Akaki Tkeshelashvili Strategy Exam 2020

QUESTION 1

26 of 30 points

Question (Hide)

How attractive are the two industry segments (machines and molds) Husky operates in?
Which one is more attractive?

Answer (Hide)

The answer may not be longer than 400 words.

Porter's 5-forces below shows ​3/5​ forces and ​2/5 ​forces have low intensity for machines and
molds respectively suggesting machines are more attractive

Threat of entry:

Machines​-​LOW-​barriers to entry are ​high ​because,(1)highly specialized production of systems

require large CAPEX and R&D for the new entrants. (2)customers have high switching costs
due to high assets specificity, i.e. producers adjust their systems on machines.(3)Reputation
and customer loyalty is important in the market, therefore, it's resource and time-intensive for
entrants to outcompete established players.(4)economies of scale are fully exploitted at 500
machines, therefore, new entrants with lower scales will face higher unit costs. Nevertheless, as
Husky's current competition demonstrated threat of new entry is high when companies integrate
horizontally. These companies had resources for high CAPEX and R&D, which helped them to
succeed, as seen by their revenues. Threat of "newborn" companies appearing are low, while
consolidation already took place for the established and large corporations and it's less likely
that any new ones will enter​.

Molds​-​HIGH-​mold production faces ​lower ​barriers to entry also seen by 10,000 mold producers
globally, compared to 15 in machines. Companies also replace molds several times a year,
which doesn't bound them with the mold-producers as much as with machine producers.

Power of Suppliers:
Akaki Tkeshelashvili Strategy Exam 2020

Machines​-​HIGH​-although mostly steel, a commodity, is used for production, certain parts are
produced by concentrated and specialized set of suppliers.

Molds​-​LOW​-steel is accessible and the price commoditized, which gives less power to the
suppliers for mold producers.

Power of customers:

Machines​-​LOW​-15 companies form a concentrated market itself, but whenever a plastic

producer acquires a machine it is even more bounded to a specific supplier, having lower
bargaining power.

Molds​-​HIGH​-multiple shops and masters produce molds, and also they're less expensive->
more bargaining power to customers.

Threat of substitutes​-

Machines and molds​-​LOW​-currently low/non-existent, although plastic can be replaced just as

was the case for glass and the companies should keep an eye on trends.

Rivalry among competitors:

Machines​-​HIGH​-saturated industry with 15 companies, with high fixed and high switching costs
for the customers, the competitors have used price-discounting (Cincinnati), and new service
introductions (Electra) to maintain shares in low growth (6%) market, and the competition seems
to gravitate to price as demonstrated by the competitors' low-cost strategies.

Molds​-​HIGH​-lacks differentiation and switching costs among mold producers. High fixed costs
and low marginal costs of producing a mold pushes price-wars.
Akaki Tkeshelashvili Strategy Exam 2020

QUESTION 2

26 of 35 points

Question (Hide)

Has Husky been pursuing a low-cost or a differentiated strategy? Please back your
answer to this question with a willingness-to-pay analysis of the PET Preform application
(as an example product). There is no need to prepare tables or charts, please feel free to
describe your calculation steps in the text, eg in a sequence of bullet points.

Hint (1): To calculate a customer’s willingness to pay for a Husky system, consider a customer
who wants to make as many plastic products as a Husky system can make in a year. If the price
of a Husky system were to rise above a certain level, the customer would be better off making
its products with a competitor’s system. What is the price that would make the customer just
indifferent between a Husky system and a competitor’s system. This is the customer’s
willingness to pay for the Husky system.

Hint (2): Your PET Preform willingness-to-pay analysis should cover both capex (cost of
machine) and opex (related to savings of resin (please use latest price provided), electricity, and
floor space (please use midpoint of the range of rent estimates); please use assumptions in
Exhibits 6 and 11 and on page 4.

Answer (Hide)

The answer may not be longer than 400 words.

