Hyva taking a shot:
“Big Guns going to North-America?”
Author: Ronald Scheffer
Supervisor Hyva: M. Birkhoff Mba First supervisor RuG: Mr. W.W. Wijnbeek Second supervisor RuG: Drs. R.W. de Vries
Institute: University of Groningen
Faculty of Management and Organization
Landleven 5
9700 AV Groningen
© The author is responsible for the contents of this thesis. The copyright of this thesis rests with the author. No part of this paper may be reproduced without the prior permission of the author or Hyva International.
Preface
This thesis is the final step in reaching the top of the tree of my studies. It is the final project in completing the studies International Business and Financial Value Management at the faculty of Management and Organization at the University of Groningen.
“Big Guns going to North-America?” reports on the possible expansion of Hyva to North-America as well as the manner in which this expansion should be pursued and the research is conducted on behalf of Hyva International.
The “Era of Globalization” is fast becoming the preferred term for describing the current times. In my opinion globalization in business is a positive trend and this also explains my fascination for
international expansion. I think this is the culminating point of the combination of International Business and Financial Value Management; looking for international business opportunities to increase the bottom line.
My first introduction to Hyva was during a seminar where Mr. J. Vaandrager, the charismatic founder of Hyva, gave a short lecture on Hyva’s international expansion to Brazil. International Pioneering, taking Risks and a good sense of Business seemed to reflect this company.
As my final graduation project Hyva gave me the opportunity to explore the opportunities of expanding to North-America and I herewith want to thank the company as a whole for this opportunity. In specific I would like to thank my company supervisor, Mr. Marcel Birkhoff, for his continuous support, the relaxing working environment and all the rides. Also Mr. Edgar Visscher was an important source of information and Mr. Harmen Muntjewerff assisted a great deal in lay-out and design of this thesis, thanks a lot. Finally, thanks to all the other Hyva employees for making me feel at home and the fanatical squash matches.
I would also like to thank my supervisors of the University. Mr. Wout Wijnbeek for his useful feedback, which was continuously meant to develop and reflect my own line of thought. Furthermore, Mr. Rudi de Vries for his review of the concept thesis which he had to do out of the blue and therewith shed a different light on the report.
Finally, I would like to thank my parents, family and friends. My parents gave me the opportunity to do this study in the first place and have always been motivational and supportive. Also, family and friends for their support during the project.
Thanks to all of you and hopefully you will enjoy reading this thesis.
R. Scheffer
Alphen aan den Rijn, November 2004
Management Summary
Hyva is a company committed to the development, production, marketing and distribution of components for the commercial vehicle industry, with the hydraulic cylinder as its core product. Hyva is a truly global company and international presence is considered crucial to the survival of the company. As a result of this conviction Hyva is considering expansion to North-America, currently a blank on the ‘world map of Hyva’. The Hyva production facility in Brazil is expected to face overcapacity in the coming years and therefore currently export from Brazil to North-America is considered. However, this research will take all entry modes into account, since this specific entry mode could well be impossible.
Hence, the aim of this research is:
Make an analysis of the North-American truck and trailer market and give recommendations for expansion to North-America in order to pursue the (global) strategy of Hyva
The research question answered is:
Is expansion to North-America viable and how should this possible expansion be designed?
In this case viable should be seen as ‘capable of financial success and continuing effectiveness;
furthermore expansion should be practicable’. The viability of expanding to North-America is assessed by an external and internal analysis, combined into a SWOT analysis. Viability results in a ‘go-decision’
and subsequently the expansion is designed. External and internal factors determine the most suitable entry mode to enter the country, after that the marketing plan indicates on how to penetrate the market. Finally, a financial scenario analysis indicates the projected financial success of the expansion.
The research is conducted with primary and secondary data. Primary data is acquired by several visits to North-America. Furthermore, Hyva employees experienced with international expansion are interviewed. Secondary data is acquired by means of desk-research, in particular data provided by North-American trade associations and the internet.
Is expansion to North-America viable?
The external analysis indicates that there is a large market potential in North-America. The market potential is over three times the current annual production of Hyva and this potential seems to be sustainable for the coming years. The cylinder market has an oligopolistic competitive structure, with two financially strong competitors. However, competitors often have a bad reputation and have an inferior product compared to Hyva. In addition to that, there is a growing preference for durable quality products, need for good pre- and after sales service and product availability. The large cultural difference with and within (regionalism) North-America is increasing the complexity of expansion.
Furthermore, North-America is characterized by a larger focus on legal enforcements and liability risk.
Nevertheless these legal risks should not be overstated and do not prohibit Hyva from entering the North-American market.
The internal analysis indicates that Hyva follows a differentiation strategy with high-quality products;
furthermore Hyva focuses on adding value to the transactions, by high quality products and high levels of service. Producing in Brazil is a weakness in transporting cost and time, but on the other hand production costs are lower in Brazil. Outbound logistics to the customer is not yet developed at entrance in North-America and will therefore be an intial weakness. Next to the superior product with unique features, good R&D and the service mentality within Hyva are the companies strengths.
