Economía y Empresa
CASE STUDY ANALYSIS
TABLE OF CONTENTS
HOW CAN I CLASSIFY THE STRATEGY BEING PURSUED?
Aerospace and Transportation Motorized Consumer
Defense Equipment Products
Aerospace Group Transportation Motorized Consumer
North America Equipment Group Products Group
Canadair (Canada) Transportation Division(Canada)
(Canada U.S.) Bombardier-Rotax GmbH
de Havilland UTDC Systems (Austria)
(Canada,U.S.) Scanhold Oy
Learjet Inc. Bombardier S.A .
(U.S.) de C.V. Industrial Equipment
(Mexico) Division (Canada)
Short Group Bombardier Eurorail
Short Brothers PLC BN Division(Belgium)
HOW CAN I CLASSIFY THE STRATEGY BEING PURSUED?
Firstly, in the history of Bombardier, its main production was the snowmobile. Bombardier goes on to pursue a strategy of diversification of the snowmobile which would be considered related diversification.
Later it went on to pursue its businesses in the aerospace and defence sectors and the transportation equipment sector. The decision to diversify into these businesses would be considered combination diversification partly related and partly unrelated diversification.
Bombardier, the Canadian Company was always synonymous with snowmobiles. By the late sixties, Bombardier, controlled close to 50% of the snowmobile market, about 3 times as much as its closest competitor. The Ski-Doo was the key production in the portfolio of the snowmobiles.
The early snowmobiles were hand-assembled in versions intended to accommodate from 5-25 passengers and each machine was individually adapted for the specific aim of the customer.
With the advent of World War II the basic snowmobile design was adapted to produce an amphitrack armoured carrier called the Penguin for use by Canadian troops.
Bombardier saw a niche in the market for specialised machine equipment and these machines based on related diversification of the snowmobile were suited in forests and oil exploration areas.
In 1959, Bombardier developed the first snowmobile for the individual user called Ski-Doo.
This related diversification led to the seeking out of new markets, whereas before, it produced machines to fill a market need, which was mainly for large machines to do practical jobs. Investment in research and development allowed it to diversify in such a related way. Bombardier could see that a market existed for recreation and sport as well as transport.
ADVANTAGES OF RELATED DIVERSIFICATION
There was a degree of unity business activities. The company said "The advantages we have over all those company's is that we eat snow, we know snow and are snowmobilers ourselves.”
Strategic fits were evident in that it had the technology fits, labour fits, distribution fits in the production of snowmobiles.
HOW IT DIVERSIFIED
Bombardier used vertical integration, Bombardier acquired all of the company's suppliers, most of which were situated in the province of Quebec.
Acquired Rotex work (manufactured the two stroke engine used in the Ski-Doo).
Acquired Moto-Ski. This was Bombardier's largest competitor and as a result consolidated Bombardier's domination of the snowmobile market.
MOVEMENTS AWAY FROM DIVERSIFICATION
In the seventies, Bombardier decided to move away from the snowmobile due to a stayment economy, poor winters with late snow, media hype about the safety of the snowmobile, stricter legislation covering.
The market dropped sharply through the seventies. From a 45% share during the early seventies the company's share had declined to about 25% by the late eighties.
The long term attractiveness of the industry seemed to be in decline.
Subway cars- Combination of related and unrelated diversification.
In 1974, Bombardier seized on an opportunity to bid on a 4 year $118 million contract to build 423 new subway cars for the proposed extension of the Montreal underground transit system. This bid represented a major departure from the core business of the company.
We can take the stance, that it still has an element of related diversification as the French based Compagnée Industrielle de Matériel de Transport pointed out to Bombardier that the same manufacturing steps were needed for subway cars as for snowmobiles, therefore supporting strategic fit analysis.
However, we can see that the shift to producing subway cars required considerable retraining of the labour force. It also required new investment in physical facilities, therefore suggesting it was an unrelated diversification strategy. The cost of conversion was about $5 million of which $1 million was provided by a grant from the Canadian government.
