External Environment and Internal Strategies of Quimica Del Atlntico - Case Study Example

? Case study: Quimica Del Atlantico of Case study: Quimica Del Atlantico Introduction This is a case study of a company known as Quimica del Atlantico, S.A. in the industry of paint manufacturing. The company was founded in the year 1932 and started off well. It started by manufacturing air –drying, nitrocellulose paints used by automobile industries for automobile body repairs. It was the first to supply such products in the Spanish market. The company displayed a steady trend in growth since its inception. It opened a plant in Baracaldo in 1955. External environment and internal strategic capabilities The strengths of this company can be analysed through a study of its steady growth. Quimica del Atlantico grew steadily over years and opened two more factories one which was located at Santurce and the other at Portugalete. The company was over the years consistent in allocation of significant resources and efforts to research and development and was thus able to produce a number of products and processes. These include- baked enamel used for refrigerators, pollster fishes used for wood product, use of electro deposition for paint application systems, water soluble baths through immersion used especially in automobiles factories, the powdered paint and lastly the Kolormatik system. The company adopted a number of strategies to maintain its position. Its basic tool was technology and the desire to be on the lead in technology caused the company to sign agreement for transfer of technology with other companies in various states. With the advanced technology the sales of the company increased immensely. In 1985 the company estimated the products that were sold to approximately 12,000 retail outlets in Spain which was a whopping 75 percent increase. In addition to the huge sales turnover the company had varied and numerous buyers for their products. These included home decorating paints and automobile body repair paints both of which represented 50 percent of the company’s sales. The other 50 percent was accounted by sale of paints which were manufactured for industrial customers. The most important industrial customer was automobile OEMs meaning original equipment. These accounted for 30 percent of QA’s total sales. The remaining 20 percent went to other industrial sector which includes automobile components and spare parts, domestic appliance manufacturers, metallographic industry, toys, furniture, railroad stocking etc. The company also grew to be a leading employer in the industry. Its total work force in the year 1986 amounted to about 575 employees. This huge number of employee’s meant that the company was indeed doing very well. Quimica Del Atlantico was leading in Spain in the refinishing segment since the Spanish civil war ended in three products. These are one white paint and two black paints. This means that in addition to making huge volume of sales the company was also leading in quality product thus widening its markets even more. Towards the end of 1950s QA was able to position itself well when SEAT at that time started manufacturing cars in Spain. The automobile industry was so far the most important customer of QA. Subsequently other paint manufacturers and automobile OEMs established industries in Spain. This was the onset of competition but also the onset of a wider market for its product as more automobile industries came to birth as well as competing paint manufacturers. However until 1985 the customers were limited to within the country. There were no exports until 1986. Spain became a member of European communities in 12th June 1986, a political and economical factor which created a new opportunity for the company. This meant a new dawn to the company as Spain had become a part of the regional trade agreement. The company contemplated venturing into the new markets within the European community and also hunting for raw material at a lower cost within the European community. At that time the company had a strong competitive position within Spain and also a proprietary technology. Thus if the company could manage to import raw materials at lower cost, it would take a giant step ahead. The increase of sales in 1986 was immense. The company had a forecast for a bigger budget for 1987 having made an elephant increase in sales. However there were changes taking place in the paint industry halfway through 1987 that were the company’s cause of alarm. This was the onset of the draw backs in the company therefore its threats and weakness. These changes were as a result of import from Japan of some operating procedures which until then were foreign to Spain. These include: the just in time system or Kanban system which demanded a higher degree of involvement and commitment, the reduction of suppliers. The Japanese automobile suppliers were four times lesser than in the western counterparts. The Japanese had stricter requirements in quality of the products and services provided. They had no second time, delays or failures for any service provided. The Japanese extended the quality requirements to the supplier’s factories so as to increase efficiency and also lower costs. These practices posed a threat to the company; the Spanish automobile OEMs started to put into practice these procedures. A quick dire action was necessary to remedy the situation. It is important to note that at that time the automobile manufacturers accounted for 30 percent of QA’s. Thus it was very important for the company to remedy this situation otherwise the company would collapse despite having a steady growth since its birth. The storm clouds were inevitably gathering over such a huge market and were getting even more threatening. The company would be shut from automobile market if something quick action was not taken. Though, the sales turnover remained the same, the company market share decreased by at least 10 percent during that crisis. In relation to foreign customers who also required similar standards in quality the company had to tackle at least two problems. One, there would be a very serious financial problem because of the large investment which was required to adequately offer services to so many manufacturers from varied industries all from different countries. In deed to sell paints to a huge industrial client, it is usually important to set up at least two people per a plant that are able to make in situ all the necessary changes to the formulations and to supervise the systems of paint application. Sufficient physical space would also be necessary as well as a buffer of stock and space for carrying out invoicing and controlling task. All these in essence mean that the company would face a serious financial problem. Secondly, the other problem would be the communication barriers as a result the need to operate in various cultures which use different languages Strategic choices Mutual cooperation with other