GOLD STANDARD

PROJECTION
ERIE Corp.

Abstract
This report examines the future strategy for ERIE Corp. for the next five years. First, competitors’
strategies are evaluated, and a SWOT analysis is created for each major competitor. Based on
findings from the SWOT analysis, the future strategy for ERIE will be developed and an
implementation plan is presented for each of the four departments. Implementation will be
followed by the KPI forecasts for which ERIE will present an extensive EXCEL model to forecast
the most important ratios and numbers for the next five years.

Rouven Daunke [s3697830]

Sean Caricola [s3690145]
Nguyen Thai Anh [s3678765]
Ha Phan [s3695297]
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Table of Contents
Table of Figures/ Tables ................................................................................................................................ 2
Executive Summary....................................................................................................................................... 3
Vision Statement & Strategic Goals .............................................................................................................. 3
Competitor Analysis ...................................................................................................................................... 4
Competitor Overview................................................................................................................................ 4
Strategies of ERIE’s Competitors............................................................................................................... 4
SWOT Analysis........................................................................................................................................... 5
Future Strategy ............................................................................................................................................. 8
Implementation ............................................................................................................................................ 9
Research & Development ......................................................................................................................... 9
Marketing ................................................................................................................................................ 11
Production............................................................................................................................................... 12
Finance .................................................................................................................................................... 13
Future Projections....................................................................................................................................... 15
Profitability.............................................................................................................................................. 16
Ability to Raise Capital ............................................................................................................................ 17
Asset Utilization ...................................................................................................................................... 19
Forecasting .............................................................................................................................................. 20
Competitive Advantage .......................................................................................................................... 21
Future Success: Strategic Summary ............................................................................................................ 23
Conclusion ................................................................................................................................................... 24
References .................................................................................................................................................. 25
Appendix ..................................................................................................................................................... 27

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Table of Figures/ Tables
Figure 1: Competitors Key Financials and Strategies .................................................................................... 5
Figure 2: New Product Development Process Map Source: Kanh 2013 ..................................................... 11
Figure 3: Plant Capacity Forecast ................................................................................................................ 13
Figure 4: 6-Year Forecast ............................................................................................................................ 15
Figure 5: ROS & ROE Forecast ..................................................................................................................... 16
Figure 6: Change in Stock Price ................................................................................................................... 17
Figure 7: Leverage and Debt from 2026 to 2032 ........................................................................................ 18
Figure 8:Leverage (Asset to Equity) from 2026 to 2032 ............................................................................. 18
Figure 9: Share Price from 2026 to 2032 .................................................................................................... 18
Figure 10: Asset Turnover Forecast ............................................................................................................ 19
Figure 11: Strategic Summary: Mind Map .................................................................................................. 23

Table 1: Baldwin SWOT ................................................................................................................................. 6

Table 2: Chester SWOT ................................................................................................................................. 6
Table 3: Digby SWOT ..................................................................................................................................... 7
Table 4: Ferris SWOT ..................................................................................................................................... 7
Table 5: ERIE Corp. SWOT Analysis 2026 ...................................................................................................... 8
Table 6: Product R&D .................................................................................................................................. 11
Table 7: Equity Financing 2026 to 2029 ...................................................................................................... 14
Table 8: Equity Financing Dilutes Financial KPIs ......................................................................................... 14
Table 9: Debt Increases to Buy Back Equity ................................................................................................ 15
Table 10: Shares Decrease while EPS Increases.......................................................................................... 15

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Executive Summary
ERIE Corp. is one of the six leading genetic testing device producers on the market. The company was
founded in mid-2018 as a way of meeting the needs of the healthcare industry by producing genetic
testing equipment. It achieved status as one of the leading knowledge-based firms thanks to extensive
research & development, as evidenced by the year 2026 in which ERIE had the most advanced device on
the market.

After being ordered to split from the Medicorp Group by the Monopoly Commission, the new company
was spearheaded by four board members who are full of charisma, experience and enthusiasm:

• Rouven Daunke - Head of Production / Chief Operations Officer

• Sean Caricola – Chief Financial Officer
• Ha Phan – Marketing Director
• Anh Nguyen - Director of Research & Development

Thanks to the strategic decisions implemented by the board throughout the business’s eight-year period,
ERIE has demonstrated successful performance in terms of: sales, revenue, profit, ROS, ROA, ROE, and
annual market share since its establishment.

The current management team took over the firm in 2018 with a profit of $ 2.864 million in hand. By the
end of 2026, the company earned $ 67,872 million in cumulative profit. When the current management
team took over ERIE in 2018, the organization's stock price was $15.33. By the end of 2026, the stock price
rose to $75.05 thanks to the current management decisions. At the same time, ERIE is ranked third with
11.9% market share in all three markets including Americas, Europe, and Asia Pacific. However, since ERIE
carved a leading role for itself in the niche market with its excellent performance products, market share
is not to be considered when evaluating the company’s competitiveness until 2026. ERIE’s future strategy
will shift its focus towards growth in all segments and as such ERIE will begin to devote more resources
towards developing, marketing and producing new product lines.

At present, ERIE is in business with three genetic testing devices (“Eat” in Americas and Europe, “Easia” in
Asia Pacific, and “Emeric” in Americas). Over the next five years, the firm will introduce revolutionary
products to better serve the community as well as to enhance business results. Additionally, more
aggressive financial decisions will be made to raise enough capital for the change in strategy.

Vision Statement & Strategic Goals

“Empowering healthcare professionals all over the world to improve the lives of their patients with
premium, tailored genetic testing products.”

• Committed to building healthier lives for the communities we serve through the highest quality
healthcare products.
• Demonstrating global leadership in product reliability and accuracy
• Advance the frontiers of medicine and science through a major ongoing commitment to
improvement
• Fostering a brand synonymous with medical excellence
• Creating shareholder value to enhance our long-term ability to fulfil our vision & mission

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Competitor Analysis
Corporate success relies on careful analysis of the strategies, strengths, weaknesses and capabilities of
competitors. Careful competitor analysis reinforces long-term orientation and limits the element of
surprise by competitors’ actions on the market. To achieve growth, competitor strengths and
vulnerabilities have to be understood to limit the possibility of falling behind (Wilson & Richard 1994).

