Case Study Analysis on Baxton Technology Thamarai Selvi (2019BLP059)

Objective
Baxton Technologies was established by Mark who had 8 years experience in designing automotive
hoists in a Canadian subsidiary of a U.S automotive hoist manufacturer. His famous product “Baxton
Lift” was used by garages, service stations and other repair shops to lift cars for servicing. He hired Pierre
who handled the marketing side of the operations and both successfully developed a reputation for a
quality product due to its safety features backed by good service in the hoist lift market, primarily in the
wheel alignment segment and leading in the U.S. As they are planning to accelerate their growth, they
need to choose a viable option of either entering the European market or “push” the sales in the U.S
market itself.
Market and Industry Analysis
With increasing population, vehicle sales too increase. Due to this, the servicing sector is under the
demand that requires the hoists. Hence this cycle is never-ending. In the U.S, for mechanical lift business,
around 49,000 hoists were sold each year. It is largely dominated by two US firms, AHV lifts and Berne
manufacturing, who have a 60% market share. Here Baxton is competing with them in scissor lifts area
and is ahead by a 20% and 5% margin. They have been able to do so mainly because they have never
compromised on quality and safety. Also, the company’s success was based on a strategy of offering a
superior product that was primarily targeted to the needs of specific customers. They also focused on
creating a higher profit margin by continual product improvements, quality workmanship and service
rather than solely depending on increasing sales volume. Because of these positive factors, Baxton has
never been rejected by any major account and have obtained manufacturer approval from the big three
automobile manufacturers and service companies in Canada and the United States. And since Europe is a
single market, the opportunity could be explored as no prominent manufacturers are there.
Evaluation of Alternatives
US-Increased profits, strong market presence, more growth opportunity with increased reputation but high
competition and less support from wholesalers so no sales office in New York.
EU-Increased global market share, no internal borders, low competition and free movement of goods,
persons, services and capital but high market risk and problems in exporting due to standards and tariffs.
I. Licensing – With Bar Maisse getting the manufacturing rights entirely, they will provide a 5% royalty
of gross sales so that is the only profit for Baxton. Bar Maisse wasn’t completely heard off but had a
positive feedback on the quality of the product which can have a balance with Baxton as even they focus
mainly on the quality and service. And with an average retail price of $10,990, they would earn only
0.05*10990 = $549.5. There is also a market risk as they will not understand the new market entirely.
II. Joint Venture – When an equal partnership is made, the chances of Baxton learning more about the
market is high. Here when they share the investments, they will equally share its profits too which is more
beneficial. But here trusting can be an issue as they don’t entirely know each other and cannot be sure if
their ideas and management might gel.
III. Direct Investment – By doing so, even if capital is available, the chances of failing are high as it’s a
new market and is of very high risk for Baxton even though they will have 100% control on
manufacturing, distribution, and management of their product. But with an initial investment (maximum)
of $1,836,000 ((1+0.20)*1,530,000), they will attain breakeven volume in units at 712 which is not
worthy as it’s expected to be 4815 units in Europe entirely.
IV. Continuing in the U.S Market – With a good stand in the U.S, they can explore more new areas and
try to cover the existing market entirely. They have had constant growth in sales of approximately 25%.
Recommendation
Looking into the different possibilities within the case, I think that Baxton Technology should first cover
the U.S completely and increase its market share. While doing so, they should learn or research more
about the other partnering venture and only then enter the European market through a joint venture with
Bar Maisse. By doing so, an entry into the foreign market will let Baxton to continue their rapid growth
and focus can be on Germany as they favour both market potential and investment site opportunity. A
joint venture ensures power is shared between Bar Maisse and costs are reduced. Baxton will benefit from
Bar Maisse’s expertise on the European market.
Case Study Analysis on Baxton Technology Thamarai Selvi (2019BLP059)

Year Contribution Units Sold Contribution/Unit

1999 2718000 1054 2578.75
i) Contribution in the U.S

Market share in the U.S for Baxton in 1999: Units sold/Total Units sold = 1054/2316(scissor) = 0.45

Country New vehicle registration Market share in U.S Potential Market Share
Germany 3500 0.45 1575
France 2200 0.45 990
Italy 1800 0.45 810
United Kingdom 2200 0.45 990
Spain 1000 0.45 450
Total 10700 4815

ii) Approximate Market Share in Europe

Contribution Margin in 1999: (Contribution/Unit)/Selling Price = 2578.75/9210 = 28%

Breakeven Volumes (U.S):

Dollar break even sales volume : 530000+840000/0.28 = $4,892,857.14

Breakeven Volumes (Northern America):

Contribution reduces to 22% as this is the revenue to the wholesaler.
New contribution margin = 0.28*(1-0.22) = 0.218
Dollar break even sales volume: 530000+840000/0.218 = $6,284,403.67
Potential market sales: Total hoists sold*Average retail price = 49272*10990 = $541,499,280
Percentage of hoists/car: 49272/ (146+14) million cars = 0.031%

Assumption (using U.S data) of Breakeven Volumes (Direct Investment in Europe):

Unit break even volume : 1836000/2578.75 = 712 units

Dollar break even volume : 1836000/0.28 = $6,557,142.86