For Wendy Lewis

ToolsCorp. benefits from relatively high gross margins as the kind of products that the company sells such as machines allow for premium pricing to compensate for the high operating costs involved. However, these high operating costs incurred in the production processes are a major weakness for ToolsCorp. This is besides the large cost outlays involved that form a barrier to entry for new firms and into new markets. On the other hand, the development of technology poises the company for business success. This is due to the emergence and provision of 3D modelling services through which potential customers can customize products to reflect their unique fabrication needs thereby furthering demand while also enhancing premium pricing on these services. At the same time, internet technology is also a threat to the company as it increases competition and has the tendency of exerting a downward pressure on prices (Schmidt, 2009).

In line with its objective of breaking into the global market space, the company should venture into China. This is because China has a thriving economy and an expanding middle-class capable of generating sufficient demand for the company’s products. However, in compliance with government regulations, ToolsCorp. shall have to acquire a suitable subsidiary company in China in which it will own not less than 80% of the stake. This is also to help the company acclimatize with the Chinese business environment (Wiedmann, Hennigs & Siebels, 2007). ToolsCorp. shall first enter the Chinese market by manufacturing and selling microwaves, lawn mowers and power tools. However, in the long-term, the company shall have to diversify its revenue streams by also making and selling ranges and lawn furniture.

It is however important to realize the extent in which the Chinese culture and architecture is deeply embedded in the way of life of the locals. Therefore, the company shall have to integrate itself into the Chinese culture by for example ensuring that at least 98% of the workforce in the Chinese subsidiary are locals. Incorporating Chinese designs into the company’s products such as lawn furniture will ensure that the product offering reflects Chinese culture and architecture. Furthermore, initiating local Corporate Social Responsibility (CSR) activities within China will help the company embrace the local’s way of life and therefore ensure the business success of company (Schmidt, 2009).

Q1: SWOT Analysis

Strengths:

The first strength for the company is stemmed on the stability of the nature of demand for some of its products. Specifically, the customers’ demand for some categories of machine tools that are used in the construction industry remains fairly stable even in times of economic duress. These machines include power tools, lawn mowers and rangers, whose demand does not change much when the economy is generally experiencing bad times. This promises that the company’s products shall always be in demand with the company relatively positive sales results as compared to other companies. Second, the nature of sales transacted by the company earn a high level of gross margins. This implies the products the company sells are priced relatively high enough so that the company enjoys good profit margins. This is a key strength for the company as it is able to earn high revenues from its transactions which then increase the value of the company for its shareholders (Ross, Westerfield, & Jordan, 2017).

Third, the nature of the industry in which ToolsCorp. operates in is characterized by a limited level of competition. This low level of competition is generally attributed to the enormous cost outlays that starting a machine company requires. In general, a modest machine company would require a minimum of $250,000 just to get basic operations running. This is a strength because the level of competition is reduced thereby saving the company a lot of dollars that it could have otherwise spent in marketing costs. Fourth, the company has a diversified portfolio of product offerings that it avails to its target market. The company manufactures and sells power tools, lawn mowers, lawn furniture, microwaves and ranges. This means that should there be a lull in the demand for power tools, this shall be offset by a relatively high level of demand for other consumer durables such as microwaves. Therefore, by diversification, the company enjoys a steady income and hence a key strength for the company (Ross, Westerfield, & Jordan, 2017).

Fifth, the company has strong management team. This is an important strength for the company as the management offers good corporate governance. This steers the company to achieve effectiveness and efficiency in its operations. Besides, the other strength is that the company has a customer-friendly team that ensures that customer complaints and queries are handled and responded to in a timely manner. The company also prides itself for having a good customer support which adds to strengths of the company. Customers enjoy free deliveries of the equipment they buy from our stores for an address within five-miles radius of any of our stores in the U.S and Canada.

Weaknesses

A key weakness for ToolsCorp. entails the high operating costs that it incurs. These huge production costs covering fuel, raw materials, consumables and labor, both skilled and unskilled, bear negative effects in terms of limiting the profit potential of the company despite the huge gross margins it enjoys. In addition, normal economic cycles about recession and boom affect the revenues of the company. Revenue fluctuations occur despite the stability of demand of some of the company’s products. These fluctuations pose planning difficulties for the firm (Kathy, 2008).

