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Assignment 2-Tasks

This report focuses on a fictional Australian engineering and manufacturing company called TSA Pty. Ltd. (TSA). TSA is a global leader in the food packaging and processing industry, supplying turnkey solutions and single systems to customers around the world.

The task will be to familiarise yourself with the company and then investigate and comment on specific questions relating to the company’s international operation and expansion.

Company Background

TSA was co-foundered by Ald and Nataly Wood in 1982 based on the original idea of Nataly Wood. When TSA started it spent much of the 1980s installing machines for Australian potato crisp manufacturer Poty’s. In 1989 the company entered the U.K. started to earn its first overseas revenue.

TSA’s business is based on the development of innovative packaging equipment. Ald Wood the company’s managing director was originally an engineer, who had experience working in the snack food industry. He worked with food manufacturers previously which had given him a detailed knowledge of the food packaging business. He worked on developing packaging machines that incorporated a unique stripping action using rotary continuous motion jaws, to generate an output of bags more than double the industry average.

According to Wood, the decision to go international was made at the same time as this innovation was conceived. It was felt at the time that developing a global business model would be relatively easy. However the development of the packaging machine proved much more difficult than anticipated due in part to a number of design faults in the machine. A break through ultimately occurred in 1986 when Poty’s took a risk and place an order for a large number of the machines. Installation commenced in 1987 but involved major problems for both TSA and Poty’s. As Ald explains:

We have serious problem in our processing. The software was stopping many times during the day, machines just refuse to work. We spend two years, from 1987 to 1989, to resolve all of these issues.

The prototype machines had been installed in Poty’s brand new facilities in South Australia. Poty’s were heavily dependent on TSA and continued to fund them for two years to fix the outstanding problems. By 1989 the machines were fully functional and TSA was now a $5M company with 20 employees.

TSA has grown from a small Australian company into a large organisation with operations in over 12 countries across the world. With a history spanning more than twenty years, TSA has grown from a packaging machine supplier initially targeting snack food production lines to become internationally recognized as a leader in packaging technology and solutions.

Offering customers a complete processing/packaging production line, TSA can now not only include the design, delivery and installation of integrated packaging and processing equipment but also fully integrated operational elements such as power supply, voice and data cabling, wastewater management and building design.

With growing pressure to retain shelf-space and presence in the eyes of the consumer, processors are faced with numerous challenges when it comes to processing and packaging their products. With the availability of a true turn-key process/production line, project managers no longer have to ‘cherry-pick’ and coordinate multiple quotes from multiple suppliers.

As a solutions provider, TSA claims its new division is not just a response to problems posed by customers. It also involves improvements to existing machinery and the company’s philosophy of “Rethink the Conventional”.

The management of TSA considers that TSA’s defining benefit is one of practical ingenuity. By taking as standard the things that competitors treat as challenges TSA can accommodate the needs of clients and develop machinery to meet those demands. “With greater processing speed and higher quality we will have lower costs per bag and we would reduce maintenance costs,” said Ald Wood.

Products

TSA is a leading supplier of complete turnkey solutions to the food packaging and processing industry with the packaging and distribution systems, mabag® and maflo® being benchmark products in the industry. TSA products include:

· Product transfer & distribution

· Multiplatform scales

· Coders

· metal detectors

· case packers

· case erectors

· shrink wrappers

· seasoning systems

· complete processing equipment

The company sources most of the parts for its machines from overseas. Japan provides most of the parts in dollar terms, with the U.K. the second largest supplier. The Uruguay Round of the General Agreement on Tariffs and Trade (now WTO) was particularly beneficial to TSA. In particular, the agreement extended the life of patents from 16 to 20 years. TSA has approximately 30 patents overall, but this extends to several hundred patents in the patent family worldwide.

The Organisation

In Australia, TSA runs offices in Sydney and Melbourne. The company’s products are manufactured and distributed from its Melbourne office. Sydney is its corporate support office, which houses all of the administrative functions required to run the global business. Research and development (R&D) is carried out in Melbourne, as is marketing, corporate finance and human resources management. This structure ensures that the international offices run as smoothly as possible with the majority of control exercised in Melbourne and Sydney. Of the functions carried out in Australia, R&D remains a key function of the corporate support office. The majority of staff involved in R&D are employed in Melbourne, although there are one or two R&D staff in the U.S. and U.K. The R&D team receives feedback from TSA’s overseas sales, particularly regarding opportunities that have arisen in overseas markets such as the Middle East, China or the U.S., and is then able to incorporate this into the product design.

Current Locations

Americas: Minnesota, Oregon, Mexico, Argentina

Europe: Glasgow, Prague, Venice, Paris, Madride

Indian-Pacific: Australia New Zealand, Philippines, South Africa.

Agents: South America, Indonesia, Germany, Russia, Thailand, Korea, Greece, Israel.

The company has approximately 300 staff.

Going International

TSA realized early that as Australia had a population of only 25 million there was a limited domestic snack food market and therefore that they would need to look overseas for expansion. The company therefore approached Austrade for assistance, and was provided with a small development grant which enabled them to set up TSA Europe. In 1991 Wood established a small office in the U.K. and spent the next six years in the U.K. trying to ensure that the European operation would be successful. The U.K. office was involved in sales, support, logistics and administration, a model that TSA has continued to follow as it expands globally.

The company’s reason for choosing Europe as its first overseas expansion was that the technical specifications of TSA’s products were more suited to this region than to others. In particular the British market offered the fewest hurdles for TSA. It was similar to Australia in terms of organizational culture and consumer preferences for snack foods. Also since Taylor originally came from Scotland he understood the U.K. environment. Continental Europe presented more challenges for TSA, but the company went on to launch successfully in Spain, Germany and the Netherlands.