The SWOT analysis confronts the external opportunities and threats with the internal strengths and weaknesses. The enormous market potential is a large opportunity and Hyva is expected to take advantage of this market potential by the superior product and the service mentality. The largest threat to a successful expansion is price competition since there are two (financially) strong competitors. Quantifiable beneftis of the Hyva cylinder can be an answer to this price competition.
Another threat is liability claims, but a liability insurance can cover this threat.
Product in-availability is a threat as well, since this conflicts with a customer need. Longer lead times from Brazil and therewith less responsiveness increases this threat. Sufficient stock would ensure
product availability. Availability is connected to the initial lack of a distribution and service network, again this conflicts with customer needs. However, the infrastructure is available in the market and therewith fast development of this network should be realized to ensure product availability, customer responsiveness and a good service level.
To conclude, the market potential can be attacked with the strengths of Hyva. Threats are present, but these can be decreased by either Hyva strengths or specific actions. As a result it can be said that expansion to North-America is viable. This leads to the second part of the research question.
How should this possible expansion be designed?
The different entry modes have internalization factors , these are factors that represent the cost and benefits which provide an incentive or disincentive for firms to use one entry mode over another. The entry mode decision variables are related to these internalization factors and combined into a scorecard. The outcome of the scorecard model is that a local sales subsidiary (export entry mode) is the most appropriate entry mode. This entry mode give Hyva the opportunity to:
• Take advantage of the favorable export situation
• Show commitment to the market
• Exercise control on sales and marketing
The local subsidiary should be complemented with another entry mode: local agents. Additional use of agents throughout North-America gives Hyva the opportunity to:
• Cover the whole market (country too large for only one subsidiary)
• Use their knowledge of the local market (answer to regionalism)
• Use the relationships agents often already have established
Agent networks are important for the distribution network, but they can also be important in developing the Hyva service network. However, to achieve complementarity between both entry modes, agents have to fit the Hyva picture. Agents have to be selected carefully and the local subsidiary has to exercise control on them. A characteristic of the North-American infrastructure is that agents have a lot of power and therefore Hyva should give agents incentives to carry the Hyva product as well. Fortunately Hyva will be able to give one or more incentives and can thereby create a win-win situation since a combination unites the advantages of both entry modes.
The entry mode decision designs the expansion into North-America, the strategic marketing plan (chapter six) designs the entrance into the North-American market.
A financial scenario analysis (chapter seven) discusses the financial forecasts for the expansion and indicates if the expansion is capable of financial success (viable). The projected financial performance looks bright and has a positive net present value in all three discussed scenarios. Expansion seems to be a good contribution to the company’s financial objectives with an estimated financial risk of
$320.000. The expansion therefore is expected to be capable of financial success.
Expansion to North-America is viable and should be done by establishing a local subsidiary combined with the use of local agents. The marketing plan indicates how to enter the North-American market, these and other recommendations are given in the following practical management guidelines. These are divided in short-term, medium-term and long-term recommendations.
Short term recommendations
A North-America project team should be formulated (Marketing, Sales, R&D, Finance, Quality, Management), this project team will give Hyva the opportunity to take advantage of the (tacit) knowledge of all functional areas of the organization. The value chain analysis indicates the different activities in an organization. The different activities will be influenced by an expansion to North- America, just as the activities were influenced by opening Hyva China. To prevent similar start-up problems as in the case of China (problems in production, logistics, delivery times due to unexpected large orders and a lack of coordination), the expansion has to be finetuned with all functional areas.
Price: Initially cylinders have to be pushed into the market by discounts or ‘one year for free’ demo cylinders. However, the price has to lead to a high-value strategy. For this reason Hyva has to add value to the exchanges by delivering quantifiable benefits and good service. This also decreases the threat of price competition.
Place: Select a final location to establish the Hyva subsidiary; Cincinnati, New York or Cleveland. A visit should be made to make the picture complete. Furthermore, warehousing space and a suitable
workshop have to be found. In addition to that, the distribution and service network has to be developed as soon as possible. This should be done by developing relationships with agents and service shops. Clear domain definitions have to be developed in order to prevent channel conflict.
Promotion: The first recommendation is to create Hyva brand awareness in the market. Get people to know Hyva and the products as soon as possible. In specific, Hyva should be present at the relevant trade shows and advertise in relevant magazines. Initially most resources should be focused on the trailer market, since Hyva has the biggest competitive advantage in this market. Promotion has to be
‘Americanized’ and a dedicated website for the North-American market has to be developed.
Product: Start sales with the current cylinder; this cylinder has proven its durability and its range is better suited for the North-America. Furthermore, knowledge on the local products has to be acquired to ensure interchangability. Furthermore, use a local legal specialist to review all documents, stickers, instructions and planned actions. This will prevent unforeseen (legal) problems.
Once the final location is selected, the company has to be founded. Establish a Hyva USA limited liability corporation, open a bank account and become a member of the different trade associations.
