The Analysis of European Economic Interest Grouping - Case Study Example

? EEIG case Analysis Table of Contents Table of Contents 2 Background of the Case 3 External & Internal Business Environment Analysis 4 Strategic Choice 6 Strategy Implementation 7 Evaluation 8 Conclusion 9 Recommendations 9 References 10 Background of the Case It was on March 13, 1990, when Chemical Labour Grouping was established as the first European Economic Interest Grouping (CLG, EEIG) in Spain. The grouping was established by four major paint manufacturers from Germany, Spain, Great Britain and France. The four companies that represented the aforementioned countries were Lacke and Farbe GmBH (LF), Marceau et Fils, S. A. (M), United Colours Ltd (UC) and Quimica del Atlantico, S. A. (QA) (Fazio, 2007). The target markets for this establishment were multinational paint manufacturers and automobile manufacturers. The present case entails about the management of EEIG and also the perspective and situation after its incorporation. In addition, this case also illustrates about the strategies adopted by these companies to operate in the market. This study to a large extent enlightened us about the Quimica del Atlantico, S. A. (QA) and its business operations. This company was founded in the year 1932. It is headquartered at Baracaldo, Spain. Initially the company used to manufacture nitrocellulose paints, and air drying for the automobile body parts. It was also the first company to have supplied such products to the markets of Spain (Renart and Pares, 2010). The company had spent significant amount of resources and efforts towards research and development and for that the company has been able to introduce new products and services in the market. Through this report, the internal and external business environment of the company will be analysed. Furthermore the strategic choices made by the companies will be also illuminated. Beside, how the strategies were implemented will be also emphasized. Finally based on the evaluation, a conclusion will be drawn and some recommendations will be suggested. External & Internal Business Environment Analysis Environmental analysis is often referred to as environmental scanning. According to some eminent authors analysis of the environment help companies to identify factors that may influence the operation. Additionally, it also helps the companies to forecast the impact these factors have on the company (Robinson, 2009). Through the process of environmental scanning organizations also identify opportunities and threats in the existing business environment. The business strategy of a company also remains highly dependent upon the situation of the external business environment. Apart from the external environment, the internal environment of a firm plays a crucial role in the formulation of strategy and also to capitalize on the opportunities of the external business environment (Von Der Gracht, 2008). In this context, Quimica del Atlantico, the paint manufacturing and marketing company of Spain embraces various strategic capabilities. However it also possesses some weakness which impacts the company’s operation and holds them back from achieving their goals. One of the major strength of the company is its competency in the field of research and development. Quimica del Atlantico spends significant amount of resources and efforts towards R & D activities. This has encouraged the company to come up with new and innovative products and systems in the market. Apart from that, the company also has the capability of utilizing technology to the fullest extent and therefore technology innovation can be manifested as one of their strategic capabilities. The company has presence in several industries of the world, which provides them an opportunity to increase their total revenue. In addition, the company also enjoyed strong competitive position in the Spanish market. The biggest weakness of the company comes in the form of less export activities. The case enlightens that export has only accounted for 1.5 % of the overall sales of the company. The operational changes that were taking place in the paint industry were also a cause of concern for Quimica del Atlantico, because the procedures such as just-in-time approach and several quality maintenance aspects were still unknown to the Spanish companies. The company however have several opportunities to enhance its capabilities and gain competitive advantages. One such opportunity for the company is to follow the operational modes of Japanese companies. This will also allow the company to cater to the customers more effectively. For example, reducing the number of suppliers and implementation of the total quality requirements may enhance production efficiencies and can also provide superior products to the customers. It indirectly provides the company an opportunity to gain more market share and revenue. Apart from that the company also has the opportunity to employ information technology, improve the overall process. For example, tool such as ODETTE (Telematic interface network) will serve the purpose to a large extent. Such technologies will allow Quimica del Atlantico to link their production plants with the suppliers in real time. It will also permit the company to instantly modify parts, supplies and components according to the changes requested by the end customer. Quimica del Atlantico can also consider expansion in other parts of Europe such as Germany, France and UK. This will allow the company to gain more market share and revenue. The threat for the company is the intense competition within the painting industry. Competitors such as Ivanow, Herberts, PPG and Du Pont give stiff competition, which reduces the market share of the Quimica del Atlantico. Although, the sales volume has remained constant, the company’s market share has gone down by 10 %. Strategic Choice In the meantime, Quimica del Atlantico identified that they were losing their market share due to a specific strategic issue. The problem as identified by the company was their incapability to supply products throughout Europe in a timely manner. In such cases strategic alliances can be a viable option to restore and regain market share. Strategic alliances can be portrayed as one of the effective methods of diffusing new skills and technology, to penetrate into a new market, to circumvent any kind of government regulation, and also to learn the market condition quickly. With the help of a well managed strategic alliance treaty, all the involved companies can even gain from the markets that would have been impossible operating alone (Elmuti and Kathawala, 2001). It should be also noted that through the process of strategic alliance companies will be able to carry out technology transfer among themselves, can develop new products jointly (joint product development), can have collaborative promotion and marketing actives and also jointly purchase and distribute raw materials and