Buying behavior can also be analyzed by identifying to which customer groups certain strategies of the
competitors’ appeal thus, leading to an optimal positioning strategy for the own company (Wilson &
Richard 1994). In the case of Global DNA, product positioning linked with customer satisfaction and sales
data gives insights into well-working strategies of competitors.

Wilson & Richard (1994) state different steps in the competitors’ analysis:
Who forms the competition in terms of who delivers a similar product/service to the market? What goals
seem competitors willing to achieve? What strategies do they follow? And lastly, which are their strengths
and weaknesses?

All of the above questions will be systematically addressed in the competitor analysis for the global market
of genetic testing devices.

Competitor Overview
The market has some distinct characteristics that influence the number of competitors. First, the market
is closed, no new firms can enter it and thus, the number of firms will stay constant over the long term.
Second, there are no substitutes and therefore, a creation of a second market of substitutes that would
threaten the current market can be excluded.

The market environment consists of six companies: Andrews, Baldwin, Chester, Digby, ERIE and Ferris.
Over the last eight years however, Andrews managed to fall down deep into near bankruptcy only to be
saved each year by huge emergency loans. Their share price dropped to 1$ and huge losses occur from
extensive paybacks of emergency loans each year. Their overall market share dropped to 0.8%. No clear
strategy or objectives can be observed thus, the competitor’s analysis will mainly focus on the remaining
five companies since it is expected that Andrews will continue to struggle significantly and does not have
any resources to invest in a lot of market activities. Furthermore, we expect Andrews to file bankruptcy
in the following 1 to 2 years.

Strategies of ERIE’s Competitors

All relevant competitors on the market seem to follow the same strategy, only differentiated by setting
focus on different aspects. Each of the five main competitors is active in all markets and in the budget as
well as the performance segment. Therefore, competition on the market is fierce since all companies
follow one strategy: Global Broad Differentiation. This circumstance will make it difficult for ERIE to
successfully switch from a global niche player to a global broad differentiator. Below are key financials
and the strategies of the competitors displayed (Figure 1).

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 Figure 1: Competitors Key Financials and Strategies

A more aggressive approach is expected by a few of our competitors due to their current standing in the
market. Chester is expected to expand more aggressively into the budget segment given their strategy
and their currently low market share in that segment. The reverse is forecasted for Digby: a greater
expansion into the performance segment is likely. Baldwin and Ferris lead the market in both segments
and it is forecasted that their goals will be to defend their standing in the market.

SWOT Analysis
SWOT analysis is used to define the strategies of the competitors. It is argued that a SWOT analysis starts
the strategy planning process and can be used to evaluate strategies of the competition by grouping
external and internal aspects to organizations (Helms & Nixon 2010). Furthermore, it is crucial to
understand internal decision-making processes of competitors as well as the external factors that could
influence them. Both aspects define their strategic positions (Singer & Brodie 1990). Implementing a
SWOT analysis is therefore the fitting approach to the analysis of competitors since it takes into account
internal strengths and weaknesses as well as external threats and opportunities (Pershing 2006).

The following SWOT analysis can be seen for each of our competitors, excluding Andrews. All firms follow
the same strategy: Global broad differentiation. This makes the market environment increasingly
competitive. It can be expected that Baldwin and Ferris will try to defend their market shares while Digby
will look for further expansion. We expect Chester to slowly make moves towards better profitability
before expanding aggressively. We also expect a limit in the expansion of our two main competitors:
Baldwin and Ferris. This is due to their high market shares, and in terms of Ferris, the limit of third-party
financing that allows a greater expansion.

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 Baldwin
Strengths:
• Strong in $Sales
• Highest cumulative profit: 128,525$
• Solid ratios, high ROE figures
• Second highest overall market share:
29.6%
• Highest stock price in the market
• Plant capacity and automation on
advanced level
• Baker2 well positioned in budget
segment, high customer satisfaction,
under top-3 in every market
• Good position in performance segment,
under top-4 in each market
Opportunities:
• Strong position in the market builds
fundament for future growth
• Limited equity financing leaves that
option open for future financing
Table 1: Baldwin SWOT
Chester
Strengths:
• Highest contribution margin
• Strong financial ratios
• Total liabilities on a low level
• Highest automation → max. out! →
lowest labor costs in the industry!
Opportunities:
• Possibility of introduction of a new
performance product into Asia/Pacific
• Can be aggressive in future strategies due
to low costs
Table 2: Chester SWOT
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Weaknesses:
• Average contribution margin: 31.3%
• Bond rating only at BB
• Long-term debt position at over 93
million$ → huge paybacks necessary in
the future
• Highest variable costs
• Inventory costs
Threats:
• Bond rating only BB: high costs for future
debt financing
• High variable costs limit profitability
• All competitor’s follow the same strategy:
competition will be fierce
Weaknesses:
• Lowest $sales
• Cumulative profit about half of the
industry average
• Lowest overall market share and lowest
market share in all geographic markets
• Lowest share price and market cap.
• Lowest equity of the market
• No updates in capacity → limits future
growth due to production limit!
• Worst Bond rating in the market: BBB →
high costs of debt borrowing
Threats:
• High costs of debt borrowing leaves only
stock issuing as a viable alternative: will
influence stock price negatively
 Digby
Strengths:
• High sales number just behind Baldwin
and Ferris
• Cumulative profit is almost as high as
Baldwin and Ferris
• Competitive market share
• High stock price → High market cap.,
issued a lot of stock
• Best bond rating in industry along with
ERIE → low costs for long-term debt
financing
• Leading the budget segment in Americas
and Europe → good pricing strategy
• Competitive capacity and automation
Opportunities:
• Possibility to scale up operations via debt
financing due to low borrowing costs
Table 3: Digby SWOT
Ferris
Strengths:
• Leading the market in terms of sales
• High contribution margin given upscale
operations
• Lower end ratios
• Leader in market share among all
markets
• Leader in assets and equity!
• Highest plant capacity and automation
nearly maxed. Out
• Budget market leader in Asia
• Performance market leader in Americas
and Europe
Opportunities:
• Can defend market positioning easily due
to high capacity and high contribution
margin, low labor costs
Table 4: Ferris SWOT
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Weaknesses:
• Efficiency seems to be lacking: All ratios
remain on low figures. ROA only 6.2%
• Falls behind in the performance segment
→ no differentiation among products:
same specs. in all countries combined
with different prices
Threats:
• Performance segment will be hard to
enter: competition is constantly trying to
beat each other in specs. and pricing
Weaknesses:
• Already issued a lot of stock → results in
lower stock price relative to competitors
• Bond rating: BBB → high costs of debt
borrowing
• Highest long-term debt position
• Never uses region kits
• Missing differentiation among budget
products
• Questionable pricing strategy in budget
segment: Fast2 is always more expensive
than Fast, but has lower specs and lower
customer satisfaction
Threats:
• Financing becomes increasingly difficult:
equity financing would further limit stock
price, debt financing expensive, because
of bond rating
• Has to finance itself more out of own
cash position in the future
Future Strategy
Current Strategy:
Global Niche Differentiator:
Focusing on the performance segment, Competitive advantage is gained by distinguishing products with
excellent design, high awareness, easy accessibility, and new products – any of which may be tailored to
the individual local market’s needs.