The managing director plays an important role because he has a ‘linking pin’ role between the international superstructure and the local subsidiary. Hyva also has to hold a large inventory not to have product availability as the bottleneck, because product in-availability will give a bad first impression with Hyva. Start-up problems have occurred in a lot of previous expansions. Good pre-sale service and instructions are necessary to minimize start-up problems with the Hyva cylinder. These instructions have to be on mounting, operation and maintenance of the cylinder. Hyva USA has to be fully operational as soon as possible to take advantage of the possible pre-buy.
Medium term recommendations
On the medium term, potential customers have to get convinced of the added value of the Hyva product and the focus has to be on increasing market share.
Price: After being in operation for a year (couple of years) price competition might get more severe when competitors acknowledge the threat of the new entrant. Therefore the focus should stay on adding value to the exchanges.
Place: Market coverage has to be increased through the years. Find more good agents and service points throughout North-America. In other words, increase product availability to the customer.
Promotion: Remain promotion in the trailer market on a high level, but try to increase promotion in the truck market as well. Furthermore, the Hyva website could be given a more important role.
Product: The initial focus is on the current Hyva cylinder. Along the years the other product opportunities have to be explored and introduced in the market, especially by cross-selling. The development of the New-2 cylinder should be followed carefully and maybe makes a transition to the new cylinder necessary.
Long term recommendations
After being in operation for five years Hyva USA has to consider to establish offices in the Southern and Western part of the United States, as well as in Canada. Opening these local offices wil get Hyva closer to the markets and can increase the success in the North-American market as a whole.
In line with this recommendation, performance in North-America has to be evaluated. If expansion to North-America is a great success, investment in production capacity can become a good and
necessary option, which has to be considered. A large sales volume requires a large stock and could decrease customer responsiveness (delivery reliability). This could be a situation in which an
investment entry (in production) could pay off. This is in line with success ratings of investment entry modes mentioned in chapter three. Prior export entry increases the rate of success for a production investment and could therefore be a logical step in conquering the North-American market.
Table of Contents
PREFACE... III MANAGEMENT SUMMARY...IV
CHAPTER 1 INTRODUCTION ...1
COMPANY PROFILE... 1
MISSION, STRATEGIES AND OBJECTIVES... 1
PRODUCT... 2
MARKET... 2
CHAPTER 2 RESEARCH...4
§2.1RESEARCH BACKGROUND... 4
§2.2PROBLEM STATEMENT... 4
§2.3CONCEPTUAL MODEL... 6
§2.4DATA COLLECTION... 7
CHAPTER 3 LITERATURE REVIEW ...8
§3.1EXTERNAL ENVIRONMENT... 8
§3.2INTERNAL ENVIRONMENT... 9
§3.3SWOT ANALYSIS... 9
§3.4ENTRY MODE THEORY...10
§3.4.1 Export entry modes...10
§3.4.1.1 Indirect exporting...10
§3.4.1.2 Direct exporting...10
§3.4.1.3 Foreign agent/distributor channel...11
§3.4.1.4 Foreign branch/subsidiary channel...11
§3.4.2 Contractual entry modes ...11
§3.4.2.1 Licensing...11
§3.4.2.2 Franchising...12
§3.4.2.3 Other contractual entry modes: contract manufacturing...12
§3.4.3 Investment entry modes...12
§3.4.3.1 Investment entry through a greenfield venture...13
§3.4.3.2 Investment entry through acquisition...13
§3.4.3.3 Investment entry through a joint venture...14
§3.4.4 Internalization factors...14