The complexity of making a subway which had 8000 parts and 14 km of electric wiring compared to only 2000 parts in a snowmobile.
As we have seen here, this couldn't have been a strategic approach as there wasn't any labour and resource fits.
In 1982, Bombardier got a prestigious order of $1 billion for 825 subway cars from the metropolitan transportation authority of New York. Because it did not have a technological fit for this project, it acquired it from Kawasaki, the Japanese firm.
A low interest export financing scheme from the Canadian federal government also helped to clinch the sale. This points to an element of unrelated diversification as a financial approach is taken rather than a strategic approach.
This combination of related and unrelated diversification strategy was mainly done by acquisition.
In France, it spent $23.5 million to acquire ANF Industrie, one of the largest suppliers of railcars and coaches to the French railway Industry.
Across, the channel from France, Bombardier purchased Procor Engineering Ltd., a major British manufacturer of passenger and freight cars for railway.
In Mexico, the Co. acquired “Carro de Ferrocarril”, the largest manufacturer of rail cars. Besides paying $27 million to the Mexican government it assumed $55 million of the debt that Concarill had accumulated.
Back home Bombardier, added to its Canadian production capacity by purchasing Toronto-based UTDC from the Ontario government for $34 million. Additionally it was able to negotiate a $17 million subsidy from the provincial government in return for a commitment to maintain employment and invest up to $30 million in new plant and equipment.
SMALL CAR MANUFACTURE
This really was an unrelated diversification strategy. The company made an agreement with the Daihatsu Motor Company of Japan to obtain the technology which was going to be used in the design of the car.
There was a joint framework for the development and production of the car between Daihatsu and Bombardier.
There is an element of related diversification when we see that sales and service were to be carried out by the 350 snowmobile dealers that Bombardier had developed through out Canada, therefore we see a labour fit.
The diversification strategy of the small car had to be abandoned due to the rising value of the yen which made costs of imported parts too expensive.
Locomotive works (related and unrelated)
The main catylyst here was the $30m acquisition of Aloc. We see a labour fit here due to the use of steel parts as used in snowmobiles.
However, Bombardier did not have a good technological fit, therefore, it had to form an alliance with General Electric or Kawasaki, to get access to technology.
Bombardier believed it would have worldwide sales of 150 locomotives and 750 coaches but by 1986, they only sold 31 locomotives and 100 coaches, therefore locomotive works wasn't viable.
AEROSPACE AND DEFENSE GROUP - UNRELATED DIVERSIFICATION
Bombardier bought Canadair for $120m, it was a good acquisition price as Canadair was in financial difficulty.
Therefore a financial decision dominated over a strategic fit decision.
To back this up, the $300m development challenger project received substantial financial help from both the federal and provincial levels of the Canadian government.
COMPOSITION AND CO-ORDINATION ISSUES
. INDIVIDUAL INDUSTRIES
AEROSPACE AND DEFENCE
MARKET SIZE AND GROWTH
The North American market is sizeable and demand, as well as the industry as a whole, is perceived to be growing. However orders for larger aircraft are declining, affecting Canadair, and also Short Brothers PLC. At the moment commercial airlines are declining, however it is expected that smaller regional airlines will grow, boosting the industry (Study by Stanford University).
Textron's Cessna division have captured almost 60% of the market for small business jets, leaving relatively few orders for Learjet. However the few orders for Canadair and De Havilland's products were attributed to excess capacity, fare wares, and record losses in the commercial airline industry. Stanford University's study expects increase in demand, with only Saab of Sweden and Fokker as competition. Gulfstream and Dassault provide strong competition to Canadair, and are developing similar products.
The acquisition of Short Brothers PLC has brought the magnificent opportunity to tap into the European industry.
The Aerospace and Defence Industry have good value chain match-ups with the other industries that Bombardier LTD's other business units are operative in according to the company, it assembles metal parts and it welds. Its businesses all revolve around this key activity. The company explains that production of aircraft, subway cars, and snowmobiles are all different scales of the same process.