Key concerns

- Currently the smallest company in terms of equity & assets

- Risk averse – limited spending on promotions & capacity

- Opportunity cost of stocking out instead of expanding capacity: missing potential sales

SWOT of ERIE by the end of 2026:

ERIE Corp.
Strengths: Weaknesses:
• Product specifications • Overly conservative forecasting
• Continuous innovation & technology • Very low debt-to-equity (underleveraged)
• Asset turnover • Risk aversion
• High contribution margin
• Financial performance
Opportunities: Threats:
• Continuous market growth & demand • Acts of God
• Capacity for further investment • Competitors entering our segment
• Automation • Capacity utilization (cannot fulfil high
• Technological advancements demand)
• Tech product price decrease effect &
product obsolescence
Table 5: ERIE Corp. SWOT Analysis 2026

Future Strategy:
Global Broad Differentiator:
To adopt a Global Broad Differentiator strategy, the company will maintain a presence in both segments
of the market across all regions. Products will be newly developed for the budget segment and greater
differentiation among products will be achieved. ERIE Corp. will aim for a mass market, increasing market
share and bringing the superiority of its premium line to a greater number of patients worldwide by
entering the budget segment.

Increased Investment:
ERIE aims to increase investment in existing products in the performance segment by upgrading capacity
and promotion spending to address previous issues of underleveraging. This investment will be financed
by means of raising equity and debt evenly over time so as not to reduce stock price drastically as well as
not too incur credit rating changes and high interest yield rates. ERIE will also continue to continuously
modify its product line based on the market’s demand drift in order to stay true to its vision of being the
best quality products in both segments.

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As per the above SWOT analysis, the company has been excessively conservative in its forecasting and
therefore remains risk-averse in its investment strategy and will encounter the possibility of being usurped
by rapidly growing competition if no action is taken. ERIE’s debt to equity ratio is astoundingly low in spite
of growing profits, which implies a financial under-gearing and subsequently results in opportunity cost in
terms of missed market share potential.

A financial expansion strategy will take place involving a shift from a conservative investment strategy of
continuous self-sufficient investment leveraged by cash reserves in expanding capacity and product
specifications, towards an aggressive strategy consisting of raising capital by means of debt and equity in
a two-pronged capitalization approach. This is also defined as “corporate renewal” (Beer, Eisenstat &
Specter 1990).

Raising Debt vs Equity:

In order to determine which mode of financing production expansion will be used, market timing theory
will be employed (Baker & Wurgler, 2002). According to this theory, companies do not care whether they
finance with debt or equity, they just choose the form of financing which is more valued by financial
markets. The market timing hypothesis is a theory of how firms and corporations in the economy decide
whether to finance their investment with equity or with debt instruments.

The implementation section below will cover all actions taken to shift the strategy of ERIE towards
becoming a global broad differentiator. This includes the above laid out actions inside the finance
department which will be extensively covered in two time-shifts. R&D will focus on keeping pace with the
market to ensure product superiority in the performance segment as well as developing fitting mid-ranged
and budget products for the mass market. Accordingly, the marketing department will focus on more
aggressive forecasting and adjust promotion and sales budgets to achieve high accessibility and awareness
figures. The production department will focus on increasing capacity to meet forecasted demands as well
as increase automation to lower labor costs and thus, increase the contribution margin. Plant upgrades
will be necessary to keep up with the competition that undertook great investments in their plants and
are therefore way ahead of ERIE in that aspect.

Implementation
Research & Development
Research & Development could be described as the most important department within ERIE. By following
an initial strategy of niche differentiation, R&D spearheaded the development of performance products
that were superior to all rival products on the market. ERIE’s dedication to quality implies a continuous
effort and innovation within the research and development department.

ERIE’s future strategy will introduce a new line of products in the mid-and budget segment in all of the
geographic markets. Besides constantly upgrading product features to keep up with rival innovation and
the rapid changes in consumer preferences, new budget products will have to be developed from the
bottom up. A global broad differentiator differentiates itself from the competition by adding innovative
features to products via product design (Egelhoff 1993). Cascading superior product design from ERIE’s
performance line down to its new budget line could result in a competitive advantage (Nobeoka &
Cusumano 1997). The critical aspect hereby in respect to new product development really is: Knowledge
management.

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It can be argued that new product development in general represents the process in a business that is
most knowledge intensive (Soederquist 2006). Existing knowledge in the organization has to be
recognized. This knowledge does exist in the minds of employees, in existing products and in equipment,
especially regarding manufacturing equipment. Furthermore, it is crucial to develop new knowledge in
every new product creation process. Even after the product release, gained knowledge has to be shared
and embedded in future processes for product development (Soederquist 2006). Knowledge management
will therefore be a crucial factor for ERIE in order to be competitive as a global broad differentiator offering
multiple distinctive products. The advantage for ERIE Corp. lies in its past role as a niche player thus, the
corporation already acquired a lot of knowledge by developing superior products. This knowledge should
be used and passed down to the development of new budget lines, offering some of the premium features
at a lower price to a larger number of customers. To boost knowledge sharing on an organizational level,
a central Knowledge Management (KM) department will be embedded in the formal structure, ensuring
the alignment between the overall strategy, KM initiatives and the R&D department (Soederquist 2006).