Third, there are huge cost outlays involved in setting up operations for a company like ToolsCorp. This therefore creates a barrier of entry for ToolsCorp. in its attempt to break into the global market. The other key weakness is that the company has a weak marketing team in place. As a result, the company does not enjoy a significant strong brand name. This will therefore pose enormous challenges for the company in trying to get its brand known in the global marketplace as the company is not well-known internationally. The fifth weakness of the company is that it is presently located in U.S and Canada and therefore a low global geographic presence. This limits the market share for ToolsCorp. It also underscores the need for global expansion so as to increase its market share by venturing into new overseas markets (Kathy, 2008).

Opportunities

A major opportunity for the company is that with the development of technology, it shall become possible for the company to provide 3D modelling services to customers. These services when applied to certain categories of power tools will allow the company to satisfy the needs of its customers who have unique fabrication needs. These services also allow the company to enjoy higher revenues as the gross margins on these services are higher. Also, with most companies adopting an online strategy, via which customers can place orders online via the companies’ websites, ToolsCorp. should also consider adopting an online ordering and purchase system. Allowing customers to order for any of the equipment online on the company’s website will allow the company to reach more potential customers. Thirdly, with the growing population, there shall continue to be an increase in the demand for housing. This means that the demand for equipment such as lawn mowers, lawn furniture and power tools shall continue to increase or in the very least remain stable (Kamauff, 2009).

Fourth, if ToolsCorp. considers acquiring another company in the global market place, then the company shall be able to benefit by leveraging on the synergies created. Acquiring a company may access ToolsCorp. to a large network of stores through which ToolsCorp. Can display and sell its products. Therefore, expanding globally avails new markets into which the company can tap into. Hence, the bottom line position of the company is improved (Kamauff, 2009).

Threats

A major external threat pertains industry slowdown due to difficult economic times. Industry slowdown during recession for example would mean that the demand for most of the company’s products is low. This shall in turn result in mass layoffs and underutilization of resources such as capital, factory facilities and labor. Another threat is technology such as the internet. Through the internet, a potential customer may search for similar products offered by the company’s competitors and make the cheapest purchase. With this in mind, ToolsCorp. as well as its competitors may be forced to drive down its prices and hence reduce the gross margins enjoyed by the company (Kacen & Lee, 2002). Changing market preferences is also another threat.

The unpredictability of changing customer preferences and its dynamics may therefore render some power tools and products sold by ToolsCorp. obsolete. Therefore, the company shall need to invest on market research to understand the trends in the market place, the consumer’s needs and ultimately design products that meet these needs. Another threat for the company is that its business model is easily replicable. This may introduce new competition for ToolsCorp. Finally, there is a fairly stagnant level of urban demand. The demand for microwaves and lawn furniture does is in generally not set to increase exponentially going into the future. This means that diversifying its product offering even further may be the ultimate way for the company to continuously increase its bottom line position (Ross, Westerfield, & Jordan, 2017).

Q.2: Business Plan Outline

The goal of ToolsCorp. is to enhance the value of the company to its stakeholders. This shall be achieved through a multiplicity of factors. First, global expansion shall be very strategic in securing new markets for the company’s products. This shall provide a global reach in all business areas of ToolsCorp. As a result, the company shall be in a position to benefit from increased revenues, increased market shares, bottom line, growth rate and shareholder return. All initiatives of the company are ultimately tied into increasing the value of the company to its shareholders, customers as well as employees (Kroeber, 2017).

In light of these, the company should consider venturing into the Chinese market. China is the second largest economy in the world and is therefore a beacon of opportunity for an expanding company like ToolsCorp. However, as the company is not known in China, the entry strategies shall entail first acclimatizing to the Chinese market. ToolsCorp. shall acquire a sales subsidiary in China (Kroeber, 2017).