TSA’s expansion into the U.S. in 1995 was much more difficult, owing to the lack of technical compatibility between TSA’s system and those prevailing in the U.S. snack food packaging industry. Additionally, Ald Wood found the U.S. staff at the time far less industrious and committed than workers elsewhere. The terrorist attacks of 11th September 2001 also caused a dramatic reduction in the supply of financial capital. Furthermore, TSA had made a change of management that proved disastrous for the organization. In the space of twelve months the company’s total sales in the U.S. dropped from $US 18 million to $US 6 million. Fortunately for TSA the U.S. market started to pick up some 12 to 18 months after the terrorist attacks and prompted by its difficulties in the U.S. TSA extended south to establish operations in Mexico, setting up an office in 2001. In the same year, the company also established offices in South Africa and China.

Competition

Ald Wood believes that having a strategic mindset has been a key factor in TSA’s ability to move into the world marketplace. In the packaging industry, there are around 20 competitors worldwide, and the industry has a total size of around $1 billion. This makes it a relatively small industry, says Wood. What TSA sought to do was to gain an advantage over its competitors by employing strategies that were suited to its industry’s particular environment. Importantly, the company analysed all of its competitors and determined that the competition collectively suffered from a lack of vision and an overestimation of its geographic limitations. This gave TSA the confidence to pursue a grand vision that would give the company a decisive edge over its competitors.

In particular, TSA realised that all of its competitors were extremely parochial. The U.S. companies carried out most of their business in the U.S., the Germans operated solely in Germany, and so on. TSA concluded that this parochialism made little business sense: it didn’t matter where in the world a product was being packaged, the packaging requirements were no different. TSA then looked at the packaging products that were being used, and found that they were almost identical worldwide, except in terms of colour. There was very little technical difference. TSA knew that it possessed a serious technical advantage over its competitors, and determined that the best way to succeed was to go global with this technical innovation. Today 95% of TSA’s revenue is derived from offshore business.

Taylor remarks that, in retrospect, the organisation had relatively little difficulty in taking its products worldwide. Some of the greatest difficulties arose when its competitors tried to copy TSA machines, and the company was therefore forced to initiate patent litigation. Additionally, some competitors tried to undermine the credibility that TSA had built up over many years by casting aspersions about the young company from Australia, telling potential TSA clients that it was impossible for the machines to work as quickly as TSA claimed. Thus TSA discovered that many potential clients were unwilling to step outside their comfort zones and consider a new product manufacturer.

To overcome this obstacle, TSA decided to structure its fees around the performance of its products. Clients would pay a certain amount if the machines could bag 100 products per minute, but if the result was only 70 bags per minute they would pay a lesser amount. The company also sought potential clients who were less conservative and more open to new business ideas. Such clients were sourced by Wood himself, through networks he had built, often by painstaking and unglamorous means. Wood describes what this process involved:

Financing Growth

Ald Wood believes that the greatest hurdle that he has had to face is finding money to fund growth. Each new overseas venture has financed the next one. The two sources of funding that TSA has been able to secure have been retained profits and relationships built with various large banks, such as Barclay’s, ANZ and the Bank of America. Ald Wood quickly grasped the idea that while human capital is an organisation’s primary asset, banks prefer to lend money for fixed capital such as buildings or property. He therefore adopted the strategy of sourcing money from the banks to fund purchasing buildings in key operational centres. The organisation could then go about populating these buildings with its key asset: its people.

Industry Recognition

In 2009 Ald Wood, the founder of TSA, was named one of Australia's 100 most influential engineers of the year in the June edition of Engineers Australia. The list, published annually, identifies the country's leading engineers in academia/research, associations, consulting, engineering expertise, industry, public service and politics.

TSA has made the BMW’s (a leading business magazine) Fast 100 list for the last nine consecutive years and also made the BRW’s list of Top 500 privately-owned companies.

The Task

It has been suggested to Ald Wood that new developing economies emerging in Asia would be attractive new markets for TSA.

a. Carry out a preliminary analysis of these potential markets to determine the country that will be the best choice for the company. The analysis has to present relative advantages and disadvantages in terms of their market profit potential , for at least 2 Asian countries (of your choice).

b. Taking in consideration all factors you are aware of, outline the main risks associated with these two potential markets. For each group of risks (e.g. Financial, Political, Environmental..,) use historical data (1980-2018) and current situation to predict expected number of events that can affect the TSA business in the next 5 years (e.g. ones per year, twice in five years …). Also for the chosen events analyse the consequences on the TSA business (e.g. Cancelling Business in the country; Significant loses; TSA have to perform short brake; Minor Problems; Business is not affected).

For the severity of the problems you can use the scale 0-5 or similar. It is highly recommended to use Tables for the presentation.

c. Based on your analysis of the market potentials and known risks, make an initial recommendation:

Which one of these markets would provide the best option for TSA and identify any other information that you feel would be required to finalise a decision. Recommend some action that you might take to improve the sales and marketing in those countries.

Please Note

· Your work should be presented in a report of approximately 3000 (-10% +50%) words in length.

· The country is fictional and similarity with real world company is accidental

· The report needs to be clearly written, well-structured and well presented.

· You should acknowledge all sources used and provide references where appropriate.

· References must be presented in approved standard form (e.g. Harvard) and the reference list presented alphabetically by author.

· Please note that the software program Turnitin may be used in assessing your assignment.