The overall implication of the R&D strategy will result in two product lines and four differentiated
products. The performance line includes Easia and Emeric, both with region kits, superior features and
differentiated prices in their respective regions. Yearly adjustments to features are made to stay on top
of the market and ensure knowledge is gained in the process to enhance the company’s standing. The
budget line will consist of new products: Eaten and Ebas. The strategy here is similar to the performance
line regarding market penetration. Both of them will be successors to Eat, while Eaten will cover the
markets of Americas and Europe, because we imply a similarity between those two. Ebas will cover the
Asia/Pacific market. Distinct products are needed here, because of it’s unique market characteristics.
While most of product knowledge is gained by developing performance products, this knowledge will be
passed down to the budget line and implemented in a cost-saving way while making adjustments to the
products to their respective markets by using region kits. ERIE expects a significant growth in sales
following those strategic changes. New product development will follow the standard process, beginning
with the creation of the idea via concept development & testing to the developing process, test marketing
and the final product release. This process can be seen in the process map in Figure 2. Understanding
customer’s needs and wants is a crucial step in the development of a successful new product. After
building a business case, prototypes are tested and further developed until a certain development stage
after which a beta field test can be executed. Every stage of the process includes feedback from test users
to develop a product that is measured onto customer’s needs (Kanh 2013). After a successful testing
period, a final release date can be set. Furthermore, we show the product development process for all
four products in table 6. The performance products will keep pace with drift rates of consumer
preferences to be in an optimized position every year. The budget products will be positioned as mid-
segment products thus, specifications will be incrementally advanced above the budget consumer
preferences at the initial market launch. Updates are then done according to the drift rates in the budget
segment.

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 Figure 2: New Product Development Process Map
Source: Kanh 2013

Year Emeric Easia Eaten Ebas

(Performance) (Performance) (Budget) (Budget)
Acc. Speed Acc. Speed Acc. Speed Acc. Speed
2026 12.3 12.3 12.3 12.3 - - - -
2027 13.3 13.3 13.3 13.3 Develop Develop Develop Develop
2028 14.3 14.3 14.3 14.3 10.2 10.2 10 9.8
2029 15.3 15.3 15.3 15.3 10.7 10.7 10.5 10.3
2030 16.3 16.3 16.3 16.3 11.2 11.2 11 10.8
2031 17.3 17.3 17.3 17.3 11.7 11.7 11.5 11.3
2032 18.3 18.3 18.3 18.3 12.2 12.2 12 11.8
Table 6: Product R&D

Marketing
Marketing plays a crucial role in the success of a firm’s performance. A firm’s marketing capabilities can
lead to sustainable competitive advantage and superior firm performance because they are valuable,
inimitable, and non-substitutable (Morgan, Hui, & Whitler 2018, p. 61). As ERIE switches its strategy from
Global Niche Differentiator to Global Broad Differentiator in the next five years, the Marketing
department also adapts new strategies to help the company to successfully compete in the global market.

More optimistic forecasting:

ERIE will enter the Budget segment with two new products. Additionally, the company also expects to
gain more market share in the performance segment with its Emeric and Easia products. They were always
top products in their regions in the last eight years. Furthermore, although Easia and Emeric were sold in
seven and four years respectively, stockout happened in four and three years for Easia and Emeric
respectively. As a consequence, a significant increase in sales in the next five years is expected. The
Marketing department will make much more optimistic forecasting for all products to respond to the sales
increase.

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New Product Strategies:
Raise Awareness and Accessibility:
The R&D department has decided to retire Eat; and produce two new products: Eaten in Americas and
Europe, and Ebas in Asia Pacific. Therefore, the Marketing department’s main role is to raise customer
awareness for the new products, to make them easily accessible for customers. By increasing investments
in Promotion and Sales, the Marketing department’s goal is to raise Awareness and Accessibility of Eaten
and Ebas to at least 70 percent at the end of Year 5 (in 2031).

Pricing Strategies for Eaten and Ebas:

ERIE introduces new products to enter the Budget segment. The goal is to place Eaten and Ebas in the
intersecting area of the two circles, the Budget and Performance segments, on the Perceptual Map.
Products in this area could be called Price is the most important buying criteria for Budget customers,
accounting for 55 percent, 50 percent, and 60 percent in Americas, Europe, and Asia Pacific, respectively.
As a result, although ERIE still provides customers with high-quality products, the company will set Eaten
and Ebas at low-to-medium prices so that it can capture more market share in the Budget segment.

Performance Product Strategies:

Raise Awareness and Accessibility:
At the end of 2026, Emeric’s Awareness and Accessibility were 66 percent and 77 percent, respectively;
while Easia’s Awareness and Accessibility were 51 and 58 percent, respectively. In the next five years, ERIE
aims to eventually increase these figures to at least 80 percent.

Pricing Strategy:
In the Performance segment, Emeric and Easia will still be the distinguishing products with excellent
design, high awareness and easy accessibility in their respective regions. They are designed for high-end
customers who only place the importance of price at 10 percent and 11 percent in Americas and Asia
Pacific, as a buying criterion. Therefore, their prices will be above average. More specifically, they will
always be set at the high-end level in the acceptable price range in each region.

Production
In the next five years, the Marketing department has made much more aggressive forecasts to respond
to the new strategy. As a consequence, the Production department needs to produce many more products
to meet customer demand. Additionally, to reduce costs associated with production, capacity
investments, and operational performance, outsourcing can be used. ‘If used optimally, [outsourcing] can
both optimize costs and provide the degree of flexibility in capacity that might be necessary when
demands exhibit cyclical trends’ (Sinha, Davich, & Krishnamurthy 2016, p. 2377).