§3.5ENTRY MODE CHOICE...16
§3.5.1 Entry choice factors model...16
§3.5.2 Entry mode decision theory of Root...18
§3.5.2.1 Target Country Market Factors...18
§3.5.2.2 Target Country Production Factors...19
§3.5.2.3 Target Country Environmental Factors...19
§3.5.2.4 Home country factors...19
§3.5.2.5 Product factors...20
§3.5.2.6 Resource commitment factors...20
CHAPTER 4 GO VERSUS NO-GO DECISION...22
§4.1EXTERNAL ANALYSIS...22
§4.1.1 Market potential...22
§4.1.1.1 General economic situation...22
§4.1.1.2 Market potential truck industry...23
§4.1.1.3 Market potential trailer industry...26
§4.1.1.4 Adaptation costs...27
§4.1.1.5 Customer needs...29
§4.1.1.6 Competition...31
§4.1.1.7 Conclusion...37
§4.1.2 Culture ...37
§4.1.2.1 Culture difference between the Netherlands and North-America...37
§4.1.2.2 Culture difference within North-America...39
§4.1.2.3 Conclusion...40
§4.1.3 Infrastructure ...40
§4.1.3.1 Geographical distance...40
§4.1.3.2 Distribution infrastructure...41
§4.1.3.3 Exchange rate...41
§4.1.3.4 Conclusion...41
§4.1.4 Legal environment ...41
§4.1.4.1 Product liability...42
§4.1.4.2 Intellectual property...42
§4.1.4.3 Import restrictions...43
§4.1.4.4 Tax regulations...43
§4.1.4.5 Conclusion...44
§4.1.5 Conclusion...44
§4.2INTERNAL ANALYSIS...44
§4.2.1 Strategy ...45
§4.2.2 Primary activities...45
§4.2.2.1 Inbound logistics...45
§4.2.2.2 Operations...45
§4.2.2.3 Outbound logistics...46
§4.2.2.4 Marketing and sales...47
§4.2.2.5 Service...47
§4.2.3 Support activities ...48
§4.2.3.1 Firm infrastructure...48
§4.2.3.2 Human resource management...48
§4.2.3.3 Technology development...48
§4.2.3.4 Procurement...49
§4.2.4 Conclusion...49
§4.3SWOT ANALYSIS AND GO VERSUS NO-GO DECISION...50
§4.3.1 Strengths – Opportunities...51
§4.3.2 Weaknesses – Opportunities ...51
§4.3.3 Strengths – Threats ...51
§4.3.4 Weaknesses – Threats...51
§4.3.5 Go versus No-Go decision...52
CHAPTER 5 ENTRY MODE CHOICE...54
§5.1TARGET COUNTRY LOCATION FACTORS...54
§5.1.1 Market potential...54
§5.1.2 Competitive structure ...55
§5.1.3 Entry barriers...55
§5.1.4 Marketing infrastructure ...55
§5.1.5 Local production factors and home-country factors ...55
§5.1.6 Cultural and geographical distance...55
§5.1.7 Legal and Tax issues ...56
§5.1.8 Specific market characteristics ...56
§5.2FIRM SPECIFIC FACTORS...57
§5.2.1 Multinational experience ...57
§5.2.2 Asset size (resources) and commitment...57
§5.2.3 Product factors ...58
§5.2.4 Firm preferences...58
§5.3ENTRY MODE RECOMMENDATION...59
CHAPTER 6 STRATEGIC MARKETING PLAN...64
§6.1PRICE STRATEGY...66
§6.2PLACE STRATEGY...67
§6.3PROMOTION STRATEGY...70
§6.4PRODUCT STRATEGY...72
§6.5CONCLUSIONS AND RECOMMENDATIONS...73
CHAPTER 7 FINANCIAL FORECAST...74
§7.1MARKET SHARE IN DIFFERENT SCENARIOS...74
§7.2INITIAL INVESTMENT, INITIAL STOCK AND ANNUAL COST...76
§7.3PROJECTED FINANCIAL PERFORMANCE...77
§7.4CONCLUSION FINANCIAL PERFORMANCE...79
CHAPTER 8 CONCLUSIONS AND RECOMMENDATIONS ...80
CONCLUSIONS...80
RECOMMENDATIONS...81
BIBLIOGRAPHY...84
APPENDICES ... ERROR! BOOKMARK NOT DEFINED. APPENDIX 1:THE WORLD OF HYVA... ERROR!BOOKMARK NOT DEFINED. APPENDIX 3:DUMP TRUCK POPULATION DIFFERENTIATED BY STATE... ERROR!BOOKMARK NOT DEFINED. APPENDIX 4:TRAILER PRODUCTION 2003... ERROR!BOOKMARK NOT DEFINED. APPENDIX 5:THE TRANSATLANTIC VICIOUS CYCLE... ERROR!BOOKMARK NOT DEFINED. APPENDIX 6:COMPARISON WITH COMPETITION (CUSTOM HOIST AND COMMERCIAL)...ERROR!BOOKMARK NOT DEFINED. APPENDIX 7:TECHNICAL OVERVIEW PER CYLINDER BRAND (HYCO,CUSTOM HOISTS,MAILHOT AND COMM.) ... ERROR!BOOKMARK NOT DEFINED. APPENDIX 8:COMPOSITE INDEX... ERROR!BOOKMARK NOT DEFINED. APPENDIX 9:DUMPTRUCK MARKET POTENTIAL U.S.A... ERROR!BOOKMARK NOT DEFINED. APPENDIX 10:TRAILER /BODYBUILDERS U.S.A. ... ERROR!BOOKMARK NOT DEFINED. APPENDIX 11:ADVERTISEMENT “THE BIG GUNS”(ADAPTED TO HYVA