Axeon NV – group assignment

Group B1Ami Albihn

Huijie LiJiaoru Qian

Patchara ThaisrivichaiWenli Ye

Question 1: What do you feel about the initial analysis? Was there, in your opinion, anything

wrong with it?

Seems reasonable:• Clear proposal - easy to see how the project will be profitable

Actually not reasonable:• The sales part is over-optimistic

• Analysis for sales based on confidence rather than evaluation

• The profitability view came only from the Hollandsworth perspective

Question 2: Is construction of the new factory in the UK in the best interest of Axeon?

No. It is a better choice to keep the production in the Netherlands, because:• Saved fixed cost

• In the Netherlands (production of 1000 tons will save £240/ton)• Not building a new factory in the UK

• Increase of variable cost due to shipment to the UK can be compensated by a decrease overall production cost

(£60 × 400 tons = £40 × 600 tons)

• The cost for building the new factory in the UK exceeds the cost for changing the production in the Netherlands

• If the better quality AR-42 is only produced in the UK, it might create conflicts in the the future

Question 3: Why did Mr van Leuven behave as he did?

Approved at first: • The proposal itself is profitable

Hold another meeting:• Problems with the proposal: too optimistic of sales

producing complication• Not express opinion: let managers express their own idea without influence

need more time for reflection and evaluation

Say different to other managers and Ian:• Other managers: let them consider Axeon.N.V as a whole company• Ian: let him feel that the result won’t only be influenced by Axeon Dutch

Question 4: Discuss what transfer price should be established if AR-42 is supplied from the

Netherlands to the UK?

According to financial situation, three methods can be applied: • Quasi market-based transfer price• Negotiated transfer price• Full cost plus markup transfer price

the transfer price should between £2560/ton—£3346/ton

Take the company’s current situation into consideration:• Negotiated transfer price is not suitable • Quasi market-based and full cost plus markup transfer price can both be used

My recommendation:• choose the full-cost-plus markup transfer price • giving the Hollandsworth relatively more markup than the Axeon Dutch

Question 5: What is Axeon’s corporate strategy?

• Corporate strategy = diversification strategy ( related or un-related)• capturing inter-divisional synergies

• identifying and managing strategic uncertainty

• Axeon uses Related-diversification:• Focus on their core business strategy: industrial chemicals

• Diversify in order to exploit economies of scope

• The company has a relatively elaborate planning and budgeting system

• Uses an incentive compensation system

• Transfer pricing problems, require considerable communication

Question 6: What do you believe to be the CSFs in Axeon?

Objective Candidate critical success factorsMaintain a large supply of industrial chemicals (quantity)

• Efficiency• Setting up more factories in subsidiary

locations when it is considered profitable

Improve the quality of their products when possible

• Appoint highly skilled people into the organization

• Encourage proposals of incremental innovations

Achieve organizational synergy • Standardized planning and budgeting procedures

• Suitable transfer price setting between subsidiaries

Flexibility • A high degree of decentralization

Maximize sales • Provide incentive compensation systems• Take advantage of the geographical expertise

of foreign subsidiaries

Question 7: What do you believe to be the KRAs in Axeon?

Because the company is dependent on its production and sales, the key recurring activities are:

• Purchasing the raw materials and manufacturing

• Marketing and sales

Question 8: discussion Axeon in terms of its centralization/decentralization?

High Degree of decentralization (results control) e.g. incentives- Advantages:

1. To attract right personnel

2. Geographical and cultural reasons: less cost

- Disadvantages: manufacturing division1. Internal competition of products

2. Difficult to control subsidiaries, disputes

Question 9: What should Mr. van Leuven do?

• Solve the problem1. private communication, explain in detail2. offer to buy their patent3. transfer price should be reasonable

• Prevent similar problems in the future1. Action control: scrutinized expenditure approvals

2. Cultural control: Codes of conduct

3. Results control: Create a good balance between Decentralization (sales) and centralization (manufacturing)