Sandvik Tools and Saws' Strategies for Global Presence - Essay Example

A Case Study on Sandvik Tools and Saws- Strategies for better global presence. Executive summary of the case under study: The essay is about the case of Sandvik Saws and Tools industry. The organization which is into the business of supply of saws and other hand used tools such wrenches and other tools. In the essay I have made an attempt to identify the various parameters considered for organizational competence and then the essay probes into the various strategies used by the company. Then based on the market analysis the strategies were rated as effective or ineffective, then a logical relationship between the organization's positioning in the said market region and the relevance of strategies in the said region were evaluated. After due evaluation suitable strategies were suggested which are applicable to the organization under scrutiny in the study region. The essay is about the case of Sandvik saws and tools industry. Sandvik saws and tools I is a saws and other hand tools industry with a global presence. With its Headquarters in Stockholm, Sweden, the organization is known for its technical competence and maintenance of quality. The organization sells its products in more than 60 countries globally and has a strong presence in Europe. With its own centralized supply and distribution mechanism the organization is able to manage the supply of its products. However the management decided to upgrade the quality of the products by using a particular strategy called as ERGO strategy. The organization has spent a considerable amount of money for supply of technically advanced tools into the market. With this ERGO strategy the management hoped to gain a substantial share in the U.S market, which is not to be. The essay probes deeper into the problems or hindrances for the organization which are acting as limitations and suggests strategies for improvement of the same. Table of Contents: 1. Executive summary. 2. Table of contents 3. Introduction to the case 4. Parameters chosen for the analysis of the case. 5. Industry categorization depending on scale, size and nature of operations. 6. Organizations uniqueness 7. Advantage of Technology as a strategy 8. Premium pricing as an advantage 9. Difference in Industry types 10. Brand value 11. Supply chain mechanism. 12. References Introduction to the case: The essay is about the case of Sandvik saws and tools industry. Sandvik saws and tools I is a saws and other hand tools industry with a global presence. With its Headquarters in Stockholm, Sweden, the organization is known for its technical competence and maintenance of quality. The organization sells its products in more than 60 countries globally and has a strong presence in Europe. With its own centralized supply and distribution mechanism the organization is able to manage the supply of its products. The industry into which Sandvik can be termed as a fragmented industry in which there is plenty of scope for new entrants to come in because of low entry barriers such as technology, or laws regulating its entry. Sandvik Saws and Tools chose ERGO or improvising ergonomics of the tools as a strategy for better positioning of its products in Europe and U.S. The task of implementing the strategy was given another Swedish based organization called as EDG, Ergonomi Design Gruppen, specialists in hand made tools design. According to Sandvik management the ERGO strategy should place the product streets ahead in the competition. However it is not to be. Despite very strong in technology and quality of products Sandvik was unable to maintain a substantial gain in market share in U.S. The essay tries to portray the various reasons for this lack luster performance of the organization and suggests suitable strategies to be applied in the subject area. Parameters chosen for analysis of the case: The various parameters I have chosen for analysis of the case are those which are relevant to any fragmented industry and also a maturing industry. They are such as 1. Organizations size, Scale, nature of business they are into. 2. Organizations Uniqueness in terms of product differentiation, quality etc. 3. Brand value 4. Price uniqueness 5. Supply chain mechanism. Industry categorization depending on size, scale and nature of operations: The industry can be rated as a fragmented industry for the simple reason that engineering tools whether they are hand used or otherwise are extensively used in the industry and also there are plenty of manufacturers specializing in this field. Specializing in this field takes place mostly in tool design and lot of research is going in introducing new models into the market. Also to enter into this field there is many entry barriers for organizations. Organizations who own some knowledge and technical skills in these areas can setup a work shop to produce good of sorts into the market. The market is presently thick with competition from local manufacturers who can duplicate products and vendors who sell both the products. Incase of Sandvik Saws and Tools its size of operations and nature of products it is producing cannot become a distinctive advantage for the organization at least in some parts of the globe primarily because the nature of competition it is facing is not only from other manufacturers of repute but also from local small time manufacturers and dishonest vendors and dealers who sell both the branded and unbranded to gain a distinctive price advantage. Organizations Uniqueness: Sandvik's uniqueness lies in manufacturing specialized hand tools and devices and they sell most of these products to working professionals who know the value of the goods they are purchasing, hence