The acquired company in China shall be as a result of a rigorous search to determine the most suitable match for ToolsCorp.’s interests in China. The initial stages shall then be spent on ramping up ToolCorp’s exposure in China. The company shall be specifically seeking to grow its sales of home appliances such as power tools and microwaves in China. This is part of the larger corporate strategy of the company to grow its revenue to over USD 14 billion over the next 6 years. This would represent a 33.5% increase from the current sales revenue level registered by the company from its U.S and Canada stores (Hoyer & Macinnis, 2008).

ToolsCorp. shall plan to invest a sum total of $1.2 billion in its China expansion plans. Out of this, approximately $800 million shall be spent on acquiring a subsidiary. $100 million shall be spent on making capital expenditures while the remaining $300 million shall be spent on product research and development. This is to ensure that our products reflect the needs of our Chinese consumers and that we continuously continue to improve our products to gain a competitive advantage over our competitors (Harmon & Margolis, 2005).

Our R&D investment in China shall also incorporate our plan of offering 3D modelling services to our customers as well an online ordering and purchase system, all of which shall also be rolled out to affect our U.S and Canada operations as well. This means that our Chinese customers shall immediately be able to design their power tools to meet their unique fabrication needs. In addition, they shall be able to order for any of our products via our company’s website and have them delivered at their address at a cost proportioned to the customer’s distance (Cant, Strydom & Jooste, 2009). With these enhanced customer-support features available to our Chinese customers, we expect to hit our sales target of $4 billion in the Chinese market by the fourth year of operation.

Q. 3: Mission Statement

ToolsCorp Corporation is a manufacturer that designs, builds and distributes a wide range of innovative household furniture and portable machines to be used by regular households in the U.S and globally to perform everyday activities. Through our skilled and dedicated employees, we safely and effectively exceed customer expectations with quality-proven machine solutions such as power tools, lawn mowers, lawn furniture, microwaves, and ranges. We provide first-class quality and innovative machine tools and furniture that respond to our customers’ needs and we endeavor to continuously improve on our designs and innovations to reflect the changing needs of our customers. We value commitment, skills, attitude and effort of our employees which are all important for the success of the company. We believe that by maintaining a healthy business relationship with our customers, suppliers and employees, the company shall experience growth and guarantees our future prosperity and success. We intend to continuously transcend our customers’ expectations in quality, delivery and cost through continuous improvement and customer interaction. We endeavor to build on our history of product excellence and technology innovation to provide the highest-quality and most reliable products and services to our world-wide customers of home furniture and home machine tools.

Q. 4: Key Operating Principles

ToolsCorp Corporation is engaged in providing home furniture and machine tools that make work easier and that meet the needs of regular households not only in the U.S alone, but also in other counties globally. With more expansion plans in place so as to secure a larger market share in the global market, it becomes necessary to adopt production management practices that enhance effectiveness and efficiency within the company. These practices also form part of the corporate culture at ToolsCorp as it seeks to consolidate and expand its local market share as well as markets across international borders. Efforts towards this end shall therefore entail the key operating principles that are applied and adopted by the company in its operations (Wysocki, 2011). The key objectives of these key operating principles are consistent with the mission statement of the company and aim to continuously increase the value of its products to its customers as well as maximize the value of the firm to its different stakeholders (Kamauff, 2009).

The Key Operating Principles of the company include;

1. Quality products to our customers; the company shall at all times ensure that the product it offers to its customers are of the highest attainable quality standards. This means introducing quality checks at every step in the production and supply chain to ensure that processes and products are reliable and sustainable (Schmidt, 2009).

2. Empower our employees; as employees are key resources for the company, the company shall always undertake measures that promote a creative environment for the development of rewarding and fulfilling careers for our employees (Schmidt, 2009).

3. Enhance community development; the company shall endeavor to contribute towards community development through sustaining and advancing the manufacturing culture as well as providing employment opportunities to locals in the areas we operate (Kamauff, 2009).

4. Focus and enhance on customer satisfaction at all times; our customers are our main drivers for growth and success, therefore the company is committed towards ensuring that its various products satisfy the needs of customers. The company shall commit substantial resources towards product research and development in addition to conducting continuous customer surveys to assess the changing needs of our customers. As a result, our products shall be regularly improved to reflect the changing needs of our customers (Wysocki, 2011).

