Crown Cork and Seal

What are the most significant factors affecting competition in the metal container industry? The U. S. Metal can industry was valued at $12. 2 billion 1989. There were five firms dominating this industry at that time constituting 61% of the entire market share. Some significant factors that impacted the competition among these firms were : Competitive Rivalry within the industry: The major players in the metal container industry comprised of 61% of the market share making intensive competitive rivalry among themselves.

The Pricing was very competitive with little room for any significant profit margins.

Focus was to enhance capacity utilization and eliminate costly changeovers wherever possible. Providing volume discounts was a common trend to attract more customers. The shrinking customer base attributed to a new low in manufacturer’s margins. Threat of new entrants : The threat of new entrants in this industry is pretty low since the major market players already dominate the existing market share. The threat for the competing companies lies in its other rivals rather than any new entrant to this specialized industry.

Bargaining Power of the Customers : I feel the bargaining power in this industry for the customers was pretty high at that time. The major customers of this industry were big names like Coca-Cola, Anheuser-Busch, Pepsico Inc. etc. The mergers and consolidations among the numerous bottling industry companies resulted in a shrinkage from 8000 to 800 major players in a matter of 9 years (1980 to 1989). The customers could easily punish the metal container companies by making frequent switches whenever there occured unsatisfactory services or steep pricing.

Bargaining power of suppliers : Steel had been replaced very quickly by aluminum ever since the invention of aluminum cans in 1958. By 1989, aluminum consisted of 99% of the beer and 94% of the soft drink metal container business. The suppliers of aluminum were the largest three aluminum producers in the country. Since they were enjoying a clear market share advantage, they did not face any competition from other new players. Hence the bargaining power of the suppliers was somehow high/strong. Manufacturing Costs: The overall costs of manufacturing equipments for this industry were extremely high.

The various players were striving to achieve a minimum cost structure for their peripheral equipments without hurting the production efficiency. Some firms were also shipping their old production lines to emerging countries overseas where the canning technology was not well mastered at that time. Apart from these, some other important factors were: Technological Changes, Environmental Risks, Research and Development ,Geographic location of plants. 2. What strategy does Crown Cork have for competing in this industry ? Crown Cork has been well recognized for being “owner-operators”.

Their primary strategy has been to improve quality while ensuring lower costs. Their strategy revolved around cost efficiency, quality and customer service. Connelly realized that since they were a small player in an industry dominated by American Can and Continental Can, they should focus on their core competencies in metal forming and fabrication. Their main focus was to concentrate on specialized uses cans and international markets. Connelly’s new strategy in terms of manufacturing involved heavy investments in new and geographically dispersed plants.

Their key attributes were high quality, flexibility and quick response to customers’ needs. They also invested in recycling a great deal and they formed the Nationwide Recyclers which was one of the top 5 aluminum can recyclers. Their strategy also involved minimum investments in R&D and rather focusing on their core skills like metal fabrication and die forming. Customer service was another crucial strategic step that Crown Cook took to compete in this industry. They had a model which ensured that any customer grievances would be routed directly to the chairman himself.

These were some of the strategy that I observed in the case that Crown Cook employed to survive in this industry. 3. What advantages, if any, does a firm the size of Crown Cork have over American Can and Continental Can? How do explain the comparison shown in exhibit 5 in the case? A firm of the size of Crown Cork has some clear advantages as compared to American Can and Continental Can. The Value chain analysis provides strategic focus. Crown Cork is not interested in investing for R&D. They are able to save in millions by letting go off this expense.

Rather, they can rely on their close competitors to take the risk in terms of R&D and learn and capitalize on their mistakes. Also, being a comparatively smaller organization, their overall organizational challenges and obstacles are much less. Their response time to customer needs and product innovation is very quick. They have the freedom and leverage to specialize on their core tin products and have no need of much experimentation. Exhibit 5 represents these major observations: The net sales figures of Crown Cork are much less compared to American Can and The Continental Group.

Even the gross profit margins for Crown Cork is lower when compared with the other two major giants. However, the operating income is much more economical (because of its size) in case of Crown Cork. This is also due to the absence of any acquisitions or mergers for them. But, the return on assets and return on average equity is similar to the other two companies or even better for some years.

This is mostly due to their smaller overall size and also near-zero investments in R&D and also their economical operations expenses. 4. What recommendations would you make to the management ? Go into the plastic industry. It was high time they started expanding their horizons and exploit future markets. * Should consider bidding for a part Continental Can. * Focus on enhancing efficiencies in plants – may consider implementing just in time techniques.

Improve marketing budgets and encourage an overall marketing approach. * Continue with their existing customer-centric model. * To survive and compete in the long run, they should start investing atleast a small percentage of revenue into R&D. * They might consider hiring external consultants to seek industry related advice.