they are able to maintain a good brand reputation in Europe, where as the case is not the same in Asia pacific region or in North America where the combined share in these regions is accumulating upto 19.6% of the total sales on Sandvik. For example its start product 'Adjustable Wrenches' which the company was able to sell upto 1300 thousand units in Europe alone was unable to do well in both North American market and Asian market, it was able to sell only 8,000 units in North America and 200,000 Units in the rest of the world. There can be several reasons for this poor performance of the star product of Sandvik. Some of them which are applicable in fragmented industries are: 1. Duplication of technology: Especially in fragmented industry one of the major threats to the organizations survival is duplication of technology. Organizations fail to maintain their uniqueness of their products primarily because other new entrants simply can imitate their product design and bring in cheap imitations into the market. Hence product uniqueness cannotbe maintained for a long time, as a result market share suffers. 2. Poor communication of the features to the stake holders: Also many organizations do suffer primarily because the other partners included in the supply chain mechanism may not communicate about the uniqueness of the products very well to the customers, as a result the customer may not be aware of the features of a particular product, especially if it from a non local company. By accepting technological advantage as a sole strategy to move ahead in an international arena full of tough competition may not be a safe play for Sandvik. The uniqueness of its strength is unable to overcome the weak strategic areas of concern. Advantage of Technology as a strategy: After the implementation of ERGO strategy three products of repute for Sandvik Saws and Tools such as Adjustable wrenches, Screw Drivers, Files and handles were able to sell upto 2883 thousand units in Europe alone where as in North American this technology advantage never really turned into sales where the three products put together were able to sell only 48,000 Units. This is primarily because of strong brand value in Europe the organization was able to conquer literally upto 45% of the market share where when it came to North America, technology never really turned into advantage. Premium pricing as an advantage The strategy of using premium pricing as a advantage across the globe is questionable, because market to market price differentiates and hence customization cannot be done. Sandvik is maintaining a premium price of 0-20 % higher than the standard prices existing in the market. Price as an advantage is suitable in case of monopoly markets, for example in case of Sandvik's presence in Europe because it occupies a sizeable market share and is mostly a monopoly in nature its strategy of using pricing distinctiveness is reasonable. Where as in a price conscious market like North America where it is not a monopoly market but an Oligopoly, price premiums does not auger well for the company. Difference in industry Types from Europe to U.S Sandvik managements thought of gaining strength in the U.S market is perfectly understandable because in 1995 U.S market alone summed upto 1291 Million and is relatively higher than the Europe market. However the nature of competition Sandvik is facing in Europe is of total contrast to that in U.S. In Europe roughly around 50 companies are sharing the market and hence the industry is a fragmented market, where as in U.S only 5 major companies like Stanley and Cooper industries were sharing the market and Sandvik is the manufacturer from Europe sharing with these American giants. In U.S the industry turns into a maturing industry and for Sandvik to gain a sizeable share of the U.S market has to rework on their strategies again. Brand Value: Sandvik's brand value is limited only to the region of Europe and its influence is clearly not felt in U.S as the figures speak. The organization is able to maintain a healthy share of around 45% in Europe despite very stiff competition and in the U.S and the Asia pacific region it was able to reap only 19.6%. Supply Chain Mechanism As some of the senior management people are concerned about, increase in shelf space in U.S retail outlets is a big concern for them. Many of those outlets are not keeping enough stocks for volume sales to happen and that is a big concern. Suggestions for improvements: After due observations and analysis of the above data I would like to suggest the following strategies to be implemented by Sandvik in U.S market. 1. Sandvik to lower the prices for better volume stocking and sales in the U.S region. 2. Sandvik to create healthy relationships with retail and departmental stores through a strong dealer network. 3. Sandvik to communicate the message about its technical competencies like ERGO effectively through media. 4. Sandvik to dislodge non performing products in U.S and reduce the product line for better supply and chain functioning. Conclusion: The case of Sandvik Saws and Tools is a classic case of strategic dilemma's management can get into. In case of Sandvik, technological advancement alone cannot suffice the market demands and needs alone. It is calling for strategic appliance of other ideas to gain a better share in various geographical locations. References 1. Kotler Philip, 2002,P.175-200,Marketing Management, Excel Publications 2. Strategic decision making in Industries,2002, p.120-130, Business Strategy-I, ICFAI Press Publication 3. Technology as a Strategy, Business strategy-I, 2002, p.131-145, ICFAI Press Publication. 4. Marketing Management, 2003, p.175-205, ICFAI Press Publication. Read More