end products respectively (Nzte, 2012). Nevertheless, it is extremely difficult to create, support and develop strategic alliances. In this context of the study, companies such as Lacke and Farbe GmBH (LF), Marceau et Fils, S. A. (M), and United Colours Ltd (UC) are facing the similar issues. In harmony with the situation, all the four companies thought or rather decided to cooperate with each other so as to meet the demands of the industry. Hence strategic alliance came up as one of the possible and viable option. The prime intention behind the execution of this strategy is to sustain and operate efficiently in the market place. Finally, all the four companies have agreed to work together and cater effectively to the target segments. With the development of a strategic alliance, a new strategy was formed. The strategy was to offer end to end paint supply to the automobile manufacturers. The strategy was also to offer ‘on-site’ and ‘off-site’ painting facilities to the customers. The on-site service facility is demonstrated as providing service on the location of the client. On the other hand off-site servicing is illustrated as providing service from the company’s location. Through the offsite operation strategy, the group intends to implement ‘just-in-time’ approach so as to meet the needs of the customers. In addition, the strategy was also to ensure that the production operation takes place in the home country of the company and any kind of servicing or repairing required on-site will be done by the partner from that country. The primary rationale behind the implementation of this strategy as identified after analysing is to reduce the servicing cost. Apart from that EEIG decided to coordinate with each other in terms of purchasing raw materials and also to negotiate with the suppliers. The rationale behind this strategy was to get large discounts from the suppliers. The companies identified that if joint purchasing is carried out, all the four companies will be able to obtain 30 % discounts from the suppliers. Strategy Implementation For a company to actually get benefitted from a particular strategy, it needs to carry out the implementation properly (Mondy, 2008). Implementation of a strategy can be regarded as a process by which strategies are put into practice (Smith, 2000). However it requires high amount of management and design of the systems in order to achieve the pre-eminent combination of structure, process, people, and the resources required to reach the organizational goals (Fitzroy and Herbert, 2007). In this aspect, the strategy of EEIG was implemented with the help of legal regulations. In order to give a legal framework to the venture, a Bilbao law firm was appointed. The firm primed a study which was based on the regulation 2137/85. The regulation was already accepted by the EEC council of minister in the year 1989 (Madrid European Council, 1989). Therefore based on that, the law firm prepared documents to incorporate the corporation with the four companies in charge of the organizational activities. After three months from the date of issuance, the strategy or the strategic alliance was fully implemented. Once the strategy was implemented within the EEIG framework it has impacted all the member companies and their resources. However most of the impacts were positive. One of the most visible examples about how these companies were benefitted was obtaining huge amount of discounts from the suppliers. The study suggested that the joint purchasing action will facilitate companies to receive a bonus of 30 %. Through this process, the companies will be able to increase the profitability. Apart from that the treaty also played a part in providing companies the status of a ‘big player’. All the companies, when used to operate individually were considered as a medium level organization. However with the implementation of this strategic alliance, they were place at the fourth position in terms of market share and net sales, just after established players such as PPG, Hoescht Ag and BASF. In addition, this strategy facilitates Chemical Labour Grouping (CLG, EEIG) to rank above DuPont, ICI and AKZO. Thus depending upon the benefits it offered to EEIG, it can be stated that the strategy was successful to a large extent. Evaluation The strategy to have cooperation among the member countries was highly feasible. It not only offered companies to enhance the profit margins but also helped them to become more visible in the market. In addition, the strategy pertaining to the amendment of onsite and offsite operation was also beneficial. This strategy will recue the cost of servicing and can even offer superior and timely service to the customers. However, in order to get fully benefitted from this strategy, the coordination level among the member companies needs to be good. Conclusion The study was about the evaluation of the strategic alliance between the four companies. It was also about assessing the impact of the strategies on the individual companies. The study revealed that with the implementation of the strategic alliance all the four companies were extremely benefitted. It is also believed that with the strategic alliance in place, the establishment will be able to gain more market share and increase its net sales volume. Hence it can be concluded that the strategic alliance was indeed feasible and successful. Recommendations It is highly recommended that all the companies should try to preserve the contract and try their level best to settle any kind of disputes that may arise. The EEIG can also make its presence in countries such as Italy, Netherlands and Norway among others. This will facilitate the group to cater effectively to the clients from these countries. Moreover the onsite servicing can also be carried out. References Elmuti, D. and Kathawala, Y., 2001. An Overview of Strategic Alliances. [online] Available at: [Accessed 10 December 2012]. Fazio, S., 2007. The Harmonization of International Commercial Law. AH Alphen aan den Rijn: Kluwer Law International. Fitzroy, P. and Herbert, J., M., 2007. Strategic Management: Creating Value in a Turbulent World. New Jersey: John Wiley & Sons. Madrid European Council, 1989. The European Council. [pdf] Available at: < http://www.ab.gov.tr/files/ardb/evt/1_avrupa_birligi/1_4_zirveler_1985_sonrasi/1989_madrid_zirvesi_baskanlik_avrupa_topluluklari_en.pdf> [Accessed 10 December 2012]. Mondy, R. W., 2008. Human Resource Management. 10th ed. New Jersey: Pearson Education Inc. Nzte, 2012. Strategic alliances and joint ventures. [online] Available at: [Accessed 10 December 2012]. Renart, L., and Pares, F., 2010. Chemical Labour Grouping, EEIG. Connecticut: Cengage Learning EMEA. Robinson, P., 2009. Operations Management in the Travel Industry. Oxfordshire: CABI. Smith, P. J., 2000. Strategy Implementation: Readings. Cape Town: Juta and Company Ltd. Von Der Gracht, 2008. Future of Logistics: Scenarios for 2025. Berlin: Springer. Read More