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Baxton Technology case Brief

BACKGROUND AND PROBLEM DEFINITION


MARKET AND INDUSTRY ANALYSIS
For mechanical lift business, around 49,000 hoists were sold each year in North America and for US hoist
market is largely dominated by two US firm ie AHV lifts and Berne Manufacturing, captured around 60%
market share. Typically purchased by new car dealers, which constitute 30% of all units sold each year
and by other specialty shops. Baxton Technology (BT) competed with AVH Lifts and Mete lifts in scissor
lifts, however was ahead by 20% and 5% in its sales respectively. B.T concentrates on the quality of the
product and its quality is open compared to Mercedes. So, their target is to have higher profit margin
rather than high sales volume. There are 3 distribution channels for Baxton- Direct (100% selling price
received), Canadian distributors (80 % selling price received) and US wholesalers (78% selling price
received). Apart from this, the distribution system lacked personal selling because only 25% of the sales
was made through the company sales direct team.
STRATEGY ALTERNATIVES
Alternate 1: American market was 10 times bigger that the Canadian market, so Baxton Sales in the U.S.
market could be increased in the U.S. if the U.S. wholesalers push their product or opening up a new
sales office. This will help penetrate deeper into the untapped U.S. market. If we look at the volumes of
both countries then there are ten time more in the North American market but the contribution per sales in
less since only 78% of sales volumes comes to the B.T (Exhibit 1). Moreover in the US channel the
wholesalers are giving only 78% selling price. So, if they have to go in this channel they should go for the
Canadian Channel since the B.E is less.
Alternate 2: Licensing: This option will only give 5% of gross sales as a return on investment but
since the BT brand is one of the High quality brand, also the ROI is less and Baxton is not getting the
exposure it requires to penetrate in EU markets.
Alternate 3: Joint Venture: Enter into a Joint venture with Bar Maisse with a 50:50 investment and
profit sharing ratio. This is a good option as Baxton will get an opportunity to market its product and get
exposed to the market.
Alternate 4 : Direct investment into the market. Here Baxton has already established itself in U .S. and
Canada and can create its market in the EU. Cost involved in setting up the plant was (1) $250,000 for
capital equipment, (2) $2,000,000 in incremental costs and (3) carrying costs to cover $1,000,000 in
inventory and accounts receivable. But on the other side, the Baxton does not have a strong network in
the new EU market, so it will be high risk for the company.
CONCLUSIONS AND RECOMMENDATIONS
Baxton Technology should follow a go for venture approach to its expansion plans given that it has more
advantages than the other 2 options:
It is less risky than going it alone with direct investment.
And it also ensures more equal power-sharing between Bar Maisse whilst also reducing costs.
Baxton would also benefit from the expertise that Bar Maisse has of the market in Europe already with
less risk and B.T does not have supply chain in EU market so I would suggest go for Joint venture option.

Exhibits 1
For Canadian Market
Break even sales = Total Fixed cost / contribution per sales

Baxton Technology case Brief


Total Fixed cost = 840,000+530,000
= $ 1,370,000
Contribution per sales = Total contribution / total Sales
= 2718,000 / 9708,000
=0.28
Break even sales =

1370,000 / 0.28

= $ 4,892,857.14
For North America:
As only 22% of the Sale revenue directly goes to the Wholesaler,
So, Contribution reduced by 22%
Contribution of North America = 0.28*.78
= 0.21
Break even sales =

1370,000 / 0.21

= $ 6,523,809.52
Total Market Potential = No. of unit of Hoist sold * Average retail price
= 49000*$10,990
= $ 538,510,000
Total Hoist Percentage per car in North America = No. of hoist Sold / No. of cars on road
= 49000 / (146+14) million cars
= 0.03%