How Has Atlas Copco Managed Its Market Entry - Assignment Example

Question 1: How has Atlas Copco managed its market entry? The entry of Atlas Copco into the market can be described as average. It is average because Atlas Copco managed to excel where other foreign compressor manufacturers had failed. Atlas Copco was able to enter the United States markets and immediately established a very effective organization of service and sales. These were some of the things that gave its entry into the US market a head start. However a few mistakes that were made at the beginning do not allow this assessment to give the company an excellent score. The company was very strategic and aggressive in its operations as it entered the market. It had 1% of stationary air compressor market which was able to grow substantially to a bigger market share. In the mean time it was growing its market share in places such as the Europe, South America and Asia. To add to this it had taken its first 22 years after opening to establish itself in the markets of Germany, France, Norway, Sweden, Italy, Spain, Philippines, Brazil, Italy, Japan and Korea. These achievements made it stronger and gave it the power to enter the US market with success. Its entry into the US market met some challenges but due to proper and strategic planning all these challenges could not interfere with its growing market share. The reciprocating compressors made by the company at the time of its entry into the North American market were designed according to the European standards Coughan et al (2006, 410). This was a potential pitfall that could have messed the company’s prospects. However measures were put in place to ensure that compressors that could suit the US market standards well were designed and brought forth. It is however worthy to note that the company’s entry into the market could have had a better score if this blunder was not there. The management failed to do a thorough survey of the market in order to know which type of compressors were suitable for the market before launching out. The fact that they launched out without knowing what the market expected of them was prove that they were not thoroughly prepared for this entry. However the company’s reaction to the challenges was good. Another thing the made the company’s entry into the US market to be average was the design of a broad range of compressors suitable for the US market. Among its strong points was the investment made into the rotary screw technology which was applicable in rotary air compressors that are stationary. In this technology the company managed to stay a head of its competitors. Atlas Copco also failed to excel in another instance. The company in its desire to build market share failed to secure distributors because it lacked an installed base of machines. This was a failure on the part of the company that could have been avoided with proper planning, strategy and market survey Coughan et al (2006, 367). The machines available required a lot of maintenance, spare parts and repair. After learning from its mistake the company had to change strategy in its phase two entry. Generally the performance of the company immediately after entering the US market was average. The company was not a total failure neither did it excel because of the mistakes and challenges it had. Many of these mistakes were rectified in phase two and the company picked up and gained a good share of the market. Question 2: What does the four-level franchising policy do for its distributors? The franchising policy which was started by Atlas Copco was meant to make the business more successful. Through it the company sought to give autonomy, rewards and promotion to its distributors. These were good things that distributors were going to gain only that the timing was not right. Through the franchising policy distributors would get more control of their businesses and they would also be rewarded whenever they sell those commercially difficult products of the company. The two parties relate differently and aim at different objectives. The franchising policy could be important because it can help solve disputes that arise from interdependency in their relationship. The power needed to solve their disputes could be accessed through formal legal ways by way of the franchising policy. Informal power could also be used and in this case it can be expressed through partnership and interaction which are founded on trust, adaption levels and commitment Coughlan et al (2006). Atlas Copco does not value the informal power since it puts emphasis on the formal power that comes with the legally contracted agreement reflected in the franchising policy. Neglecting the informal power which would provide a better and friendly relationship with the distributors means the franchising policy may not achieve much for both the company and its distributors. The franchising policy is not flexible enough and its focus is on what the company aims to gain. As a result the distributors may not gain from it. If the informal power was put to use then both the company and its distributors would gain. The franchising policy was not timely and the distributors are not comfortable with it. The reason for this is that since it is not going to enhance the good relationship based on trust and commitment between the two parties, it is bound to nurture cold relations. The distributors may end up being alienated by the Atlas Copco through the franchising policy. This would be detrimental because the cordial relations between the distributor and the company are very crucial for the business to be successful. Poor relations between these