paint manufacturers in the industry who were facing a similar problem and willing to work together was a sure remedy for the QA’s situation to tackle its problems in relation to foreign customers. This can be referred to as horizontal integration which is a merger of companies at the same level of production in the same or different industries. When the products produced by the companies are the same it is a merger by competitor. The advantages of horizontal integration are usually to have economies of scale, increase markets, reduce completion by integrating rather than competing and also to expand knowledge and capabilities. The Company then entered into an agreement with four other paint manufacturers within the European region. These were: Lacke und farbe GmbH (LF), which was from German, United colours ltd (UC) from UK, Marceau et Fils ,S.A (M), from France and Quimica del Atlantic (QA) from Spain. These manufacturing companies formed a Chemical Labour Grouping (CLG) which was a European Economic Interest Grouping. The four companies ratified their desire to free and independent at the initial stage. The initial agreement concerned the territorial function of each of the partners in the alliance. The partners figured the complete paint supply to an automobile manufactured involved several transactions. These include a certain actions which are to be performed on the site in the factory of the paint supplier. There are other transactions which include actions which are performed offsite from the supplier’s factory and sometimes in the customer’s factory. From this analysis it was agreed by the partners that each partner was to carry out all the production operations inside its factory. It was further agreed that off site operations would be the responsibility of the partner in each country regardless of the company that manufactured the paints to be applied. The offsite operations included the operations of the mixing room. This had to conform to the standards of quality precedence in Japan. It was also agreed that the manufacturer would supply the automobile factories in their own country only. Implementation of the strategies and the effects The alliance was given a legal framework after the partners concluded their agreement and the grouping was registered in the Bilbao registry company on the 13th day of March 1990. The agreement was finally settled even though it had taken almost two years to negotiate. For QA the cooperation was exciting. Its only problem then was that the alliance was to tackle the problems in the automobile industry yet there was a possibility of a future threat in other customer industries. The alliance first undertook a joint raw material purchasing. The partner companies appointed a purchasing manager to sit at the Raw Material Joint Purchasing Committee. The committee began by acting in a very informal and flexible manner. The alliance found out that by buying together they were able to obtain huge discounts which were about 30 percent on average, on the price one who have if they bought individually. Raw materials account for about 70 percent of sale price of paint. This meant that the companies in the alliance would be able to save a lot from joint purchasing of the raw materials. These were excellent and tangible result which encouraged the partners and fuelled the cooperation. The companies were very pleased about the progress of the alliance until the grouping was legalized. The exciting new competitive prospect had not only opened on a European scale for them but also early in the initial process they had started to put into practice cooperation mechanism which is specifically the joint purchase of raw materials. The grouping was the first of the European economic interest groupings formed and it was the first that had been registered formally. The four partners had no experience in this kind of alliance. The planning though had been relatively smooth. All the same the alliance was venturing into a virgin territory and they mapped the route as they walked. Feasibility of the strategy The honeymoon for the alliance was quickly passing and anxiety setting in. This of course led to misgivings. Quimica Del Atlantico, S.A quite a number of issues to consider are discussed below. Quimica Del Atlantico was a leading company in the Spanish paint market before the cooperation with a good brand name, quality products, competent work force, three factories and a high share of the Spanish market. However, when Spain joined the European community, their market shares become negligible even though its image and strengths remained intact. The other concern of QA was that although the alliance positioned the four paint manufacturers as the fourth European supplier of paints to automobiles only the big multinationals like PPG could rank first. The alliance had put QA at back of the European community big shots. There was also the issue of what would happen if a company was able to get another globalized customer such as the case was with QA in Turkey. In such a case would a partner be obliged to share the new found market with the partners in the alliance? Another issue concerned who would be responsible for getting potential customers to make approval of the paints that the grouping partner would be supplying. There was also the question of paying membership fees or any economic contribution. What would happen to the cooperation in the cases of disputes and how would the partners solve such disputes? This was another issue that had been captured. All in all the individual companies had started to have their doubts as to the viability of the alliance which had started of so well. There were many misgiving from all the counterparts. In conclusion the alliance had its own advantages which include allowing the companies to venture easily into foreign grounds with foreign cultures. There were also fears relating to the future of the alliance. References Automobile industry journal, 2005: European community. German. Deutshe university. Business and commerce journal. 1997. Barcelona. Universitat de Barcelona. Directory of open access journal: Business and management. 1999. Colombia. Universidad de los Andes. Hattie, J. (2009) A study on paint manufacturing Industries . Michigan. Earlbaum Associates. Havel, J.1997. Industrial cooperation in the 90s . Michigan. Earlbaum Associates. 1997 Journal of public economics: automobile industry. 2009. New York. Elsevier publishers. Journal on European Economic Interest Grouping. 1992. Madrid. University of Madrid. Mondey .W. 1992.Legislation on European Economic Interest Grouping. New York. Random House Value Publishing. Oxford bulletin of Economic and Statistics Journal. 2010. United Kingdom. University of Oxford’s Department of economics. Spanish economic review journal: a comment on the European community. 2002. Spain. Springer publishers Wylie, R.1993; Impacts European community on commerce and Industry. Oxford. Oxford publishers Read More