USA). ERROR!BOOKMARK NOT DEFINED. APPENDIX 12:DISCUSSIONS WITH MANAGING DIRECTORS OF VARIOUS HYVA SUBSIDIARIES.. ERROR!BOOKMARK NOT DEFINED. APPENDIX 13:FINANCIAL PERFORMANCE –INVESTMENT SPECIFICATION HYVA USA...ERROR!BOOKMARK NOT DEFINED. APPENDIX 14:FINANCIAL PERFORMANCE –ANNUAL COSTS HYVA USA ... ERROR!BOOKMARK NOT DEFINED. APPENDIX 15:PROJECTED FINANCIAL PERFORMANCE HYVA USA2005-2008...ERROR!BOOKMARK NOT DEFINED. APPENDIX 16:SALES FORECASTS OF CYLINDERS AND OTHER PRODUCTS... ERROR!BOOKMARK NOT DEFINED. APPENDIX 17:WORKING CAPITAL AND RESULTING CASH-FLOW STATEMENTS (2005–2008). ERROR!BOOKMARK NOT DEFINED. FIGURES CHAPTER 3: FIGURE 3.1:SEQUENCE OF DECISION VARIABLES 9
FIGURE 3.2:INTERNALIZATION FACTORS OF THE DIFFERENT ENTRY MODES 15
FIGURE 3.3:LEVEL OF RISK AND CONTROL FOR THE DIFFERENT ENTRY MODES 15
FIGURE 3.4:ENTRY CHOICE FACTORS MODEL 16
FIGURE 3.5:ENTRY MODE CHOICE MODEL 17
FIGURE 3.6:FOREIGN MARKET ENTRY MODE DECISION 18
FIGURE 3.7:INTERNATIONAL MARKET ENTRY STRATEGY 21
CHAPTER 4: FIGURE 4.1:ECONOMIC INDICATORS FOR CANADA,UNITED STATES AND THE NETHERLANDS 23
FIGURE 4.2:REAL GDP GROWTH RATES AND OTHER ECONOMIC INDICATORS FOR CANADA AND U.S. 23
FIGURE 4.3:DIFFERENT TRUCK CLASSES 24
FIGURE 4.4:TOTAL U.S. DUMP BODY POPULATION 24
FIGURE 4.5:NORTH-AMERICAN MARKET TREND 25
FIGURE 4.6:FORECASTED WORLD MARKET HEAVY TRUCKS, ALSO SPECIFIED 25
FIGURE 4.7:FLEET SENTIMENT RESEARCH 26
FIGURE 4.8:TOTAL TRAILER OUTPUT UNITED STATES 1998-2003 26
FIGURE 4.9:PERCENTAGE DUMP TRAILERS IN THE TOTAL TRAILER OUTPUT 26
FIGURE 4.10:NEW VERSUS OLD GENERATION CYLINDER 28
FIGURE 4.11:STVL-MODEL 30
FIGURE 4.12:FORCES GOVERNING INDUSTRY COMPETITION 31
FIGURE 4.13:NET SALES LEVEL OF HYVA,STANDEX AND PARKER HANNIFIN 34
FIGURE 4.14:PRICE COMPARISON HYVA –CUSTOM HOISTS 35
FIGURE 4.15:U.S. COMPETITORS 37
FIGURE 4.16:SCORES ON CULTURAL DIMENSION FOR CANADA,UNITED STATES AND THE NETHERLANDS 38
FIGURE 4.17:COMPOSITE INDEX 39
FIGURE 4.18:ETHNIC AND LANGUAGE GROUPS IN CANADA AND UNITED STATES 39
FIGURE 4.19:TYPICAL MARKETING AREAS IN THE UNITED STATES 40
FIGURE 4.20:EURO –DOLLAR EXCHANGE RATE 2002-2004 41
FIGURE 4.21:U.S. CORPORATE TAX RATE 43
FIGURE 4.22:POSSIBLE DISTRIBUTION STRUCTURES 46
FIGURE 4.23:SWOT 50
FIGURE 4.24:CONFRONTATION STRATEGIES 50
CHAPTER 5: FIGURE 5.1:GEOGRAPHIC DISTRIBUTION OF HYVA TURNOVER 57
FIGURE 5.2:INTERNALIZATION FACTORS OF THE DIFFERENT ENTRY MODES 59
FIGURE 5.3:ENTRY MODE SCORECARD 61
CHAPTER 6: FIGURE 6.1:RELATIONSHIP SPECTRUM 65
FIGURE 6.2:ROUTE TO MARKET AND PRICE DIFFERENTIATION 67
FIGURE 6.3:NUMBER OF DUMPTRUCK REGISTRATIONS IN EACH STATE 68
FIGURE 6.4:TRAILER /BODYBUILDER LOCATIONS IN THE UNITED STATES 69
FIGURE 6.5:FREIGHT COST TO THE VARIOUS PORTS 69
FIGURE 6.6:COST EFFECTIVENESS OF DIFF. PROMOTIONAL TOOLS AT DIFFERENT BUYER-READINESS STAGES 71
CHAPTER 7: FIGURE 7.1:PENETRATION RATES OF OTHER EXPANSIONS 74
FIGURE 7.2:MARKET SHARES IN 5EUROPEAN COUNTRIES IN 2002 75
FIGURE 7.3:NORTH-AMERICAN MARKET POTENTIAL, ONLY CLASS 8 TRUCKS INCLUDED 75
FIGURE 7.4:SCENARIO ANALYSIS (MARKET SHARES IN THREE SCENARIOS) 75
FIGURE 7.5:PROJECTED FINANCIAL PERFORMANCE 77
FIGURE 7.6:NET PRESENT VALUE CALCULATION 78
FIGURE 7.7:CUMULATIVE CASH FLOWS 2005-2008(PAYBACK PERIOD) 79
Chapter 1 Introduction Company profile
Hyva is a globally operating company founded in 1979 by Mr. Vaandrager. The company is committed to the development, production, marketing and distribution of components for the commercial vehicle industry. All Hyva components are characterized to meet global market demands in terms of quality, price and availability. Hyva is a supplier of a wide range of technical products and components, mainly used in connection with hydraulic loading and unloading systems for vehicles in the road transport industry1. The products are in all cases related to transport efficiency.