Much investment is required in these industries, as the pace of technological change, and the demand for state-of-the-art products dictate that new models are continuously being developed. These capital needs are not easily met by the company.
Short Brothers PLC's orders indicate good profitability. The defence part of the North American Industry is more profitable at the moment than the commercial airlines part, however Stanford's study predicts increased profitability. The Aerospace and Defence Industry would seem to be Bombardier's most profitable industry with over 60% of company sales in the last 3 years, however this is to be expected considering the capital invested in these business units.
TRANSPORTATION EQUIPMENT/MARKET SIZE AND GROWTH
There is a large market for transport equipment, shown by the fierce competition in Europe. Beaudoin estimated that North American demand would surpass 4,000 over the next five years, and that revenue would be doubled.
This industry contains strong competition: in Europe from the Likes of Siemens, and in North America from the Likes of Morris Knudsen. This competition is predicted to increase further as defence-orientated firms, such as Lockheed Corporation, enter the market.
OPPORTUNITIES AND THREATS
Through the acquisition of Concarril (Mexico), the company have the opportunity to access the South American market. Also through the Bombardier Eurorail Division the company could increase its occupation of Europe.
This industry's profitability is rather unpredictable, with the profit figure bobbing between positive and negative. However there is expected to be an upsurge doubling revenue in the years to come. The European Industry is proving unprofitable, as the business units are hugely overrunning costs.
MOTORISED CONSUMER PRODUCTS
MARKET SIZE, AND GROWTH
The size of this market is growing with the favourable economic conditions in the U.S. (i.e. consumers have more money for luxury items). The company have just acquired Scanhold Oy (Finland) which gives them access to the large Scandinavian market.
There is strong competition in this industry in North America. The moves of competitors have caused market share to fluctuate due to the development of stronger technological and manufacturing advantages. The main competition comes from Polaris Industries and Yamaha. Scanhold Oy's dominance of the Scandinavian market suggests little competition.
OPPORTUNITIES AND THREATS
The expected increase in demand in consumer product sectors presents an opportunity for company growth. The acquisition of Scanhold Oy holds a great opportunity to expand into Russia, as presumably the Russian weather would give rise to a high level of demand for snowmobiles.
SEASONAL AND CYCLICAL FACTORS
Ski-Doos are dependent on snow, and to a lesser extent warm weather is desired for Sea-Doos. The weather is a factor but seasons vary relatively little from year to year. However products can not be sold all year round.
The company was one of the largest manufacturers of snowmobiles in 1993 , yet revenue form this division was only 13% of total company sales in the 1990s. The profits from this industry are of an unpredictable nature. 1991 and 1992 yielded losses, whereas 1993 was profitable.
AEROSPACE TRANSP. CONSUMER
FACTORS WEIGHTS DEFENCE EQUIPM. PRODUCTS
MARKET SIZE/ 0.1 7 8 7
COMPETITION 0.25 6 5 6
OPPORTUNITIES/ 0.15 7 6 8
SEASONAL 0.05 10 10 5
CAPITAL REQ. 0.1 5 7 7
SFs/RFs 0.15 7 7 7
PROFITABILITY 0.1 4 5 6
UNCERTAINTY 0.1 5 7 7
TOTAL 1 6.2 6.4 6.8
COMPOSITE MIX OF INDUSTRIES
Bombardier's core business, based on history, is the Ski-Doo/Sea-Doo division, which is in the most attractive industry. However based on investment, its core businesses are in the least attractive Aerospace and Defence Industry. Even so this industry is currently yielding the only significant profits.
COMPETITIVE STRENGTHS OF BUSINESS UNITS
SHORT BROTHERS PLC
Judging by the $1.5 billion in order, Short Brothers PLC has a fairly sizeable share of the European Aviation Market. These orders also show the quality of its products, as well as a reputable brand name. The business possesses excellent competitive competencies (including technology and innovation): see strategic resource fits
Short is profitable, however the declining orders for larger aircraft is likely to reduce its work on components for Boeing, Airbus, and Fokker.
