Baxton Technology Case study

Background and problem definition:

Baxton Technology manufactured surfaced automotive hoists, a product used by garages, service stations
and other repair shops to lift cars for servicing. Mark, president of Baxton technology wanted to decide
that weather the company should enter in European market or the company should more focus on
increasing their sales in the U.S. market.

Market Analysis:

The market for hoists is tremendous as 49000 units were sold each year in North America and
industry worth $ 54 billion in 1999 and approximately servicing 14 million cars in Canada. The 2 basic
types of hoists that are manufactured are in-ground and surface. Surface lifts consist of 79% of total lift
sales in 1999. In 1999 about 60% of sales were to the U.S. and about 40% to the Canadian market.
Baxton Technology manufactured scissor lifts with safety lock mechanism and had a market share in this
segment of 45.5%(Exhibit ).The major competitor of Baxton were AHV lift and Mete lift and they lacked
the safety mechanism making Baxton superior from them. In total, the company sales force generated
about 25%of unit sales each year.

Evaluation of alternative courses of action:

Increasing sales in US market: In 1999, about 60% of the sales to the United State and remaining to the
Canadian Market. Baxton has approximately 46% (Exhibit) market share in scissor lifts in North America
market. Pros: Increase in Profit. It will gain more market share. Increase in sales office will target the
untapped US market. Cons: Industry is already dominated by 2 large manufacturing company make the
competition difficult. Many US firms already competing against each other raising the barrier to expand.

Entering the European market: Pros: Low competition. Large number of customer can be targeted.
Increase in market share. Cons: Need to set up distribution channel. High risk to enter in new country.
Language barrier can be one of the major issues.

Licensing: Licensing at a royal rate of 5% of gross sale. Pros: Licensing will benefit both the companies.
Low Risk in terms of investment. Cons: The royal rate to be paid is very less. Royal rate projected may
not be accepted by Baxton.

Joint Venture with Bar Maisse: Pierre suggested 50-50% proposal between Baxton and Bar Maisse. Pros:
Easy access to European market with less investment. Likely to get more return in joint venture. In
Europe duty cost is very nominal. Cons: Decision making and the profit needs to be shared. The idea of
making the hoist is shared.

Direct Investment: Establishment of manufacturing industry and set up a management group. Pros: No
sharing of profit and idea, 100% ownership. They have the capital to establish the manufacturing industry.
Cons: High Risk, High Investment (Exhibit) and the company do not have the prior experience in
European Market.

Conclusions and recommendations

Joint Venture is a better option as investment is low. The profit needs to be shared by both the companies
therefore in case of loss, it will be divided. Baxton can use the strong distribution network of Bar Maisse.
Baxton should also penetrate and expand North America market. As Baxton is familiar with the market.
Exhibit

Market Share of Baxton in North Total Unit

America (scissor lift) Year Unit Sold sold Market Share
1997 723 2,170 33.32%
1998 847 2,258 37.51%
1999 1054 2,316 45.51%

Contribution/per
Contribution in N.A Year Contribution Unit Sold unit
1997 1678000 723 2320.885201
1998 1913000 847 2258.559622
1999 2718000 1054 2578.747628

Fixed Cost in Direct Investment Option

Total Investments= Cost of Capital Equipment Incremental Costs to set up the plant +inventory and
account receivable costs + Extra costs
250000+ 200000 + 1000000 + 80000 = 1530000.
Estimated costs=1530000*0.2=306000.
Total Investment = 1530000+ 306000= 1836000.
Breakeven Point: Fixed Cost/Contribution Volume = 1836000/2578.74 = 712 units