First, I provide the calculations for the price of indifference. Second, I discuss Hasky's
differentiation strategy.
Akaki Tkeshelashvili Strategy Exam 2020

The price of indifference calculations:

Annual production capacity:

1- Time(sec.) -

Husky- 22.3*60*60*365=29,302,200sec

Comp- 18.9*60*60*365=24,834,600sec

2- Annual production increase (in units)

Husky =annual time(29,302,200sec)/cycle time(10.4sec)*unit/cycle(48units)= 135,240,923units

Comp=24,834,600/11.8*48=101,022,101units

Production increase=34,3218,822units

For a producer to produce 135,240,923 units with the competitor's machines (as reached with
Husky's systems) it needs to utilize:

135,240,923/101,022,101=1.339 competitor's machines

therefore, the cost of the purchase for the similar production capacity of the competitors'
machine would be = 1.339*$1,000,000=$1,338,726

Production capacity cost saving​ = $1,338,726-$1,200,000=​$138,726

Akaki Tkeshelashvili Strategy Exam 2020

4- Annual cost savings

weight saving/unit= (24.42-24.39)=0.03g/unit

Product cost saving=​annual production(135,240,923u)*weight saving/unit(0.03g/unit)*cost of

gram(0.0007$/g)=​$2,840

Rent saving​= $60*(351.8-343.1)=​$522

(Rent- avg $60/sq.ft (avg of $20-$100))

Electricity saving​= $0.08*0.137kWh/unit*135,240,923units*0.0249kg/unit=​$36,908

Total savings= ​$138,726+ $2,840 + $522 + $36,908=​$178,996

Price of indifference​=​ ​$1,200,000+$178,996=​$1,378,996

Additionally, Husky's speed of service, proximity to mold producers and plastic producers, close
relationships with the customers, were all important for the industry.Therefore, the value of
Husky's total product and integrated services could be higher than demonstrated above.
Considering all these, the price of indifference can be argued to be even higher, yet not directly
quantifiable. Therefore, I think that most of the activities at Husky were done to increase the
value of its products, which, consiquently, would increase the willingness to pay of its
customers.

In addition to the qualtified benefits above, Husky pursued a differentiation strategy through its
highly customized products, specialized workforce, and best-in-the-industry service for molding
systems. Moreover, it charged premium for the greater value proposition to the customers,
instead of focusing on operational effectiveness and low-cost strategies.
Akaki Tkeshelashvili Strategy Exam 2020

The analysis above, in turn, demonstrates that Husky was even under-charging its customers,
although providing much more superior value added than its closest competitor.

QUESTION 3

23 of 35 points

Question (Hide)

What has caused Husky’s current difficulties? How should Robert Schad and the
company respond?

Answer (Hide)

The answer may not be longer than 400 words.

Husky's was facing crisis due to two major reasons. First, production of its customers, i.e. plastic
producers, decreased because the capacity of resin production was lagging behind. Therefore,
there was not enough input, or input that could be accessible at economically profitable price,
for Husky's customers. This would lead the customers to cut purchases of Husky's machines.
Second, Husky did not foresee the increasing price competition from its rivals in the molding
machinery industry. The competitors were managing to offer somewhat high quality machinery,
although not comparable to Husky's, at lower prices. This effect would be reinforced when cost
cutting would become the major concern for the plastic producers. Therefore, the industry was
becoming a red ocean where the price wars were expected to intensify from 1996.

Instead of declaring the price war, Husky's response should be pushing its differentiation
strategy even further by demonstrating the value proposition of its machinery. By doing so, the
company would achieve multiple objectives.
Akaki Tkeshelashvili Strategy Exam 2020

First, Husky would stay in line with its long-lasting and built-in differentiation strategy. All of
Husky's operations were oriented towards creating customized and specialized products, while
Cincinnati and The Mannesmann Group were targetting the scale all along, producing more
units annually at lower price. Thus, Husky is not ready for the price wars because doing so,
would require scale and major changes in its organization. As seen in the case, the
organizational structure has quality and value embedded in it, and it's not a rigid consequence in
the Husky's business model, therefore, not possible to change in such a short term.

Second, Husky could further exploit the opportunity to offer its more efficient, cost-saving
machinery to the customers. As seen in the case, the salespeople were not demonstraing this
value of the machinery well enough as they just realised that ​"the value difference might've been
​ 13. Also, the buyers are willing to perform sophisticated calculations for
higher in the past" p
product offerings which can be successfully done for Husky's machines to demonstrate its value
added.

Third, instead of integrating in the industry or declaring the price war, Husky can always use
quasi-integration strategies. The competitors have already signed licensing andleasing
agreements with the Indian companies, which might also be an opportunity for Husky. Also,
1990s crisis when Husky got the financing capital from the Japanese company shows that they
can stay true to the strategy, while finding the partners.