5. Enhance productions and operations efficiency; efficiency within the company shall be enhanced through undertaking efforts that lead to a leaner, flexible and scalable company. Consequently, we shall endeavor to minimize production wastes and costs while at the same time offering our customers the lowest attainable prices for our products (Wysocki, 2011).

6. Suppliers’ and vendors’ involvement; the company endeavors to ensure value in all that we do through also empowering our suppliers and vendors on a strategic basis. Brining our suppliers and vendors on board enables them to be familiar with the production processes and standards adopted by the company. This also familiarizes with the specifications required for the components outsourced from the company’s vendors. In addition, involving the suppliers enables them to reduce production delivery lead times and ensure that our products reach our target market at the right time and as needed (Schmidt, 2009).

Q.5: Preliminary Market Analysis

As mentioned in earlier sections of this report, the China market presents a beacon of opportunity for the company to grow its sales and market share for the various products in its product offering. To start with, China offers great potential by the fact that it is the second largest economy in the world after the United States. This means that on average, potential customers in China have relatively high average incomes and so they are capable of affording our products. In addition, an expanding middle class in China is spinning the wheels of economic growth by sustaining increasing demand for fast moving consumer goods as well as consumer-durables. As ToolsCorp. specializes in the manufacture and sell of various consumer durables, China is set to offer great demand for the company’s products (Kroeber, 2017).

China is also marked with unique government regulations that are aimed to protect its thriving manufacturing industry. China’s government regulations limit foreign manufacturing companies from setting up their fully-owned manufacturing bases in the country. The government requires that no foreign company can set up its operations being 100% foreign owned. Instead, each foreign company seeking to venture into the China market must do so as a joint venture with a Chinese company. In previous years, China mandated that both the foreign company and the Chinese company would each own 50% of their joint venture (Kroeber, 2017).

This was a protectionist move by the Chinese government to protect its local industries, promote the Chine industry and enhance employment for the local Chinese. However, with globalization, China relaxed this requirement to only require that the stake of a Chinese company in a new venture by a foreign company in China be not less than 20%. Effectively, this means that the Chinese environment faces heavy government regulation (Kroeber, 2017). Hence, ToolsCorp. shall have to venture into China by acquiring a majority stake in a local Chinese company engaged in the same business industry as ToolsCorp.

Despite a heavily regulated environment, China remains to be a manufacturing hub for many foreign companies. This is because of the relatively lower operating costs to run manufacturing facilities in China. China offers cheap labor that offers labor cost advantages for the company. This will particularly be beneficial for the production of products such as power tools, lawn mowers and microwaves that require heavy indulgence of both skilled and unskilled labor to handle assembly and machining operation respectively as part of the production process. China also values its cultures and it is a deeply ritualistic society (Kroeber, 2017). This therefore means ToolsCorp. subsidiary in China shall need to be integrated with the local culture.

ToolsCorp. needs to be seen to appreciate and embrace the Chinese culture. This is a move to endear the company and its products to its potential customers. The company needs to be perceived as a local player by acclimatizing and adapting to the local environment. This is a strategic defense against whatever possible rivalry ToolsCorp. may face from its competitors in China. As a necessary measure towards this end, ToolsCorp.’s subsidiary in China shall need to hire local Chinese. Approximately 98% of the workforce shall have to be Chinese so as to gain trust with the local employees. Besides, the company shall have to initiate employee ownership programs such as welfare project and promoting ToolsCorp. as a company that embraces Chinese cultural practices (Kroeber, 2017).

Q.6: Strategic Objective Proposals

One-Year Strategic Objective: Acquire a subsidiary company and begin production in China

The Chinese business environment is heavily regulated by her government and so it is not possible for a foreign company to set up a base in China in which it owns 100% of the stake. Regulations require that a foreign company venturing into China does so by incorporating a local Chinese company in the venture. As such, ToolsCorp shall have to seek a suitable acquire company so as to start manufacturing and production in China. While this is in part satisfying the regulatory requirements, it is also the best strategic move for ToolsCorp. in its first year of operations in the global market and in China to be more specific in terms of acclimatizing itself with the Chinese business environment (Armstrong, 2006).

