Skil Corporation Essay

1681 Words Apr 18th, 2010 7 Pages
Question 1: What is your analysis of the structure of the portable electric tool industry? Has it been structurally attractive?

Degree of Competitive forces in the Portable Electric Power Tool industry
(Structural Analysis)

Barriers to Entry: High
The major barriers to entry in this industry were found in terms of 1. Technology, 2. Capital investment, 3. Economy of scale in manufacturing, and 4. Brand reputation in specific market segments & product categories.

Barriers to Entry (Technology/Capital Investment): Per the data given in the case study (Pg 3, Para 3), typically it required 2-4 years for a team of 4-6 engineers to develop a new tool. This also needed approx. $200,000-$700,000 per year investment in R&D
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Compared to the professional/industry segment, the consumer market segment was growing at a much faster rate. The rate varied greatly by individual product category – sales of cordless tools grew 50%, the do-it-yourself market in Europe growing at 23%. Major companies (Black & Decker, Sears, and Rockwell) created new product lines for consumer segment and significantly increased their advertising expenditure to aggressively grow business.

3. Optimizing manufacturing costs and efficiency a. Companies started optimizing manufacturing costs and efficiency by focusing on increased automation and standardization of components: i. Black & Decker started replacing single task machines with machining systems. ii. B&D also started standardizing motor and armature shaft iii. B&D appointed professional management for running the business.

Were these changes for good?
In a sense these changes were good for the consumer, as the product difference in industrial and consumer tools started blurring. Consumers started getting efficient tools for better price. For some companies which were not coming with attractive products for consumer segment with enhanced features, suffered reduction in revenues.
With major companies aggressively committing for higher growth rate in sales and earnings, increasing global competition extended to pricing too, thereby industry profitability was getting adversely affected. This can also be evidenced from

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