Plant Investments:
In the last eight years, ERIE slowly increased plant capacity and the automation level. At the end of 2026,
capacity and automation was 3,200 and 5.6, respectively. These numbers were one of the lowest among
all competitors. ERIE will upgrade its plant capacity and automation to be on par with its competitors in
the next years. The goal is to reach 8,000 and 9 in terms of capacity and automation in 2031. Plant
investments will pay a crucial role in the strategy of ERIE because manufacturing capabilities can be seen
as assets that can lead to unique competitive advantages acquired through investments over time.
Advantages include superior process technology and inventory management systems, capacity and
vertical integration, quality systems and process technology (Ward, Bickford & Leong 1996). Plant

12
investments therefore are crucial for ERIE in regard to catching up to competitors and building a long-
term strategic advantage. The emphasis in manufacturing will be set to quality management and delivery
performance since those two fit the strategic approach of a global differentiator the most (Ward, Bickford
& Leong 1996). Furthermore, increased output could be expected for the future and the chosen strategy
requires different assembly lines for the different products thus, plant capacity has to be extended greatly.
While owning multiple plants has not been an option in Global DNA, it might be a valuable option in the
future to better manage a differentiated product line. Labor costs could be further educed by FDI
investments overseas, for example in Asia/Pacific (Ward, Bickford & Leong 1996). Planned capacity
upgrades can be seen below in Figure 3.

Figure 3: Plant Capacity Forecast

Outsourcing:
Although ERIE will increase its plant capacity and automation, it is expected that the gradual upgrade over
the course of five years may not keep pace with the faster increase in sales. Therefore, ERIE will outsource
a part of the production to an external manufacturing plant when needed. The number of units produced
in house and outsourced is determined each year to come up with the lowest possible costs.

Quality Standards:
In addition to providing the market with a sufficient number of products, ERIE also needs to make sure
that the product quality is superior to stay true to the company’s vision and mission. Therefore, Total
Quality Management (TQM) will be used in the production process. ‘TQM emphasizes the creation of an
inner environment to support innovation, creativity, and risk-taking in meeting the customers’ demands
by all the managers, employees, and customers’ (Ehigie & McAndrew 2005, cited in Wang 2017, p. 130).
ERIE will apply the concepts of TQM in the next five years to significantly decrease the number of defective
units. As a result, products will still be the highest-quality ones in both segments and the plant efficiency
will be enhanced.

Finance
Year 1-3: Equity Financing:
With the conclusion of the 8th Year of business within GlobalDNA, the organization’s board has utilized
market timing theory to make the decision to finance an expansion strategy using equity (Baker &
Wurgler, 2002). At Year 8, ERIE Corp. experienced its highest stock price since inception, thus creating a
very palatable mode of financing future projects with limited commitment to dividends – it will be able to
issue a lower number of shares and still raise its target investment amount without giving away excessive

13
equity. This is referred to as a “hot equity period” (Ibbotson & Jaffe, 1975). With a starting share price of
$75 per share at Year 0 of the forecast, the goal will be to sell 1 million shares per year for 3 years. The
sale of shares will result in an equity increase of $248 000 000 over 3 years. In turn, this capital will be
completely reinvested in assets, therefore increasing the ability to expand production capabilities to meet
new sales volume goals (a 10% increase per annum). The net effect of a 267% increase in equity and
subsequent production expansion will lead to a steady increase in share price as profits continue to rise.
The increase in number of shares, and therefore equity, in the first 3 years is forecasted below (Table 7).

Years 0 1 2 3

Table 7: Equity Financing 2026 to 2029

In spite of growth in terms of sales volume, assets, equity, and market capitalization, ERIE’s debt-to-equity
is expected to reach unprecedented lows as it continues to initially be excessively underleveraged. Return
on Equity is inherently diluted by any drastic increase in equity due to the formula for ROE: profit divided
by shareholder’s equity. Earnings per share will also decrease somewhat drastically during the first stage
of equity financing, as per table 8 below.

Years 0 1 2 3

Table 8: Equity Financing Dilutes Financial KPIs

The negative effects on equity ratios as per above are a necessity in order to take full advantage of the
leverage effect that will be discussed below as ERIE transitions towards a leveraged recapitalization by
means of raising debt.

Year 4-5: Debt Financing:

The trade-off theory of capital structure is the idea that a company chooses how much debt finance and
how much equity finance to use by balancing the costs and benefits (Kraus & Litzenberger, 1973). The
benefits of equity financing were outlined above and will be employed until the 3rd year and will
subsequently need to be addressed in order to improve shareholder value and leverage. From Year 4
onwards, the benefits of debt financing and the risks of equity become apparent in light of the opportunity
cost of maintaining this level of low leverage.

The above forecasting implies growth at the expense of a severe reduction in financial appeal with regards
to shareholders, due to the decreasing return on equity and the devaluation of potential earnings per
share. As evidenced by the ‘Stewardship theory’, one of every company’s primary goals is to protect the
interests of its shareholders, and as such the above changes in financial KPIs will need to be addressed
without scaling back on ERIE’s aggressive strategic expansion goals. By reverting to debt financing as a
means of buying back shares, ERIE will be able to increase earnings per share, return on equity and
subsequently share price (Barney & Hesterly 2008).

ERIE’s extremely low debt-to-equity ratio allows the firm to double down on expansion by means of the
leverage effect. The optimal level of debt-to-equity in an organization is around 2:1 (Peterson 1999),

14
therefore ERIE will be able to raise twice as much debt as its equity in order to reach production, marketing
and product development goals.

In corporate finance, a leveraged recapitalization is a change of the company's capital structure, usually
substitution of equity for debt. This is slightly different to a Leveraged buyout (LBO) in which external
investors, often in partnership with incumbent managers, issue bonds and use the cash raised to buy the
firm’s stock. ERIE’s leveraged recapitalization will ensure that, as implied by Barney & Hesterly (2008),
earnings per share and return on equity will increase while raising capital in order to fulfil our production
goals. The buy-back of shares & increase in liabilities as per our forecast is indicated in table 9 below:

Year 0 1 2 3 4 5 6

Table 9: Debt Increases to Buy Back Equity

The above table demonstrates a change at year 3: equity decreases while liabilities increase, due to the
raising of capital by means of bonds and subsequent recapitalization by means of leverage. This process
is referred to as “Capital Structure Substitution Theory” and is utilized as a primary means of increasing
earnings per share by means of debt. This effect is demonstrated below in table 10:

Year 0 1 2 3 4 5 6

Table 10: Shares Decrease while EPS Increases

The above table clearly demonstrates the reduction in EPS in the first 3 years as shares are sold, and the
shift towards an increase in EPS once debt is leveraged to buy back shares. The final result is that the EPS
is higher than at year 0, and the organization’s sales volume will have grown by 77% reaching a market
share of 25% and a final share price of $101 while reaching a healthy debt-to-equity ratio as per figure 4
below.

