TEX-FIBER INDUSTRIES Petroloid Products Division

1) What major pressures is Mr. Simmons faced with in early 1975? Mr. Simmons feared profitability and liquidity for the firm would be threatened in 1975. On the backdrop of reducing fresh orders in view of economic recession. The impact wasnt realised in 1974 despite economic recession because of large backlog orders. In 1975, Plant utilisation dropped to 60% of capacity. In 1974, when the plant operated at it capacity, management wanted to raise prices and maximize sales and earnings, which would be difficult to implement in the ongoing troubled times.

2) What has PPDs historical performance been? Second largest producer of petroloids in the world. Sales of $464 million (1974). Worldwide market share of 20%. Pioneer in industrial petroloid research, but couldnt threaten the industry leader!

3) What are the essential characteristics of the Petroloids market? Highly dependent on R&D for finding new demands and explore future for already existing products. Standardized products were Price, Technical assistance, Advertising & Availability sensitive. Customized products were more sensitive over physical properties and operating performance. Advertising & Promotion used their channels to reach end users, increasing the effectiveness of distribution networks. Firms with proper requirement planning had the ability to deliver under high demand. Markets were divided by product type, end user & geographies. Oil based materials being a standardised industry, was highly price sensitive. Rubber and FAS segments show higher profit margins and growth. Fastest growing markets included Construction sealants (29%), Roofing materials (15%), Consumer products (15%), Health care (30%), and Appliances (16%). Aerospace, Automotive and Mechanical markets expected to slow down by 5%. Offshore demand expected to increase steadily. The United States was the largest user of petroloid products.

Europe expected to slow down US market with an increasing annual demand of 12%. Japanese markets at equal pace with the US market. Third world markets showed rapid growth of 17%, for additive and oil products; Rubbers & sealants in a take-off stage.

4) How attractive is the business overall and by segments?

Overall Market Attractiveness Factors Market Size Growth Competition Type Competition Concentration Capital Intensity Technology Maturity Tech. Protectability Price sensitivity Sales & Promotions High $696 million Top 3 have major revenues from US 92% of US market by top 3 firms High because of the complex production processes Evolving in FAs and rubber segments Has patent Medium - Low (7.5 % of net income) 11% worldwide Medium Low -

Market Attractiveness Factor Market Size Growth Competition Concentration Financial Technology Price Market development Score 1 0.5 1 0 1 0.5 0 Total Weighting 25 5 20 15 15 10 10 100 Ranking 25 2.5 20 0 15 1 0 63.5

Business Position Factor Product Diversity Manufacturing Marketing Current Technology New Technology/ R&D Score 1 0 0.5 0.5 0.5 Total Weighting 20 20 20 20 20 100 Ranking 20 0 10 10 10 50

Market Attractiveness Business Position Matrix

The Market attractiveness is good but the business position is average. It needs to be revamped by Selective Investing strategy. Since FAS has better growth even in recession period. The consumers of oil and rubber products like aerospace, automotive and mechanical goods have decline in growth, so in turn the growth of oil and rubber segments will be hampered. So FAS has a better market attractiveness in comparison to other segments, oil and rubber.

Worldwide FAS 28%

U.S.

European

Japan ($9 18%

3rd World ($12 24% Million) ($5 ($9

($184 45% ($154 5% Million) Million)

Million) Rubbers 23%

Million) ($8 18%

($115 37%

($92 4% Million)

($10 22% Million)

Million) Oils 14%

Million)

Million) ($6 18%

($165 18% ($110 2% Million) Million)

($38 9%

($11

Million) Tex Fibers 20%

Million) ($23 18%

Million) ($25

($464 30% ($356 4% Billion) Million)

($60 14%

Industry PPD

- Million)

Million)

Million)

The Petroloids business being highly dependent on R&D has high levels of profitability & more areas to explore.

Geography

Sales ($bn) 1.19 0.62 0.33 0.18 2.32

US Europe Japan Third World Total

74 Projected Compound Growth rate 10 12 10 17 11

% of Total Sales Oils 50 39 63 66 50 FAS 29 32 21 21 28 Rubbers 21 29 16 13 22

Petro-oils have already reached the maturity stage in the US. Hence competing for any more market share would not benefit the firm at any significant level. Also the firm cannot afford price

5) How would you describe competitors approaches to the market? Standard American Corp. chose not to hike prices, thus capitalised on the additional demand from Tex-Fiber Industries as a result of price hike of the products. The market leader managed to keep its customers to less than 2% thus avoiding steep crashes when some customers were closing down during the recession. Standard American Corp. never compromised on R&D to explore the application of speciality petroloids thus leading the development and improvement of products and processes. To ensure this they spent a larger share of its revenue on R&D. A high grade speciality material, Stannopetroloids which the company held a patent for and was the sole supplier, gave them an

edge. On the other hand, Tex Fibers when implemented lean across departments to cut costs it also impacted R&D which is a significant area for this industry. Standard American Corp. was among the first to have an early foothold in the offshore markets, again capitalising on the chances. Their strong presence in Japanese and Third Word markets indicate that clearly.