Business - F. X. Pounds Inc - Case Study Example

Secondly the initial and fixed cost to setup a distribution business is high. Fuel sector has great government intervention in its running too. Such conditions make it difficult for a new competitor to enter and survive in the market. (Hill & Jones.2010) Rivalry among established companies: FXP’s competitors are usually also old family owned companies with fixed established loyal customers and businesses. The demand in the sector is high and FXP must have been facing high competition in order to capture market share and maintain profits.

(Hill & Jones.2010) 1. Power of customers: In FXP, the fuel sector customers usually do not have very high power to influence prices or cut costs as the prices are influenced by government’s intervention and are usually fixed. However in the land fuel products customer can bargain about the prices being offered and FXP might have to cut its cost to retain its customers. (Hill & Jones.2010) 2. Bargaining power of suppliers: The suppliers do hold a significant position in every industry. FXP is mainly involved in distribution business where the suppliers have a significant power to effect company’s cost and ultimately the price.

(Hill & Jones.2010) 3. Closeness of substitute for products: The energy consumer sector supplies many products which can be used as each others alternatives. For e.g. wood can be used as a substitute of coal etc. It is extremely important for FXP to sell the best quality at competitive prices in order to stop its customers switch to substitutes. (Hill & Jones.2010) Cost-Leadership: After the industry’s analysis and the competition there in it could be suggested that FXP should adopt a cost leadership strategy out of Porter’s strategies, other being differentiation and focus because of high demand, high customer and supplier power and many replacements for company’s products.

There is increasing demand in the market and it is important for FXP to maintain and capture market share by decreasing costs and offering better prices than those offered by the competitor. As the environment in which FXP operates is extremely dynamic and the prices swing is frequent, it is essential for FXP to lower down its cost and supply at the lowest price even when the prices are high in the market. Differentiation and focus are not suitable strategies as there isn’t much room for an innovative product or a product for which customer will be ready to pay a premium price.

(Botten & Chartered Institute of Management Accountants.2009) Fragmented Shareholding: Being a family owned and managed business since its inception FXP continues its shareholding in the family which caused fragmented shareholding. No one except Pam and the new CEO Bruce took part in managing the business. Additionally the death of the two shareholders and their shares being further transferred to their children were the main causes of fragmentation. Agency issues, transfer of shares and managing the business are the issues associated.

In the current situation, Pam at the board meeting should raise the fragmentation issue for discussion and should inquire how the other shareholders view the problem. A clear and proper policy