American Mining Case
Case 2: American Mining Machinery, Inc. Marketing 3400 Dr. Steven J. Anderson, Professor l. Problem Statement After years of stagnation and predominantly utilized and saturated domestic market, the board of directors has decided to overcome old-fashioned nationalistic politics in the firm and to explore the possibility of expansion on the international market mainly due low sales and market saturation. II. Underlying Issue By taking factors such as country output as the most important factor, and country stability proximity and currency strength which country or countries should provide AMM best chance of expanding internationally?
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Ill. Relevant Facts A. AMM sales have risen to $290 million by the time Harry Bednar (son of the founder of the AMM Company) retired in 1998. Since than the sales have only raised to $330 million which is a total of 2. 9%. 1. Financial and operational controls initiated by Mike Luce(non-family professional manager hired as President and CEO) cause net profits to increase from 3% to 6% of gross sales which produced large return on equity. B. AMM -American Mining and Machinery is a specialized producer of heavy mining equipment for the extractive industries.
It is founded by Edward Bednar in 1902 with backing from few wealthy iinvestors. . Harry Bednar took over the company at 1948 and continued his father s management style, which could be best described as antiunion paternalism. 2. Edward Bednar and his son Harry Bednar were both skilled engineers and designers with an intuitive rather than professional approach to the administration business. 3. They sold their products exclusively in the United States. 4. After Harry Bednar retirement the board of directors appointed first non-family President and CEO forty-one year old Mike Luce. . Since Mike Luce was appointed as the president, the board of directors change their attitude toward international C. The industry conditions are not what they used to be when the expansion. company was founded and that is one more reason for flat growth in sales. Most of the mines and ore has been exploited (United States is one of the most modern and industrialized countries in the world and has been in the past 100 years. 1 . unltea states Is Ilmltea In output In many mlnlng ores compared to otner countrles of the world. . AMM wouldn’t be affected by low industry conditions if they considered expansion in either of following countries: Australia, Brazil, Canada, China, India, Mexico, Russia and Peru because according to Appendix A these ountries have the highest output in the world in thousand of metric tons in lead, iron and cooper industries. 3. Output in these countries tend to increase every year, in few of these countries the output increased by 50% in the past 10 years which mearns that would nullify the industry risk.
D. The AMM Company is limited on sales only in the United-States. 1. The AMM Company is well known on the American market and their machines have been sold for longer than 100 years. 2. Most of the mines are already equipped with their machines which mearns the oopportunity to expand is very limited. 3. Mike Luce feels that the company could not be hindered by personal political feelings and that they have much bigger market oopportunity in countries outside of U. S. E.
Since AMM produces large and expensive equipment, which mearns if going international they would have to be bought and shipped ,according to Appendix B, the countries the best suit for expanding are Canada, Peru and Mexico because they are closest to the borders of United States, Mexico and Canada are actually bordering with U. S. ‘V. Strategic Alternatives A. Based on the given criteria market site, political stability, output, currency tability and proximity, according to Appendix B. Only Canada satisfies perfectly all of the given criteria.
And it is the first and the best option for expansion and the first country AMM should use for expansion because the risk of expanding is minimum. A1 . Peru and Brazil are one of the world leaders in output and they also satisfy all of the criteria According to Appendix B. except the Country stability is not at the level where it should be, so AMM should consider only distributing to these countries but not moving their distribution to these countries because unknown safety security and olitical stability in the future.
But it should use their Distance and Market oopportunity. A2. Australia is one of the countries which AMM should consider for expansion cause according to Appendix B Australia satisfies all of the given criteria except the proximity problem, that’s why AMM should consider to move their distribution to this country, and with such a move AMM could reduce distribution costs and concentrate on taking over Australian market. By doing so they would minimize their risk and distribution expenses. . With selecting any of these strategies A, A1 , or A2 AMM would expand their target market and the opportunity to grow in profitability and shareholder wealth. 4. With selecting any of these countries AMM, with the right marketing mix and with the 100 years experience AMM could become the leader in that country with equipment efficacy and better prices than competition. B. Mike Luce and the board of directors can request more research to be done. c.
MIKe Luce ana tne Doara 0T alrectors ao notnlng ana allow sales to remaln at a 1. 9% growth rate. D. Mike Luce and the board can reject the strategy proposed. V. Criteria A. If Luce and the board of directors select strategy A, then AMM will have a better opportunity to improve their sales and increase shareholder wealth by expanding internationally, minimizing their risk and improving their shareholder wealth or by making a mistake and putting the company in a very dangerous position which would get Mike Luce fired.
B. If Mike Luce and the board of directors select strategy B, then they must invest more in research, use more time for it and allow other international companies chance to take over their possible market. C. If Luce and the board of directors pick strategy C, then they risk the possibility of lowering the ales and the profitability and the shareholder wealth which could take them down and loose what they had in the first place. D.
If Mike Luce and the board choose strategy D they must provide some alternatives on how to increase wealth and the overall wealth of the company VI. Selected Alternative and Why Select Alternative A, because according to Appendix B, based on the criteria of currency strength, proximity, and country stability, Canada is the country that would provide AMM the best oopportunity to expand internationally with the minimum risk and maximum chance of improving sales and shareholder wealth.