Figure 4: 6-Year Forecast

Future Projections
This part will cover the forecasts for all relevant KPIs. Five segments will be covered: Profitability, ability
to raise capital, asset utilization, forecasting and competitive advantage. Quantitative and qualitative

15
analysis is used to make forecasts for the next five years ahead. To visualize the most important figures,
an excel spreadsheet has been developed by the CEO and the head of finance. The spreadsheet can be
used as a planning instrument since calculations for ratios are made automatically based on input
formulas. It will be shown in the appendix and the Excel file can be found under the following link:
https://drive.google.com/file/d/1ZVYAvd4fyAwC93fBaYAz2tZ8KFdw2a0r/view?usp=sharing

Profitability
Four ratios will measure the profitability of ERIE: Return on Sales (ROS), Return on Equity (ROE), Earnings
per Share (EPS) and the stock price. All four will be forecasted here based on ERIE’s future strategy.

Return on Sales ROS: is defined as the net income profit by sales (McMillan 2012). Since the overall
contribution margin has been trending towards 30%, the development of new budget products will add
additional revenue and increase the contribution margin slightly. Since budget products will have a lower
margin than performance products, we expect the contribution margin to increase marginally up to about
35% in year 5. This will lead to a slower net income growth than sales growth thus, the ROS will decrease.
We define round 8 of the Global DNA simulation as round 0 in the excel sheet. ROS reached over 10% in
round 0 and is expected to drop to 8% after five years.

Return on Equity (ROE): measures return on business investments and can be calculated by net profit
divided by equity (McMillan 2012). The future financial operations of ERIE are set to raise a sufficient
amount of equity. Over the first three years, net profits will increase at an expected rate of 6% per year
and equity will greatly increase in the first three years over an expected 300.000.000$ and drop to
120.000.000$ in year 5. As a result, ROE will decrease significantly in year 3 down to 6% and recover from
there until year 5 to 21%, above the initial level of 19%. This will be achieved due to stock buy-backs and
a switch to debt financing in year 3.

Figure 5: ROS & ROE Forecast

Earnings per share: The same effect is forecasted for ERIE’s EPS. EPS is defined as the profit allocated to
each share. The ratio calculates out of net income minus dividends divided by outstanding shares
(Investopedia n.d.). EPS will also play an important role in determining ERIE’S share price (Investopedia
n.d.). After the equity raises between year 1 to 3, EPS will drop significantly, because of the sharp increase

16
in the equity of the company that by far outweighs the increase in net income over that period. From an
initial 7.15%, EPS is expected to drop to just 3.82$ in year 3 followed by a recovery due to stock buy backs
that limit the number of equity again. This could lead to an increase of EPS to 8.15$.

Stock Price: Stock prices are generally harder to forecast than the previous ratios. First, a general
correlation in stock prices can be observed in the GLOBAL DNA simulation: Profits correlate positively with
the stock price. We expect a general upwards trend in ERIE’s stock price based on the given assumption.
Furthermore, research found a positive correlation between EPS, book value and price-earnings ratios
(Malhotra & Tandon 2013). Increases in Assets and Equity in the first three years are expected to drive
the stock price, while EPS will be reduced which limits stock price growth. After year 3, stock buy-backs
and the issuance of dividends will increase stock price further while EPS increases again. Therefore, a
constant incremental increase in stock price for each year is expected at 5%.

Figure 6: Change in Stock Price

Ability to Raise Capital

Leverage:
Leveraging allows returns to be multiplied (Brigham, 1995). As ERIE began selling shares as a means of
equity financing its growth strategy in the year 2019, its equity increased substantially in the first 3 years.
The equity was used as a means to increase production capabilities (assets) as well as financing marketing
expenditure and product developments. Therefore, assets increased as well, but not at the same pace as
equity due to the R&D and marketing expenditure incurred. ERIE estimates a growth in assets of 8% per
annum to match a forecasted increase in sales, due to matching capacity to meet expected growth. The
result of a rapid increase in equity lead to a dilution of leverage to a record low at Year 3 (0.39). At year 4,
in 2030, ERIE’s financial strategy will revert to leveraged recapitalization in order to improve shareholder
performance as well as provide an improved ability to multiply its debt due to ERIE’s large level of equity.
By utilizing debt as a means to invest in assets as well as buy back stock, there will be a reduction in the
amount of equity in circulation and the subsequent net effect will be that ERIE’s assets will grow
concomitant to a reduction in equity thus raising its leverage. Thus, ERIE’s final leverage position (1,41) in
the year 2032 as per below demonstrates that a larger portion of assets will have been funded by debt
rather than equity.

17
 Figure 7: Leverage and Debt from 2026 to 2032

Figure 8:Leverage (Asset to Equity) from 2026 to 2032

Stock Price:
Share prices are tied to the demand for shares which is expected to increase parallel to ERIE’s increased
growth. To calculate the growth in share price per annum, ERIE’s finance department has made use of an
adaption of the Gordon constant growth model, which assumes that a stock's dividend will continue to
grow at a constant rate (Gordon & Shapiro, 1956). The Modigliani-Milner theorem of dividend irrelevance
(Titman, 2001) implies ERIE can disregard dividends in its forecast as dividends are voluntary. By assuming
constant growth as per Gordon (derived from a growth in investment and the subsequent impact on sales
and net profit), ERIE estimates a 5% increase in stock price per annum. The constant growth in share price
will reach a closing price of $100,57 which constitutes a 34% increase from Year 0 (2026) as per figure
below. The increase in our stock price is not only an indicator of our healthy performance, but also
cheapens the cost of raising equity capital over time.