Most of the distributed components from Hyva are sold under private Hyva-label or under the brand- name of the manufacturer. Hyva is also marketing and distributing components, developed and produced by production facilities that belong to the Hyva group of companies. In particular, this concerns the heart of the hydraulic system, the telescopic front-end cylinder for tipping use on trucks and trailers.
Since 1991 Hyva has subsidiaries for the development, production, marketing and distribution of mobile and fixed mounted loading cranes, Kennis Beheer B.V. and horizontally moving floors for loading and unloading applications of trucks and trailers.
In 1998, Hyva acquired Technamics B.V. in the Netherlands. This company is specialized in the development, production and marketing of hooklifts and skiploader systems for the loading and unloading of containers on trucks. This growing area of business fits naturally into the range of Hyva products and its customers and has a global demand. Shortly after this acquisition Technamics took over the production of skiploaders of its major competitor and became a volume player in this type of business.
Hyva will realize a turnover in 2004 of around €180 million with 21 Hyva subsidiaries in 16 different countries. Almost 60% of this volume was generated by the sale of traded articles and around 40% of the turnover is produced by Hyva group companies.
In geographical sense, the world is the market for Hyva and its subsidiaries. The main markets at present are Europe, the Middle East, the Far East and Latin America. The total number of export markets for Hyva is over one hundred countries and this number is constantly growing. Consequently the company will remain a steady growing business.
With the head-office in the Netherlands, Hyva controls an international sales and after-sales-service network in Europe, the Middle East, the Far East and Latin America. This network is formed by Hyva subsidiaries and its many independent importers, agents, distributors and dealers. The Hyva products are manufactured in production facilities in the Netherlands, Germany, Brazil and India. Recently, Hyva has opened a production facility in China, primarily to serve the Asian market. The group has a total workforce of around 630 employees. In February 2004 3i2, a private equity and venture capital company, acquired a majority share in Hyva. This increased the focus on return on investment.
Mission, strategies and objectives Hyva has the following mission statement:
“To be the global number 1 supplier of (high quality) components and products for the commercial vehicle industry. To serve all customers worldwide in their requirement for efficient and reliable components and products in the best and fastest way by supplying value for money and securing the most suitable after-sales-service to our worldwide customer base.”
The mission statement contributes to achieving the company objectives: to maximize profit, sales and return on investment.
1 Hyva Annual report 2003
2 www.3i.com
The mission is to be accomplished by means of the following strategies or focus points:
- Product differentiation - Market spread
- Intensive R&D
- Be as close to the customer as possible - Good after-sales-service
In more specific terms, Hyva pursues to expand the worldwide distribution network of Hyva subsidiaries and agents for sales and after-sales-service. This will enable Hyva to be as close to the customer as possible. Furthermore to create and maintain a team of highly qualified and motivated employees in all subsidiaries, sharing the same ideas and principles (business ethics).
The main objectives that need to be achieved are growing sales and profits. The average rate of growth has been 10% per year for the last 24 years and this average growth rate of 10% has to be continued in the future. The company objectives for 2004 are:
• 10% growth of sales
• Growing return on sales (operating result)
• Improved solvability
• Highest flexibility
• Intensive R&D programs
The keys of success for Hyva are the spread of markets together with the product spread. Hyva is the one-stop shop for the commercial vehicle industry. Hyva acknowledges the fact that the world has changed into a global market rapidly. Consequently Hyva must act global, think global, sell global and source global.
So, the key drivers of Hyva’s strategy are product differentiation for the commercial vehicle industry, market spread and after-sales-service. The strategy is focused on profitable expansion as a result of autonomous growth of the existing subsidiaries and by acquisition of companies and agencies.
Recently Hyva management has developed ‘operation SUNRISE’. In this operation Hyva states the ambition to become a € 500 million sales company within 5 years. This is a high ambition since the sales level was € 146 million in 2003. This growth has to be achieved by autonomous growth of Hyva and acquisition of companies and agencies.
Product
By means of this strategy, Hyva is expanding its international and global sales, as well as after-sales- service network. In this way Hyva is able to supply all its international customers and dealers the possibility of ‘one-stop-shopping’ with a wide, interesting and extensive range of (high quality) products for the road transport industry to improve efficiency3 and offer (tailored) solutions to customers’ needs. This one-stop-shopping resembles the cross-selling concept.
The product line consists of products produced internally and externally purchased products. Although Hyva sells a full product line, its core product is hydraulic cylinders for tipping used on trucks and trailers.
Market
It is relevant to indicate that Hyva operates in a business-to-business market. A business-to-business (B-2-B) market can be characterized by the fact that buyers procure products and services necessary for their own business. In that sense a B-2-B market differs from a pure consumer market. In a consumer market the buyer is a natural person who procures goods and services for private use and is the end-user of these goods and services.
Differences between a B-2-B market and a consumer market are:
3 Hyva Mission 2004
• A B-2-B market is mainly dealing with derived demand, this means that in this market the whole supply chain should be considered to understand the market. This plays an important role in the critical success factors, which becomes clear later on.
