Analysis of Mueller-Lehmkuhl Case Study
Identification of Problem: Mueller-Lehmkuhl is the largest manufacturer of apparel fasteners in Europe. Such large scale economies for Mueller-Lehmkuhl resulted from the recent merger deal executed with Atlas. The case focuses on the analysis of the competitive ability of the firm Mueller-Lehmkuhl with its Japanese counterparts. It addresses the firm’s merger with Atlas in an effort towards enhancing its competitive advantage when compared to Mueller-Lehmkuhl’s Japanese competitors. With the current status of Mueller-Lehmkuhl’s operational efficiency, its Japanese competitors, even after pricing their products at 20% less than Mueller-Lehmkuhl are yet not able to match the quality advantage of Mueller-Lehmkuhl. Nevertheless, if these Japanese firms work towards further dropping their prices or enhancing their quality then Mueller-Lehmkuhl might have to face tough competition and may also lose its current market position.
Executive Summary: The Company needs to revise its merger plan with Atlas which limits its operating areas. Such limited areas also include the markets that have great potential for the growth of Mueller-Lehmkuhl. Also, the dealership system shall be considered by Mueller-Lehmkuhl to reduce its costs related to the production and maintenance of attaching machines. Batch costing system is the best accounting method that suits the needs of Mueller-Lehmkuhl. Moreover, direct sales strategy needs to be established by the company in as many countries as possible so as to reduce the costs by 10 to 15% which the company has to otherwise bear in case of indirect sales strategy.
. Company Introduction: Basically a German company, Mueller-Lehmkuhl has been constantly resorting to product diversification and promotion of sales to attain the market place that it is in the present scenario. It even considered and executed various merger deals to gain the competitive advantage which Mueller-Lehmkuhl would not have reaped without the implementation of the merger deals.
One of the major merger deals that benefitted Mueller-Lehmkuhl to a great extent is the merger with Atlas which is an American multinational company that is diversified into six varied businesses. One of its businesses is to do with Apparel Fasteners which works very well in the favor of Mueller-Lehmkuhl. Before the merger deal, Mueller-Lehmkuhl served a very small part of the market though it had excellent technology. On the other hand, Atlas had a very broad base of customers. Consequently, the merger of Mueller-Lehmkuhl with Atlas resulted in a very efficient combination of the sophisticated technology of Mueller-Lehmkuhl with the large customer base of Atlas.
2. Product Description: The fasteners produced by Mueller-Lehmkuhl are brought in use by garment companies to replace buttons and button holes. Mueller-Lehmkuhl produces almost 700 varied fasteners per various needs of the garment manufacturers. These 700 fasteners are broadly categorized in 5 major product lines. Such variety of fasteners was produced by Mueller-Lehmkuhl with the motive of making its product all the more fashionable and consequently increasing the customer base of the company. This motive of enhancing the product acceptance among its users was employed by the marketing manager of Mueller-Lehmkuhl.
3. Attaching Machines: To further prove its unique market presence, Mueller-Lehmkuhl also initiated the production of attaching machines which with slight modifications could fix any fastener that is produced by Mueller-Lehmkuhl on any of its prescribed destination. These attaching machines were broadly of 2 types, manual attaching machines and automated attaching machines. While the manual attaching machines costed low for Mueller-Lehmkuhl to be produced and also costed low on the maintenance, the automated attaching machines had huge associated costs for both maintenance and production. However, Mueller-Lehmkuhl due to the high costs associated with the automated attaching machines, started to focus on the reliability, fast and efficient service that it could extend to its customers whenever they needed to bring into use the automated attaching machines.
4. Market position: Mueller-Lehmkuhl targeted the large volume markets. These large volume markets were such that they needed the attaching machines to be used. The European market to which Mueller-Lehmkuhl belonged had majorly only 4 firms that always maintained a peaceful situation among themselves while not trying to enter into any price wars or whip away one another’s customers. Such peaceful situation was also easy to be maintained by the firms because of the fair play that the customers exhibited in the absence of which it would have difficult for the companies to remain as silent spectators while not entering into any hasty decisions to acquire the maximum possible market share. Other factors that contributed considerably towards maintaining a harmonious relationship among the major players of the market are, the long term relationships between the customers and the companies that were very carefully nurtured by the companies, absence of any standard prices for the products that were offered in the open market and exclusive use of attaching machines when it came to fix the fasteners.