two parties will from a divided team which may not achieve the goal of beating competitors. This would be a failure on the side of the distributors. The franchising policy will definitely render the distributors independent and yet they may not be ready for this. This mean it is not the right time for the policy to come into effect. Distributors will then not be willing to accept this policy since it would possibly lead to their failure in business. Because it weakens their bond with the company they would oppose it because they need support from Atlas Copco through out. Since Atlas Copco was not using distributors in the past especially in its new market, getting the distributors alienated by the franchising policy may not be the wise thing to do since it will affect the flow of business and give the competitors a chance to take over Raulersonet al (2009, 44). Distributors may be dissatisfied because they will start having problems with accessing the products of Atlas Copco and again the sudden change in treatment would definitely cause them to start considering other alternatives. Any treatment other than what the distributors are used to meaning the close trust, commitment, partnership, interaction, good attitude and mindset relationship would be unfriendly to them and possible it could result in frustration and conflict. Question 3: What does the four level franchising policy do for its customers? The aim of Atlas Copco is to gain and maintain customers. However since the franchising policy only safeguards the interests of the company there is a possibility that the customers are not benefitting. The alienation of the distributors means that their performance would be low dues to lack of support from the company. It is possible that the distributors will not satisfy the needs of the customers in terms of good services and products Gorchels, West, Marien (2004, 57). If the distributors left the scene and Atlas Copco chose to go alone then the needs of the customers would not be satisfied. The franchising policy has not paid attention to the behavior of the customers and this is bound to leave the customers’ needs unattended to. Atlas Copco must have the knowledge of the market’s service output demand and be able to address the market demand and be able to modify the products according to the demands of the customers. With the franchising policy in place a bad relationship would be caused between the company and the customers meaning the comp0any would not be able to know the service output demand of the market and therefore they would hardly satisfy the customers. However the franchising policy has its demerits as well if it is managed properly. The franchising policy is bound to give the company greater control over the business. When the company gains better control of the enterprise with a strong team of management in place then the customers benefit from good service and high quality products. The same case is magnified in the efforts that the distributors make in an attempt to grow through the levels of the franchising policy Gorchels, West, Marien (2004, 56). The hard work done by the distributors in the midst of stiff competition by promoting sales and providing the best services to attract those sales translates into benefit to the customers. Customers are guaranteed of high quality goods and services. There may be cases where a customer may miss a given product at one location due to one reason or another. Since the franchising policy gives the distributor independence and wider connection, it is possible for the customer to get a product or service which is not available at one franchisee but can be obtained by the distributor working with the other franchisees within the network. In the process there is loyalty and reliability built with satisfaction on the side of the customer Dent (2011, 300). Question 4: What does the four-level franchising policy do for Atlas Copco? To Atlas Copco the franchising policy was coming with both advantages and disadvantages. Since the relationship between the company and its distributors is based on dependency there are bound to be conflicts and disagreements. These problems could easily be solved through the franchising policy since it is a legally recognized contractual agreement. The franchising policy was designed to safeguard the gains of Atlas Copco and not those of the distributors. This was good and bad. The company would gain something but also lose because the distributors are unhappy and dissatisfied. This franchising policy would in the end become unsuccessful to the peril of Atlas Copco Kasturi, Bell (2006, 130). By Atlas Copco emphasizing on the formal power which is in the franchising policy it neglected the informal power which would converse and nurture the relationship between the company and the distributors. The neglect and destruction of this relationship would definitely spell trouble for the company because the distributors are likely to leave because of frustrations. Although the company was aiming at increasing its sales these sales would in fact go down if the distributors feel neglected and even alienated by the franchising policy. The franchising policy failed to consider the market, behavior of customers, the products and the competitors. The market condition and the purchasing pattern are not permitting given the nature of the products of the company. Competition is still high and the distributors need a lot of support in order to be able to maintain the customers, get more and keep the products moving. The franchising policy does not provide for this. Therefore the business could possible go down if the company does not