Knowledge is what we get when a trained observer provides us with a copy of reality we all can recognize.

Summary of a European firms’ assignment.

 Problem: 

A European firm had 6 patents improving an existing industrial product which is inexpensive and relatively voluminous, making long distance shipping prohibitive.  The product is wrought into another product which is ultimately sold retail.  (Think of manufacturing computer frames and cases, or containers, which are bulky and, in relation to the end product, not a major component.) The client’s product was wrought into other products which were wholesaled to the retail chains such as Walmart.   

While the U.S. market beckons, a consideration is the management of growth. One tentative proposal would locate a plant in Canada, to be self-sufficient before penetrating the nearby U.S. states.

Information required:

Information (ideally) on every user in Canada including:

Name, address, phone number, person most knowledgeable about the product (the likely power center), person who purchases the product, volumes currently used, etc.(if nothing else their sales effort is immediately focused - no wasted time and effort). 

Information on every domestic Supplier (competition) in Canada including:

name, address, phone number, strengths, weaknesses, key accounts, volumes of the product and what percentage this played in their total sales, and an opinion of how they were likely to react to competition coming into the marketplace. 

A preliminary study of factors which might influence their decision as to whether they might consider; licensing the technology, a joint venture, building a plant from scratch, or a takeover, and whether talent was available should they decide to go any route. 

The customer base was fairly identifiable and we identified 256 users. We considered that this represented over 95% of the users in Canada.  Of the 256, 189 were geographically located in Central Canada, adjacent to the populous North Eastern States.  This 189 also represented approximately 85% of the unit volume used in Canada.  The balance had some long distance shipping concerns.  

Luckily we were able to cross check unit volume between imports and domestically produced vs industry estimates and customer reported volumes, so we knew our estimates to be quite accurate   

The domestic competition, consisted of 6 firms in Central Canada.  5 of these firms were using older technology, were rapidly losing market share, and the product was not a major part of their product mix.   

The 6^th competitor had a newish plant. Excepting our clients’ patents, it was state of the art, very competitive, and specialized in this product alone. (Although the equipment could fairly easily be modified to produce other products, as could our clients equipment.) The competitor, owned by a single individual, who had most of his wealth tied up in the business, could be expected to produce vigorous competition. 

Recommendations and unintended results;

1) Because of the invasion of major chains, and driven by their purchasing practices, the marketplace was changing in ways, and more rapidly, than our client had envisaged in the original mandate. One major US supplier, responding to the chains supply chain management requirements, had secured a significant, and growing share of the market. More importantly, the US supplier was manufacturing the total product, not just the “container” or “computer frame” noted above. 

It appeared that the 5 non-competitors were not only losing share to the 6^th competitor, but also to the U.S. supplier.  The 6^th competitor was not yet exporting significant quantities to the U.S. but appeared to be headed in that direction. Additionally he was physically located in an ideal spot.  

2) There existed in some U.S. states some significant non-tariff barriers in the form of legislation with an environmental twist.  These barriers were creating considerable consternation among all suppliers. However it appeared to us as laymen that our client’s technological abilities might just squeeze them by, giving a significant cost advantage over every supplier in North America (and also bringing them face to face with the monopoly laws, particularly in the U.S.).   

We were able to secure copies of the California legislation (the most onerous), 3 other states’ legislation, along with comment from various other jurisdictions where legislation was pending, and some insight into the application process.  

Our suggestions;

The 5 non-competitors could be largely ignored.  The 6^th competitor was somewhat of a problem. While we felt we had largely fulfilled our mandate on this point, (in saying his back was against the wall and to expect vigorous competition) in practice one answer had raised 2 more questions.  Desperate people do desperate things. What could he be expected to do specifically? A very in-depth study of the C.E.O. was required to have a significant predictive value. However takeover or licensing was a possibility.

Completely outside our mandate was the major U.S. supplier who could be expected to put up massive resistance and who might make a good licensee.

In the end, we felt that before making a significant investment, our client had to first decide whether they could get past the California legislation, (primarily an engineering question) since this trend was being copied by other governments.  From there the next steps along the path would be much clearer. 

As always in this business, an answer brings up more questions.  For example; does our client wish to alert the competition by making a California filing? Because the problem, as is often the case, had varied somewhat from that originally envisaged by the client, further action under the original mandate, as envisaged, did not make sense no surprises.  

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