• A lot of alliances are present in the B-2-B market. Suppliers and producers sharing their knowledge and cooperate to increase the customer value. As becomes clear from the Volvo Supplier-Days, this is also the trend within the truck and trailer industry.
• Finally the demand in B-2-B markets is often concentrated, some authors come up with the 80-20 rule.
As a consequence of these differences, buying behavior is different in the B-2-B market:
- There is a phased buying process in which a lot of attention is being paid to different stages (orientation, selection)
- The Decision Making Unit (DMU) is larger - Continuity of the relation is important
- The buying process is more rational, especially the first stages
- The focus is more on the augmented product: businesses are not only buying a product but also additional services (value chain). As a consequence price-performance is more important than prices. This is partly because performances are easier to measure in B-2-B situations - Buyers are often experts
Chapter 2 Research
§2.1 Research background
The strategy of Hyva shows that expanding internationally is considered as crucial to the survival of the company as a whole and achievement of the company objectives. Therefore the management is continuously considering different regions to expand to. In the ‘world of Hyva’, North-America is a major blank4. Management thinks it is necessary for a truly global company to be present in that part of the world. The intention is to go to that market, but the question remains if it is possible to expand to that geographical enormous market in a profitable manner and how this should be done.
The initiative to consider expansion to North-America is fueled by the opening of the manufacturing site in China. As mentioned, this production facility is build to serve the Asian market (principally China, India, Thailand, Korea). Currently, the Brazilian production facility produces cylinders for the Chinese and Indian market. The Chinese and Indian production facilities will become self-serving and capacity in Brazil will become available. This capacity could be perfectly used to serve the North- American market.
§2.2 Problem statement
Research aim: Make an analysis of the North-American truck and trailer market and give
recommendations for expansion to North America in order to pursue the (global) strategy of Hyva Research question: Is expansion to North-America viable and how should this possible expansion be designed?
This results in a number of sub-questions. These sub-questions can be structured as follows. First an external and internal analysis will be made. The combination of these analyses will lead to a SWOT analysis and this analysis will be done by confronting the strengths, weaknesses, opportunities and threats. This will answer the question whether Hyva should enter the North-American market.
Assuming that the answer to the previous question is positive, Hyva faces the question of how to enter this market. The internal and external analysis also bring forward the desired entry mode characteristics for Hyva. The target country factors and firm-specific (to some degree similar to the external and internal analysis) define the entry mode characteristics as well. The decision whether to enter the North-American market and the way in which this entrance should be designed are related.
Therefore a scenario analysis will indicate what the financial results are in different scenarios. It could be well possible that after the scenario analysis a ‘no-entrance’ decision will be made.
Finally, in case of market entrance, a strategic marketing plan will be made; this plan will consist specific marketing recommendations for Hyva in the North-American market.
• Is expansion to North-America viable?
External Analysis:
1. What are the important external industry factors in the decision to expand to North-America?
-What is the market potential of North-America?
-What is the competitive structure in the North-American market?
-Identify potential customers and their needs.
-What are possible market entry barriers?
-What are the cultural differences (industry mentality)?
-What are the opportunities and threats in the North-American market?
Internal Analysis:
2. What are the important internal factors in the decision to expand to North-America?
-What is the business strategy of Hyva?
-What is the asset size of Hyva?
-What are the strengths and weaknesses of Hyva?
4 See appendix 1
3. How do the internal strengths and weaknesses stand in relation to the external opportunities and threats (SWOT analysis and TOWS matrix)? Should Hyva enter the North-American market?
• How should this possible expansion to North-America be designed?
4. What desired entry mode characteristics come forward out the SWOT confrontation?
5. How do target country location factors influence the entry mode decision?
6. How do firm-specific factors influence the entry mode decision?
7. What is the most advantageous entry mode?
8. Definition of a strategic marketing plan in order to achieve long-term success in North- America.
9. What is the expected financial success of possible expansion to North-America?
Definitions:
In this research expansion to the North-American market should be seen in the broad sense of the word. In the broad sense means expansion can take various forms (entry modes). Viable in this question means capable of financial success and continuing effectiveness, furthermore expansion should be practicable. In other words; is there an external and internal fit in the expansion that contributes to the objectives of Hyva? Finally, design is a structured plan of how to enter the North- American market. This plan will consist of the entry mode, (marketing) processes and future
recommendations.
§2.3 Conceptual model
External analysis Economics Market potential Political situation Legal environment Culture differences Infrastructure
Internal analysis Strategy
Value Chain
SWOT analysis
GO
Desired mode characteristics (Internalization
factors)
Entry mode choice Target country location
factors Market potential Competitive structure Entry barriers
Marketing infrastructure Local production factors Cultural distance Legal & Tax issues Home country factors
Firm specific factors Multinational experience Asset size
Product factors Resources Commitment
Marketing plan
Financial forecasts NO-GO
(reject expansion)
As becomes clear from the conceptual model the confrontation of the internal and external
environment leads to a SWOT analysis. This SWOT analysis indicates if there are opportunities in the North-American market and if Hyva (with its strengths and weaknesses) can take advantage of these opportunities, also considering the threats in the market.