Business Jets have gained a 25-30% market share despite a strong competition, after a turnaround. Also Canadair has several contracts in the Defence market. The state of the larger aircraft market will affect Canadair as Short. Bombardier, in overhauling Canadair, have reduced previously hugely excessive costs.
The business has shown great technological and innovative skills in the number of products it has developed, including water bombers, and its competitive capabilities have helped Learjet. Canadair's business jets are now profitable, although its other products are not. However, there is an expected upsurge in demand for commercial aircraft.
The business has been a loss maker and, therefore would have an immaterial market share. It does however have significant competitive competencies, see strategic fits. This also shows technological skills.
De Havilland's orders are not sufficiently in proportion to costs, which prompted the consideration of temporary closure. Hence the business is not yet profitable - but Stanford's study is encouraging for them.
Learjet has no market share, as it has few orders - Cessna dominate the market.
However showing technology and innovation skills, Learjet have developed new models in an attempt to increase market share.
Learjet has a strategically fitting competitive competency, in that it manufactures similar products to the other aerospace and defence businesses. It has been far from profitable thus far, yet the new developments are intended to boost profitability.
The Bombardier Eurorail Division (of which BN is part) has only a 7% share of the European mass transit market, despite large contracts.
Huge cost overruns is the reason for the low market share, however a favourable result in the court case would dramatically improve matters.
The contracts awarded indicate quality of service, as well as competitive competencies which can be matched to the other business units in the transportation equipment industry. However low profit is a major fault of BN's. Profitability is expected to rise. As Bombardier expect to win the court case - but this can not be allowed to influence BN's business position (in the name of prudence).
TRANSPORTATION EQUIPMENT GROUP
This business has a 30% market share in the U.S. and Canada, which betrays quality of service, as well as competitive competencies to fit well with bombardier's other businesses. The Group (as part of Bombardier's part of the industry) may not be greatly profitable, but the company expects revenue to double in the coming years.
This business unit dominates the Scandinavian market, indicating quality products, as presumably Scandinavia would have a large market for snow-related product, and thus a number of rival firms.
This dominance also indicates technology and innovation, as well as competitive competencies including proximity to Russia - which is very favourable for Bombardier.
Scanhold, through the victorious 'LYNX' snowmobile, have a reputable, marketable brand name, and are fortifying it with advertising.
Market dominance suggests profitability, which could be improved upon with an expansion into the former Soviet Union, where snow is abundant in winter.
This business unit has a healthy market share of 25%, lying second behind Polaris Industries, although this figure has been fluctuating.
The Sea-Doo now holds a 37% share of the U.S. sit-down watercraft market, despite competition. Steps to lower costs and improve quality of production and service have been taken: just-in-time production, and an improved distribution, as well as a wider variety of products.
Their competitive competencies include the technological capability to improve on past designs, and larger better production facilities, although they do rely on Rotax for engines. The number of years in the snow-mobile/consumer products industry has established a well-known brand name. Profitability has been up and down but the health of the U.S. economy (meaning people have more and more disposable income), and the expected upsurge in demand could lead to excellent profitability.
FACTORS Weight Havilland Canadair Learjet Short BN TEG Scanhold Sea/Ski-
MARKET SHARE 0.1 2 4 1 8 1 7 9 7
COSTS 0.1 4 6 4 7 2 7 7 7
QUALITY 0.1 6 7 5 8 7 8 9 9
TECHNOLOGY 0.15 7 7 4 7 6 6 7 7
COMPETENCIES 0.15 7 7 4 7 7 7 9 7
BRAND NAME 0.05 5 5 3 7 2 5 8 7
PROFITABILITY 0.15 2 5 2 7 1 7 8 6
KNOW-HOW 0.20 8 7 6 8 6 7 8 8
TOTAL 1 5.45 6.2 3.85 7.4 4.4 6.85 8.1 7.25
BUSINESS POSITION/ COMPETITIVE STRENGTH
5 6 8
STRATEGIC FIT ANALYSIS
. There are a number of competitively valuable value chain match-ups, especially De Havilland's engine modifications for Canadair, and design for Learjet.