5. Basis of competition: Instead of the harmonious relationships that were long lasting among the 4 major players of the market there still needed some basis of competition to exist to create the bare minimum amount of competition that was essential to keep a track of the performance of the major players in the market. Therefore the companies competed with each other on the basis of quality of the fasteners, quality of the attaching machines and the quality of the service provided by the companies.
6. The cost factor: Due to the language barriers and other regional barriers, Mueller-Lehmkuhl had to opt for various sources to sell its products in 20 countries where it marketed its products. In some countries, Mueller-Lehmkuhl required to appoint sales agents who maintained no inventory and worked on commission basis while in some other countries dealers were appointed by Mueller-Lehmkuhl who maintained inventories to provide intact supply of products. However, it costed around 10 to 15% extra than what the direct sales would have costed Mueller-Lehmkuhl. Then came the time when the annual growth rate of the European market was stagnant at around 1% which made it inevitable for Mueller-Lehmkuhl to explore new market areas to sell its products. African market was one such option available to Mueller-Lehmkuhl.
7. The competition from Japanese company: Hiroto Industries was the major Japanese competitor for Mueller-Lehmkuhl which was almost 10 times larger than Mueller-Lehmkuhl. During the merger deal between Atlas and Mueller-Lehmkuhl, many service personnel were laid off from Mueller-Lehmkuhl who was subsequently hired by Hiroto Industries. Such employment enabled Hiroto Industries to acquire a deeper penetration into the target market. In order to compensate the loss of many new customers of Hiroto Industries, it started implementing a new strategy of getting into a contract with the dealers who were comfortable in buying the attaching machines from the company and then provides the same on rent to the customers of Hiroto Industries. To such dealers, Hiroto Industries supplied fasteners at a discount of 20%. This strategy resulted in many benefits for the company as the company was free from the obligation of providing service to the customers as it no longer handled the machine providing part. So practically all the hassles associated to the machine handling was an exception to Hiroto Industries due to it smart strategy of appointing dealers who would look into the provision of attaching machines to the customers on behalf of the company. However, this strategy proved lethal for Mueller-Lehmkuhl as it placed the dealers in a better position to compete with Mueller-Lehmkuhl and snatch away its customers.
8. Conclusion: Mueller-Lehmkuhl presently has no immediate threat with Hiroto Industries but if left unattended, this would lead to a loss of major market share to Hiroto Industries. Therefore it is of utmost importance to Mueller-Lehmkuhl to become as competitive as possible on the price front along with the quality front. Though the Japanese competitors are far off from the quality standards of Mueller-Lehmkuhl, their pricing strategies are way ahead of Mueller-Lehmkuhl. Therefore, Mueller-Lehmkuhl needs to catch up soon with the pricing strategies of the Japanese competitors so as to strengthen its position beyond the reach of its counterparts. For the purpose, Mueller-Lehmkuhl needs to revise the merger agreement with Atlas, which limits its capability to serve the African markets which present a good opportunity of expansion for Mueller-Lehmkuhl. In order to be in a better position to reduce its prices, Mueller-Lehmkuhl needs to revisit its operating efficiencies without disturbing the quality standards so as to reduce the costs of production. The attaching machines should be provided to the customers through a better medium which could not only cut the costs but also the associated risks for Mueller-Lehmkuhl. Channels resourcing direct sales need to be established in varied countries which cut the costs by at least 10 to 15% for the company.
Basically, the merger deal with Atlas needs to be revised in every possible manner so as to reap the maximum benefits out of the deal which cater to the exact pricing needs of Mueller-Lehmkuhl. Atlas should rather be considered for the dealership purpose that can facilitate both direct sales of Mueller-Lehmkuhl’s products and maintenance of Mueller-Lehmkuhl’s attaching machines. The attaching machines maintenance and production involves huge costs for the company which has a considerable impact on the pricing strategies of Mueller-Lehmkuhl. Hence, the major concern of Mueller-Lehmkuhl should be to revise its production and maintenance plans concerning the attaching machines and their maintenance.
The next best thing that can facilitate the pricing advantage of Mueller-Lehmkuhl is the costing systems followed in the company. Per the present situation, the cost accounting system which best fits the needs of Mueller-Lehmkuhl is Batch costing system. The company after considerably working on the suggestions above can wish to maximize its profits in order to stay out of reach of its Japanese counterparts.