Furthermore this internal and external environment are determinants of entry mode characteristics, suitable for market entry. However, these internal and external environments are not the only determinants of the most suitable entry mode. Cultural distance and legal and tax issues are also influencing desired entry mode characteristics.
Once the most suitable entry mode is chosen, a marketing plan must be formulated. This marketing plan answers to the question of how this market must be conquered. The entry mode is intended to penetrate the foreign target country; the marketing plan is intended to penetrate the foreign target market. According to Root, the choice of the entry mode and marketing plan is the entry strategy for an international market. This strategy will set forth the objectives, goals, resources and policies that will guide a company’s international business operations over a future period long enough to achieve sustainable growth in the foreign market5. Finally, the financial forecasts of a possible expansion will be explored.
§2.4 Data collection
1. A literature review on factors influencing expansion to foreign markets.
2. Researching the following aspects by means of desk-research:
• Market potential by means of different industrial data sources
• Make an inventory of the competition in the market, this will also be done by means of internal documents, industry data and internet
• Map the cultural distances Hyva is facing by means of literature and best-practices
• Make an inventory of the potential customer base, also in different states of the U.S.
by means of internal documents, industry data and internet
• Make an overview of legal and tax issues Hyva is facing. This will be done by means of internet, literature and professional advisors
• Make an internal analysis by means of internal documents and data that is gathered from Hyva employees
3. Primary data is obtained from visits to North-America by the Hyva international sales manager and from conversations with customers and employees. In this light also managing directors of subsidiaries and other persons that were closely related to previous international
expansions will be interviewed. Also competitor cylinders are tested in order to make a product comparison.
5 Root, 1994: 2
Chapter 3 Literature review
In this chapter, relevant theoretical background of the research will be reviewed. In this way theory shall be linked to business practice. First of all, theory on the external and internal environment will be analyzed and confronted. Subsequently characteristics of different entry modes are explored. Once the different entry modes have been explored, the different decision theories on the choice of entry mode are elaborated.
§3.1 External environment
International market selection is a complex field of numerous contingent variables. Literature and research on international market selection (IMS) is aimed at making a choice among two or more alternatives. Papadopoulos and Denis indicate that IMS should not be confused with in-depth research aimed at establishing the potential of one specific market6. However, IMS literature is aimed at identifying countries’ market potential and therefore insights of this research can be used to determine the factors on the basis of which a ‘Go versus No-Go decision’ can be made.
Robertson and Wood7 carried out a study and developed a theory on what type of information experts and experienced exporters consider generally relevant for appraising export markets. The framework was established for U.S. companies choosing their export market. In the case of Hyva this foreign market is already selected. Nevertheless, with some adaptations and without all variables being equally relevant, it is a good framework that indicates decision variables.
Politics is the first primary dimension, the key question in this category is: do the politics that govern the export market generate conditions conductive to international business activities? The three main areas of interest are the ‘political stability’, ‘nature of diplomatic relations’ between foreign government and home government and the ‘foreign government’s internal policies’.
Market potential is the second primary dimension. In this dimension the central focus concerns whether the target market has the necessary means to purchase imported products and whether the needs of the market were being adequately satisfied. Within this dimension the three main areas of interest are ‘current and future demand’ for products, ‘adaptation costs’ of products and ‘internal and external competition’.
The third dimension is economics, the focus within this dimension lies on market’s industrial and consumer evolution. Economics has three areas of interest; ‘current position of the target market’s development’ as measured by broad economic performance measures. Furthermore the ‘strength of the export market’ in terms of production of goods and services and the ‘product consumption trends’
in the target market.
Culture is the fourth primary dimension. This dimension is about the nature of internal and external shared lifestyles, customs and social relationships. The focus areas are firstly the degree of ‘cultural unity’ and national integration and the extent of ethnic and cultural differences in the export market.
Secondly is the cultural differences between the export market and the home market.
The fifth primary dimension of the framework is infrastructure, which key areas focus on the obstacles and advantages to the realization of export operations due to fundamental business foundation conditions. Three main areas of interest in this dimension are firstly the extent and nature of the export market’s ‘physical distribution infrastructure’. Secondly the extent and nature of the export market’s ‘communications infrastructure’ and finally geography and climatic conditions that affect the business enterprise.
The sixth and final primary dimension is the legal environment of the target market and the degree to which it prevents or restrains business activities and imports. Three subsidiary dimensions are: ‘tariffs and taxes’ in the target market, ‘non-tariff barriers’ and ‘other legal considerations’. Appendix shows 1 the full table of Robertson and Wood.
6 Papadopoulos, N. and Jean-Emile Denis, Inventory, Taxonomy and assessment of methods for international market selection, In: International Marketing Review, 1988, Autumn: 38-49
7 Robertson, K.R. and V.R. Wood, The relative importance of types of information in the foreign market selection process, In: International Business Review, Vol. 10, 2001: 363–379