. Rotax's engine developments are used by the Sea-Doo/Ski-doo Division, and could also be used by any of the other business units held by Bombardier.
. Short's expertise is utilised by Canadair in design and manufacture, and, along with Canadair, short works on components for Boeing, Airbus and Fokker.
. The BN-Division and Societe ANF-Industrie S.A. show strategic fit in their working together.
. These business units mesh well with the long-term corporate strategy to acquire, use, and improve on the competencies of business units.
. These value chain match-ups also give the business units a more powerful position for gaining leverage in bargaining with suppliers: another competitive advantage.
RESOURCE FIT ANALYSIS
Bombardier have been fortunate in acquiring businesses as governments have written off debts, or protected from loss, units such as De Havilland, Learjet, and Short. Without this aid, these units would have been a larger
drain on corporate resources. The Company has spent a lot of money on Canadair, which has set to fully justify the investment, and TGV trains, which at the moment seems unlikely to develop into young star. Concarril is also a Cash Hog
UTDC seems that it will generate cash flog as it has already won a large contract, though newly acquired. Although not a Cash Cow at the moment, with a forecasted increase in demand, the Sea-Doo/Ski-Doo Division could become a source of resources for Cash Hogs.
No Cash Hogs should be divested as all occupy healthy business positions, except for TGV, which should be harvested. Concarril holds great promise in that it could be the door to South America.
GOOD FINANCIAL FIT
The Aerospace and Defence Industry, as a whole, fits superbly, however Learjet and De Havilland do not contribute largely. Short is in the lucrative European Aviation Industry and will make profit.
The Transportation and Consumer Products Industry Units do not contribute largely to shareholder wealth, however their market shares are encouraging, along with the prediction of future profitability.
POOR FINANCIAL FIT
TGV and Concarril soak up a hugely disproportionate share of resources to their profitability, even though Concarril was an inexpensive acquisition. Canadair fitted poorly originally but is now improving.
All units in transportation and consumer products have been inconsistent in contributing, but especially De Havilland, Learjet and BN.
COMPETITIVE AND MANUFACTURING RESOURCE FITS
Canadair, Short, and De Havilland have done very well in transferring expertise and resources to other business units. However Learjet, and initially Canadair, require investment to keep up with competitors and justify their place in the corporate portfolio.
All units in the Transportation Equipment Industry call 8 of them have similar capabilities and needs, which can be easily interchanged if need be.
Scanhold Oy, and the Sea-Doo/Ski-Doo Division both manufacture snowmobiles and can exchange skills and resources.
Rotax can make engines for any unit in the portfolio, showing ease of transfer.
RANKING BUSINESS UNITS
AND PRIORITISING RESOURCE ALLOCATION
Based on the Nine-Cell Matrix Scanhold Oy would have Top ranking in the corporate portfolio, closely followed by Sea-Doo/Ski-Doo Division, Transportation Equipment Group and Short Brothers PLC. Along with Canadair, these units are the only significant contributors to company earnings. The Nine-Cell Matrix predicts bright futures for these units, but also good, healthy futures for the remaining units, aside from Concarril and TGV trains.
Bombardier's position is healthy, in that its core businesses (See-Doo/Ski-Doo, Transportation Equipment Group, Canadair) have bright profit and growth prospects.
Most of Bombardier's Acquisitions have been in the Transportation Equipment Industry which is predicted to become increasingly profitable.
However the return on capital employed / EVA of Learjet and De Havilland are causes for concern.
At this point in time we would only recommend divestiture for TGV trains as too much expense is being incurred with little interest.