revisit its decision. This is true because the company’s success is dependent on the trust that exists between the two parties. If the trust is eroded then the company is bound to lose out. Atlas Copco has not worked with the distributors for enough time and therefore the timing for the franchising policy is wrong. However Atlas Copco was poisedto benefit from the franchising policy anyway. By offering rewards to distributors who were climbing the ladder through the different levels of the franchising policy it gave them a reason to work harder and make many more sales. More so those distributors who were promoted through the levels of this policy were expected to have demonstrated the capability of selling those complex and commercially difficult products to the customers Kasturi, Bell (2006, 130). This was a gain on the side of the company since the difficult and complex products were moving and the volume of sales was also growing. Since many of the distributors were C distributors, the franchising policy helps the company to overcome this problem with its distributors. The distribution rationalization policy helped it to get rid of the C level distributors. It maintained within the network only those distributors that could provide the entire line of services over a full range of products. With the evolution of the distribution channel of the company in the 1990s it was now able to buy out those distributors who could not meet the company’s standards of service and support Kasturi, Bell (2006, 130). Question 5: What would you do differently in terms of gaining and building distribution channels to ensure a gain in market share for Atlas Copco? To gain and build distribution channels for any company is not easy work especially if the company does not have access to a massive pool of resources. However with Atlas Copco having established itself strongly in many markets around the world it could afford these resources without much trouble. It was therefore to apply any possible strategy that could bring returns in seeking for distribution channels. The case of Atlas Copco demands that the company executes very cautious steps in order to succeed in the market. This is so because the past performance of Atlas Copco was not good. They therefore need to tread carefully in the future. One important thing that should be done is to ensure that the currently available distributors are maintained by all means. This means that the relationship between the distributors and the company should be well nurtured and in fact enhanced. The distributors should be affirmed and made to feel accepted and not alienated or frustrated. The idea of Atlas Copco embracing formal power should be dropped. It should go informal by emphasizing on partnership and trust in order to win the confidence of the distributors. The franchising policy should therefore not be used at this level when the relationship between the two parties needs the greatest boost. The company needs to strengthen the available channels as a foundation of getting new channels in the future. Making the distributors to feel frustrated would mean that the business is at the risk of collapsing since their dissatisfaction would lead to them opting out. Atlas Copco must not pursue its franchising policy. In order to gain new distribution channels the available channels must be evaluated so the management and channel marketing of the company can be improved Dent (2011, 350). Evaluation should also be done on how the customers want to buy. The strategy of distribution must provide the service and information needed by the prospects. One should consider some things about every customer segment. These things include where they prefer to go and buy, if they require training or personalized education, if they require additional products and services to go with those of the company, if the compressors need service and if the compressors need to be customized. The needs of the end users will then be matched to the distribution strategy. If the end users require a lot of service and information the company should be able to do direct delivery via the sales force. Efforts should be made to reduce conflicts in pricing. If multiple channels are being used the price for every step must be mapped out carefully and a fair profit included for every partner. The prices to be paid by the end users should be compared for every channel and a suitable solution found in case there are disagreements Gorchels, West, Marien (2004, 100). The channel partners must be serviced and be allowed to drive revenue. For example they should be given marketing funds or certain materials to use in product promotion. Partnership can also be made with those companies that have customers that may require the products of Atlas Copco. It is possible to begin with one partner and builds from there. The partner has noted above should have products on sale which are need to be sold or used together with those of the company Atlas Copco. Bibliography Coughlan A. T. Anderson, E, Stern, LW & El-Ansary, AI, (2006), Marketing Channels seventh edition; Accessed on 18th July 2011 from http://www.coursesmart.com/ Dent J. (2011), Distribution channels; Understanding and managing channels to market; Kogan page publishers Gorchels L., West C., Marien E., (2004), the manager’s guide to distribution channels Mc Graw Hill- Professional Kasturi R.V., Bell M. (2006), Transforming your go to market strategy; The three disciplines of channel management; New York, Harvard Business School press. Raulerson P., Malrauson C.J., Leboyer A., (2009), Building Routes to customers: Proven strategies for profitable growth. Read More