Figure 9: Share Price from 2026 to 2032

18
Debt Ratio:
This ratio is another way of measuring leverage, which ERIE expects to fluctuate greatly but predictably
over 6 years as a result of a transition from equity financing to leveraged recapitalization by means of
raising debt. As per the figure above, Erie’s debt ratio decreased in the first 3 years as a result of an
increase in equity which subsequently had a dilution effect on leverage. At Year 3, debt-to-equity will
reach 0,04, thus implying an overreliance on equity as a means of raising capital. While this should lead
to a giant risk reduction in terms of liabilities, it also implies less autonomy as a result of giving away such
a large amount of equity. In addition, EPS and return on equity suffer heavily due to the dilution effect.
However, an extremely low debt ratio allows Erie to leverage a larger amount of debt than would have
been previously possible due to a multiplier effect (leverage). Therefore, from year 4 onwards, it is
possible to leverage a large amount of debt to buy back shares as a corrective measure while also
increasing asset growth, thus increasing our debt ratio as per figure above. Our final debt ratio reached
1,95:1, which is still within a healthy level of under 2:1. Holding twice as much debt as equity is considered
to be the optimal leverage within a firm as it entails the optimization of equity without incurring excessive
risk (Modigliani & Miller, 1958).

Bond Rating:
Bonds will be necessary from year 4 (2030) as part of leveraged capitalization to allow Erie to continue
investing in capacity, automation, product improvements and marketing while also buying back shares
and reducing equity commitments. Due to using primarily profit and equity as a means of capitalization
until year 4, Erie continues to enjoy an AA bond rating and as such can make use of lower interest rates in
future borrowing. Following the year 2030, as debt is raised in order to buy back shares and finance
continuous growth, two bonds will be issued thus increasing liabilities by $220 761 460 (at an acceptable
debt ratio of under 2:1). The result will be a higher interest rate and a lower credit rating, with a negative
effect on bond rating. However, due to continuous profit growth and healthy leverage and debt ratios,
Erie does not expect its bond rating to drop below BB. Furthermore, it will be in the position to utilise its
increased profits to pay off long-term debt after Year 6.

Asset Utilization
Asset Turnover: In the last eight years, ERIE’s asset turnover increased steadily, from 0.77 in 2019 to 1.57
in 2026. In the next six years, the trend is expected to continue, because of the forecast that sales will
increase at a higher rate [10%] than assets [8%]. As a result, asset turnover is expected to reach 1.75 in
2032. Figure 10 below shows the forecasted asset turnover in the next five years.

Figure 10: Asset Turnover Forecast

19
Current Asset Turnover: In the next six years, ERIE’s current asset turnover is expected to increase. With
more aggressive financing activities, cash will increase. Additionally, accounts receivable will also increase
because more sales are expected. As a consequence, total current assets will increase. Moreover, as
described in the Asset Turnover section, sales will also increase significantly, at a larger rate compared to
assets. Therefore, an increase in current asset turnover is expected.

Fixed Asset Turnover: Similar to current asset turnover, fixed asset turnover will also increase as well. In
the next five years, ERIE will invest much more in upgrading plant capacity and automation, as described
in the Production strategy section. Therefore, plant and equipment will significantly increase, along with
a huge increase in sales; resulting in the increase in fixed asset turnover.

Overall plant utilization is calculated by dividing total outputs (including outsourcing units) by possible
outputs of its plants. In the next five years, overall plant utilization is forecasted to vary between 100
percent and 160 percent, because in some years the intense production plan to meet customer demand
will need outsourcing to be fulfilled. Specifically, from 2027 to 2030, ERIE’s overall plant utilization will be
expected to be more than 100 percent because outsourcing is needed to meet the increase in customer
demand while the plant capacity is increasingly slowly. From 2030 to 2031, overall plant utilization will
gradually drop, because plant capacity will be enough for the company to not use outsourcing anymore.

Forecasting
Emergency loans: In the last eight years, ERIE did not have to use emergency loans thanks to its strategy
of always keeping cash at more than four percent. The firm will continue this strategy so that the company
will not need emergency loans in the next five years. This goal will be achieved, because ERIE will raise
intensive equity and later debt in order to keep sufficient cash in hand; which will significantly limit the
possibility of using emergency loans.

Stockout: In the next five years, ERIE will have four products in the market: Emeric in Americas, Eaten in
Americas and Europe, and Easia and Ebas in Asia Pacific. Stockout occurs when demand exceeds the
amount of inventory on hand (Shih 1980, p. 677).

Inventory: ERIE has decided to enter the Budget segment with the two new products, Eaten and Ebas. As
the company makes aggressive forecasts for these products, it is expected that stockouts will not happen
to “Eaten” in Americas and Europe and Ebas in Asia Pacific, especially in the first years when the company
will not be able to greatly raise Awareness and Accessibility for these products. In other words, excess
inventories will be expected for Eaten and Ebas.

In terms of Performance products of Emeric in Americas and Easia in Asia Pacific, stockouts may be
expected in some years. Stockouts happened several times to the two products in the last eight years.
Additionally, more focus of production capacity will be placed on the new Budget products to significantly
boost sales. Therefore, limited production capacity will be spent on Emeric and Easia in the first years
when ERIE’s plant is slowly upgraded, and outsourcing is still needed. In other words, there will be no
excess inventories for Emeric and Easia in the first years.

Demand: In the consumer products industry, sales forecasting proves to have heavy responsibilities to
provide accurate information (Chase 1994, p. 2). In the last eight years, there were several times that
ERIE’s potential demand was not met and higher than the actual demand. Although the company had top
Performance products such as Emeric in Americas and Easia in Asia, its plant capacity did not keep pace

20
with its potential demand. It resulted in the low actual demand despite the company’s leading position in
the Performance segment.

In the next five years, the actual demand and the potential demand will both increase because ERIE will
invest enormously in increasing plant capacity and automation, and boosting sales by raising Awareness
and Accessibility, as described in the sections of department strategies.

For Eaten and Ebas, the actual demand will be expected to be higher than their potential in the first years
because the company is still in the early stage of the process of raising customer awareness and capturing
more market share in the Budget segment. Eventually, the two numbers will be similar once the company
reach its goal of Awareness and Accessibility.

For Emeric and Easia, the actual demand will be expected to be lower than their potential in the first years
because the company’s capacity does not keep pace with its customer demand. Eventually, the two
numbers will be better matched once the plant upgrade works and ERIE is able to produce more units in
house.