Investment is advised in all units in the Aerospace and Devence Industry as the market is growing. There is potential for great profitability in the development (Present and Future) of new models, especially in the European Market (Short).
BN should be overhauled, with a new strategy put in place to keep costs down. The same applies for the other Bombardier Eurorail Units.
Concarril should be depended with minimal resources - just enough to keep the unit going, until a strategy is devised to enter South America.
The remaining North American Transportation Equipment Units should be promoted with investment.
Sea-Doo/Ski-Doo Division should be invested in to take advantage of the state of the U.S. economy. However, perhaps the Scandinavian market is near saturation - if so, Scanhold Oy should be defended to maintain dominance until the time is right to move east.
There is a large scope for combining activities within the company. Bombardier Eurorail's Units could all help each other working as a team, like BN and ANF, in bid to reduce costs. Bombardier Rotax has the proximity to supply engines cheaply to all other European-based Units. Canadair and De Havilland are both based in Canada and could share facilities, and expertise. Short's skill and expertise could be imparted to De Havilland and Learjet to increase competitiveness.
One of Bombardier's main issue is the debt attached to many of their
business units. Governments have wiped this dept away, but the various units must be wary of the UN-aided future.
The prospects of TGV trains and Concarril must be addressed in terms
of worth to the company.
The success of new designs in the Aerospace and Defence Industry
must be assessed, these designs will be superfluous if industry conditions do not improve.
The cost overruns in Europe are a major concern to Bombardier. If
the outcome of BN's court case is positive, this will improve matters - but other units have performed equally poorly.
The timing and the scale of entry into fancied new markets such as
East Europe, Asia, and South America is important.
Most of Bombardier's resources are currently employed in the least
attractive of the tree industries they are involved in (Aerospace and Defence)
The below par performance of Learjet and De Havilland, even in
relation to Canadair, is a cause of concern. A strategy to boost
performance should be devised.
The fluctuating profitability of both transportation and motorised
product industries must be addressed.
The abandonment of plans to receive equity through the issue of a
new class of shares.
It is likely that the various debts of the business units were due to
taxation due and grants repayable to the government. The main problem is profitability. All of these debts were in the Aerospace and Defence Industry. The forecasted increase in demand, due to the growth in smaller, regional airlines, and the lack of strong competition for this new demand should lead to profitability in the future - with no need for debt.
TGV trains have incurred too much expenditure on a questionable
product. It is unlikely that this unit will be successful, and therefore it should be harvested.
Concarril, on the other hand, despite poor performance, has great resource fits due to its proximity to South America. This unit should be defended whilst strategy to conquer this New Market is devised.
Industry conditions are strongly predicted to improve - and these new
designs have come from the vast technical knowledge of Bombardier's
business units. This would suggest success.
Combining activities, such as manufacture, could be solution to these
cost overruns - such as BN and ANF's teamwork. The proximity of each Eurorail Unit to each other facilitates this, as does Rotax's location. i.e. more advanced engines may be used to increase competitiveness.
Bombardier's acquisition policy has so-far served them very well and
it should also be used in this case. A study of the market conditions in each area should be conducted to gains answers regarding ease of entry, and potential demand.
This aerospace and defence industry is expected to improve in the
future, however our analysis shows that each industry is, in fact, similarly favourable. Therefore this is not a key issue.
The poor performance of these two units has been attributed to market
conditions, which are expected to improve. However using Short Brothers PLC as a competitive benchmark would give these units a blueprint for success. Xerox's use of this technique (using LLB clothing and footwear) has shown the effectiveness of this technique.
Due to studies in both industries, profitability is predicted to increase
which will eradicate these movements as long as costs are controlled.
Eurorail's cost can be reduced using recommendation 4.
The lack of interest from financial institutions in these share was due
to the uncertain outlook of the Aerospace and Defence Industry, and perhaps the price of offered shares. If the industries grow, as forecast,
this share issue could be successful in a few years time.
What Business are we in?
|Enviado por:||David Calvo Calonge|