of paper, aluminium cans, glass containers and plastic cans are its substitute products which can be used to replace steel cans (Bradley S., 2005). Intensity of rivalry among competitors: The metal can industry of US was dominated by five major firms in 1989. The biggest manufacturer was American National Can with 25% market share of the entire industry. The remaining four firms accompanying American National in turnovers were Reynolds Metal with 7% market share, Continental Can with 18%, Ball Corporation with 4% and Crown Cork & Seal with 7% in the entire industry. The intense division of market shares of these leading organizations entails the intensity of rivalry among these organizations in can manufacturing industry (Bradley S., 2005). Interpreting Industry Analysis: In 1989, the metal manufacturing industry possessed 61% market share of every packaged item in US with serving industrial as well as various consumer goods. On the other hand, plastic and glass containers had balanced out the container market possessing 18% and 21% respectively. All food, beverage and general packaging industries were served by metal cans. Due to limited number of suppliers and buyers, the pricing policy of metal cans was restricted and competitive due to intense rivalry of five huge firms in the US market. Furthermore, aluminium, glass and plastic were the potential substitutes of metal cans. Moreover, there were opportunities in international markets for the metal can manufacturing industry to prosper along with the threat of in house can manufacturing potential strategies (Bradley S., 2005). (c) Competitor Analysis The nature of the major five companies was purely dominating as they collectively held 61% market share. This enabled these firms to establish a monopoly environment. The intense rivalry among these firms in the industry was based on the expected potential growth in 1990 of plastic as well as little growth of metal cans. Secondly, all were equally producing two-piece cans so low product differentiation was found. Lastly, main customers were expected to start in house can production which accounted for about 25% output in 1989 (Bradley S., 2005). 2. Internal Analysis Strengths: The foremost strength was the strategy of Connelly. Further, the company possessed lower leverage relative to competitors. Next, because of divestment company had good liquidity. Moreover, it earned highest return on equity compared to other firms in the industry. Further, metal cans were highly preferred by the soft drink bottlers rather than glass cans due to its lighter weight, transportation efficiency, faster filling speed and compactness for inventory. Additionally, the company had traditional strengths in metal fabrication, die forming, tin-plated crowns and cans and ability to adjust to customer’s requirements faster than competitors in the industry (Bradley S., 2005). Weakness: The only weakness of the organization was the reduction of revenues generated from can sales due to the threat of its substitute products i.e. aluminium, glass and plastic (Bradley S., 2005). 3. Recommendations Strategy option: As there are numerous huge competitors, therefore, the company must compete in the market aggressively. Moreover, the company should keep working on updating the strategy in terms of innovation. The company must work aggressively for recycling as well as aerosols. Strategy action: The company must prioritize its vision of building business through diversification or differentiation strategy. Further, the company have to protect its market position along with seeking appropriate market knowledge. The management must capitalise on the external opportunities along with taking the reduction actions for disclosure of environmental threats. References Bradley S. “Crown Cork and Seal in 1989”. Harvard Business School. 2005. Corey E. “Key options in market selection and product planning”. Harvard Business Review. 1975. Export Help. “The Socio cultural Environment”. www.exporthelp.co.za. n.d. Web. 2nd August. 2011. Export Help. “The Technological Environment”. www.exporthelp.co.za. n.d. Web. 2nd August. 2011. Read More