Competitive Advantage
Indicators addressed in this section are: Contribution margin, overall product design, market share and
customer satisfaction. All of those form the competitive advantage of ERIE.

Contribution Margin: As previously laid out, contribution margin is expected to grow marginally from 31%
to 35%. Growth could be attributed to the extension of the product portfolio, adding additional revenue.
Furthermore, increases in plant capacity will limit outsourcing and combined with increased automation
that reduces labor costs, the overall contribution margin is expected to grow. In addition, market entries
of the new budget products will need less marketing expenditures since the market already has been
penetrated by competitors and thus, awareness and accessibility already have grown to a certain level.
This circumstance allows for lower marketing expenditures than in case of a cold market start, increasing
products contribution margins.

Overall Design: ERIE has devoted great efforts into providing superior products in a global niche market.
Those products were sophisticated and adapted to their certain market conditions with region kits.
Especially profitable were Easia in Asia/Pacific and Emeric in Americas, both in the performance segment.
ERIE will keep those products under constant development to stay ahead of the competition in terms of
technological knowledge. Leveraging the design from the performance products down to the upcoming
mid-ranged and budget products will be a crucial factor in enhancing sales performance. Research has
found that distributing design through overlapping projects can drive sales growth, enhances quality and
increase customer satisfaction. Overall, the design transfer can have significant impacts on the firm’s
competitiveness (Nobeoka & Cusumano 1997). ERIE therefore strives to stay on top of the market in
overall product design by constantly developing it’s top-end performance product with the latest features
and specifications. This knowledge will be passed down to the mid-ranged and budget products to enable
customers to benefit from some technological advancements of our performance products at a lower
price point. Building a platform system for our products could be helpful in that regard (Nobeoka &
Cusumano 1997).

Market share can be broken down into the two relevant segments: Budget and performance. ERIE
achieved an overall market share in the budget segment of 3% in 2026. This number is expected to drop

21
down to 0% in 2027 due to the retirement of Eat and the ongoing development of our new mid-
segment/budget products. Market entry into the budget segment is planned to be aggressive to reach an
initial market share of 15%. The target market share after 5 years is set to 27%. The market share in the
performance market is expected to rise step by step to 33% in year 5. Therefore, the total market share
is expected to raise to 25% in year 5 from an initial 12% in 2026. This mainly will be achieved through
entering the budget segment.

Customer satisfaction could be described as the evaluation of the purchase and consumption experience
by the customer. Furthermore, customer satisfaction is known to be influenced by product quality and to
positive correlate with profitability (Anderson, Fornell & Lehmann 1994). ERIE’s performance products
scored relatively high in customer satisfaction while Eat scored relatively low in the budget segment and
will therefore be replaced. High quality products lead to a high customer satisfaction score and influence
the profitability of ERIE positively. This is in line with research that predicts that firms operating in a niche
market generally have high customer satisfaction scores (Anderson, Fornell & Lehmann 1994). ERIE will
keep the satisfaction score for the premium products at a top-level while introducing a new budget
product to the market that better fits into the given market conditions than Eat did in the past thus,
increasing the customer satisfaction for budget products. Positive effects can be expected for profitability
due to loyal and satisfied customers (Anderson, Fornell & Lehmann 1994). However, risks remain in the
aspect of increasing market share. Serving to a more diverse customer group in a broad global market
makes it increasingly difficult to keep up a high satisfaction score. However, effects of gaining a greater
market share can outweigh the negative effects on profitability that might occur from a decreasing
customer satisfaction (Anderson, Fornell & Lehmann 1994).

22
Future Success: Strategic Summary
Global Niche
Operator
• Increase Capacity/fixed assets →
strategic advantage & economies
of scale → handling of different
product lines
• Increase automation → decrease
labor costs
• Potential FDI in overseas plants →
better handling of differentiated
product lines
• Forecasting oriented on aggressive
market strategy → budget product
entry forecasted to achieve 15%
market share at once
• Greater marketing expenses for
awareness and accessibility
• Advertisement campaign to drive
future sales growth
23
Global Broad
---> Differentiator
• Underleveraged in the past, but
cheap options of capital raises as
foundation
• Raising equity in a three-year
period
Production • Followed by extensive debt
Finance financing → Leverage effect used
by its full potential
• Raises sufficient capital for
marketing and plant investments
Global Broad
Differentiation
Strategy
• Decision shift to a greater and
more diversified product portfolio
• Development of budget products
Marketing R&D to reach mass market
• Knowledge management as future
growth driver → Advantage in
Figure 11: Strategic market by passing superior
features of performance lines
Summary: Mind Map
down to the budget line
Conclusion
As outlined by the strategic summary above, ERIE will embark on a leveraging strategy in order to move
from being a global niche differentiator towards becoming a global broad differentiator. In an effort to
become a key player in the industry, ERIE plans to implement a strategic shift towards market expansion
by means of a two-pronged financial recapitalization. The capital will be raised in order to expand
production capabilities in concomitance with product innovation and marketing.

Based on the opportunities inferred by the internal SWOT analysis combined with an external analysis of
market forces and competitors, the board of ERIE Corp is confident in its abilities to scale the firm’s core
capabilities and bring new products to the market that can outperform competitors in both quality and
cost in respective segments.

Both in historical analysis as well as in forecasting, careful attention has been paid to organizational key
performance indicators in relation to industry-specific benchmarks. ERIE has performed excellently in
the past and present, fulfilling its vision of providing superior differentiated products while also
guaranteeing sustainable financial practices to its shareholders.

However, ERIE’s management team believes there is significant opportunity cost in continuing down a
path of risk aversion and not leveraging expansion, due to continuous market growth and demand
powered by healthy long-term economic outlook. Additionally, competitors are expected to continue on
a path towards market dominance in the same segment. Therefore, ERIE risks being cannibalized if a
clear and concise expansion plan is not implemented.

The quantitative and qualitative assessment of ERIE’s strategic expansion enclosed within this report
highlights a continuous commitment towards sustainable market growth, shareholder value and
customer satisfaction.

24
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Appendix

Appendix 1: End Term Comparison Forecast

27
Appendix 2:

28