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Report On Clayton Industries Case Peter Arnell Country Manager For Italy
Report On Clayton Industries Case Peter Arnell Country Manager For Italy
OBJECTIVE
The purpose of this report is to analyze the daunting challenges faced by Clayton
SpA,the Italian subsidiary of US based Clayton Industries Inc. Peter Arnell has just
taken charge of the Clayton SpA to turn around the current loss making status of
the company losing around $1 million a month after decades of solid returns.
Contents
Introduction
Clayton Industries was founded in Milwaukee in 1938 and with the passage of time had
built a core competency in the manufacturing of window mounted Air conditioners for
residential and light commercial enterprises. In the early 1980s the management
envisaged a lucrative market in Europe and consequently acquired four European
companies, one each in UK, Belgium, Spain and Italy, to exploit the growth opportunities
there. The Italian company was a manufacturer of compression chillers for large
commercial, public, and institutional installations. However, initial progress in the
European markets was slow. National brand preferences, non compliance of design to
European homes, competition from Asian producers and the recalcitrant behavior of the
average European consumer meant that initial sales were going to be very sluggish. The
situation was all the more alarming for Italy as sales outside this country accounted for
only 12% of the total sales. However, due to improvement in operational efficiency,
reduction in costs and country managers being made to shoulder greater responsibility,
the company was able to turn the tide. For the period commencing from 2000 to 2009
Clayton Europe became a major contributory factor for the growth of the company with
revenues accounting for 45% of the global revenue. This was a marked increase from the
33% share in the year 2000. However, in 2008-09, European growth was stalled by the
recession as a result of which profit margins were badly hit (Refer Exhibit 1. below).
Hence it was imperative for the management to activity come up the strategy to regain
the market share and its revenue growth after recession.
Description of Problem
The company faces many challenges while operating in Europe. The market for air
conditioners is well developed as consumers view Air conditioners as a symbol of
American extravagance. However, the company did reasonably well through local brands
Corliss and Fontaire.
Simonne Buis took over the reins of Clayton in 2001 and immediately adopted a two
pronged approach to gain competitive advantage. The focus was either to slash costs or
build scales or both. Clayton started finding going tough post 2008-09 because of the
global recession. Its sales declined and quite markedly in Italy
By 2009 the revenue of the company had fell over 19 % which was not as per the
intended plan of the company. In wake of such a performance the country CEO of Italy,
Arnell decided to close down some of the facilities as well as reducing the labour force.
Apart from recession there are several other factors that are adding to the companys
troubles. The company due to its uncompetitive product profile found itself struggling in
markets outside Italy. The poor sales and rising input costs hurt both the bottom line as
well as the top line of the company. The company faced labour union problems, and it
was very difficult to fire anyone owing to the norms of Italy. To top it the company also
has a high wage bill and a very limited customer base in Italy.
The company also faced stiff competition from Asian firms in other markets of Europe,
which provided better value for money products to the customers. Overall the company
faces a problem of high prices of its products with no tangible or intangible value
associated. The company is thus confronted by the upward task of restructuring its
product line, reducing costs and build scale.
Evaluation of alternatives
Target
a. To increase the market share of Clayton SpA from 7% to 15% within 4 years (Four in
Four objective).
b. To reduce Days Receivables, Days Inventory by 10 days and Headcount by 10%
(10/10/10 objective).
Manufacturing plan1. $5 million investment in the next 12 months in the existing manufacturing facility
2. Addition of new features in compression chiller which would bring them at par with
other Asian counterparts.
3. Technological improvement resulting in higher efficiency for the compressor.
4. Utilize Economies of scale to reduce Average Cost.
5. Increased substitution of labor by capital to utilize lower marginal cost of capital
versus higher marginal cost of labor.
Sales and Marketing plan1. Brand Diversification - Collaboration with local European brands to improve Brand
perception.
2. Market Expansion - Leverage sales and distribution channels of other European arms
of Clayton industries to explore newer markets.
3. Market Penetration - Increased spending in Advertising to improve customer
awareness about the new features and reduced carbon foot-print of the product.
account of its poor financial performance in recent years. Whereas we find the current
ratio is constant at 1.3 for the Spanish subsidiary of Clayton industries.
Subsidiaries
Asset Turnover ratio: The asset turnover ratio has moved in line with the industry
benchmark, but since the company has not been able to transform a good asset turnover
ratio into consistent profits, the company needs to change the product line it is operating
in. Changing over to absorption chillers seems to be an obvious option.
Alternative III In depth study of the overall business processes for a period
of 6 months, for coming to a well informed decision.
This option requires more in-depth analysis of the business processes by waiting for a
period of 6 months, but this proposal seems to be impractical because of the fact that
company is facing current issues of stagnant cash flows along with huge debts on the
balance sheet doesnt seem to be a logical step to undertake. The company has also taken
steps to postpone the debt payments. Moreover taking this extra time doesnt guarantee
the company of anything concrete or different in terms of the options that company has.
If there are possibilities of internal improvement these can be looked into, simultaneously
with other improvement initiatives. Waiting would further lower investor confidence and
worsen the current situation
CONCLUSION:
The company should focus on sustaining the market losses in the short term and wait
for the economic recession to change to better conditions. The company should
formulate the growth strategies for the long term to capture the phenomenal amount of
market share in the long run in absorption type chillers and conditioners that connect
with the people of Italy.
References
1. www.wikipedia.com accessed on 20th November, 2010
2. www.hbr.org accessed on 20th November, 2010
3. www.claytonindustries.com accessed on 20th November, 2010
4. Philip Kotler and Kevin Kelly. Marketing Management, Pearson Publishing, 13th
Edition, 2009
5. Anthony, Financial Accounting, Tata McGraw hills, 10th Edition, 2009