For ToolsCorp to acquire a local Chinese company that offers the best strategic fit in line with ToolsCorp. business’ model, the services of investment bankers shall have to be solicited. The investment bank will help conduct a search for a suitable target company in China that ToolsCorp. will need to acquire. The investment bank will also undertake valuation of the acquisition and facilitate the acquisition process in the target company in which ToolsCorp. is to maintain a majority stake of not less than 80%. Once a suitable target company has been acquired, it shall effectively become a subsidiary company of ToolsCorp. after which the integration process shall commence. This integration is meant to allow for a restructuring of the organizational structure within the subsidiary and therefore set the stage for productions to kick off. The lead products to be launched in China shall include power tools, lawn mowers and microwaves. Production shall be undertaken in line with the set production quotas (Pandley, 2010).

5-Year Strategic Objective: Increase sales revenue by meeting sales quotas

The initial years shall be spent on ramping up exposure within the Chinese market. Therefore, over the next 5 years, ToolsCorp’s subsidiary in China shall focus on increasing its sales revenue. This shall be served by striving to meet the set sales quotas. This goal is also closely tied with increasing and maintain profitability of the Chinese subsidiary. Ensuring a sustainably high profitability level necessitates that the management takes measures to balance the operating expenses incurred against the revenues generated (Ha, Jnada & Muthaly, 2010).

Also, meeting the sales goals will be greatly bolstered by great marketing efforts. This in turn is dependent on having a strong marketing department within the Chinese subsidiary. A great marketing department shall be responsible for generating demand for and selling the company’s products in China. Therefore, the management of the subsidiary company should ensure that an effective management team is in place so as to support its objectives of increasing sales revenue and meeting its sales quotas (Ha, Jnada & Muthaly, 2010).

10-year Strategic Objective: Diversify and Grow Revenue Streams

In the long run, ToolsCorp’s. subsidiary in China shall be seeking to assert itself as low-cost manufacturer that offers its customers great quality and value for money in the various products in its product offering. Having grown its brand name in China over the years, ToolsCorp’s shall need to diversify its revenue streams and offer more products to its Chinese customers. This means expanding its product offering in China from only power tools, lawn mowers and microwaves to also include lawn furniture and ranges. This diversification will help the company mitigate against the risk involved in just offering a few products. Product diversification will therefore ensure that the company has several sources of revenue while at the same time extending new products and choices to its potential customers within China (Ross, Westerfield, & Jordan, 2017).

As part of product and revenue diversifications, ToolsCorp. shall have to greatly consider integrating Chinese designs into some of its products such as lawn furniture. Adapting Chinese designs into the lawn furniture that the company manufactures and sells in China shall be beneficial in generating demand for these products. This is premised by the fact that the Chinese value their culture which is also significantly depicted in its local architecture. Therefore, incorporating Chinese architecture and culture into the designs of lawn furniture will be extremely useful in generating demand for these furniture among local Chinese. Furthermore, incorporating Chinese designs into the product offering shall be achieved through providing 3D modelling services through which Chinese customers can customize our products to best suit their needs. However, hiring Chinese designers to design the lawn furniture and other products so as to reflect Chinese culture and architecture will prove to be more effective towards this end (Hollenbeck, Gerhart & Wright, 2015).

Q.7: Additional Information

Adapting to the local culture of the Chinese market is a fundamental aspect of the business success of ToolsCorp.’s subsidiary in China. The company shall need to be seen as a local company by the locals so as to keep at bay any form of rivalry that distinguishing the company as a foreign company may attract from its competitors in China. Integrating into the Chinese market may therefore require a lot of the Corporate Social Responsibility (CSR) activities of the company. As part of its CSR activities in China, ToolsCorp. may need to undertake an aggressive campaign to support local activities. These includes donating equipment to hospitals during times of crisis, launching schools, offering scholarships to poor students and sponsoring some local cultural festivals. These activities will create a strong sense of localism and therefore spur consumption and uptake of the company’s product offerings amongst its Chinese customers. In the end, these activities will push ToolsCorp. to a commanding position in China across all its product lines (Kroeber, 2017).

References

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