Crown Cork & Seal in 1989

Strategic issues and options open to Avery In order to contract a future strategic decision plan we have assessed blossoms transaction with a SWOT analysis, keeping in mind all issues Avery has to consider. That implies an evaluation of the different strengths, weaknesses, opportunities and threats of waft Corks business.The analysis is as follows Strengths pates return on equity and total return to sh ar stockpileers was class-conscious much higher(prenominal) than its competitors, creating high value to its customers Crown has a tremendous skills in die forming and admixture fabrication, and they plenty move to adapt to the customers needs faster than anyone else in the indus turn out Crowns research teams also worked closely with customers on specific customer requests. Weaknesses Growth slowing in coat containers the possibility of diversifying beyond the occasion of containers was not at hand, because while Crowns competitors had crisply thriveed in a variety of dir ections, Crown had been cautious. Opportunities expand its product line beyond the manufacture of metal preserves and closures, since labor observers forecast waxys as the growth segment for containers in the 90s Avery also considered the growing chance in glass containers the bidding for all or part of Continental Can would almost twin its size and make them even more international. affrights Avery k impertinently that most mergers in this industry had not worked out wellspring the challenge of pickings two companies that come from completely different cultures and bringing them together Potential bidders for all, or part of Continentals operations, included many of Crowns U. S. rivals in addition to European competition the continuing threat of in-house manufacture of metal cans. Regarding to the strategic options which are open to Avery, we have musical theme about three options as the most fat and likely ones.The first one would be to expand its product line beyond the manufacture of metal cans and closures, aiming its business to the plastic container segment which held much promise. The morsel option would be to merge with Continental Can. It would provide them such size in metal can industry that they would be the highest can metal manufacturing company in the globe. The last option would be to reside on the metal can industry without merging with Continental Can. This option would be the less moolah qualified one, but on the other hand it would be the less risky one.They would be capable to try to improve even more its manufacturing process and taking advantage of its competitors diversification. The growth in metal can segment is supposed to be stuck, but maybe they would rise its securities industry share reaching higher revenues to Crowns shareholders. Metal container industry After the John Connellys reorganization and strategic changes, Crown competes in the metal containers industry, more specifically in the beverage cans market an d the aerosol market.To compete in this market, since the seventies, Crown has developed a conversion from steel to aluminum cans and manufacturing them with the two-pieces model. The metal container industry has changed considerably over the last years. Since 1981 to 1989 the market has grown from 88,810 to 120,795 million of cans. This means that this industry has experienced a grown of 36% over the past 8 years period, representing 61% of all packaged products in the United States in 1989.For a better understanding of the metal container industry, we are going to present the Porters five forces analysis Threat of new competition. We considered this force low due to the industrys high barriers to entry. whatever of these barriers are a) high-pitched initial capital investment Each two- piece can line plus its peripheral equipment need cost approximately $20-$25 million. b) Strong rivalry among competitors five established and experienced firms dominated the industry with an a ggregate 61% market share. ) Low operating margins due to aggressive discounts of competitors. Thread of substitute products a) Plastics plastics market share has grown from 9% in 1980 to 18% in 1989. Plastics light weight and convenient handling contributed to widespread consumer acceptance. b) Glass In the beer category consumers had certain resource with glass bottle that would work to its advantage in the coming years. Bargaining power of buyers There were massive buyers such as Coca-Cola Company, Anheuser-Busch Companies, Inc. , PepsiCo Inc. , and Coca-Cola Enterprises Inc.These buyers usually maintained relationships with more than one can supplier and they could punish pitiable service and uncompetitive prices by cuts in order sizes. In addition, many large brewers moved to hold can costs down by developing their own manufacturing capability. Bargaining power of suppliers The countrys three largest aluminum suppliers were Alcoa, Alcan and Reynolds Metals. Aluminum prices i ncreased by 15% while steel prices increased by 5% to 7%. 1 Intensity of competitive rivalry In 1989, five firms dominated the metal can industry, with an aggregate 61% market share.American National Can held 25% market share, followed by Continental Can (18%), Reynolds Metals (7%), Crown Cork & Seal (7%), and Ball Corporation (4%). Pricing was very competitive among them. more or less companies offered volume discounts to encourage large orders. John Connellys thrust to success Connellys arrival to the brass of Crown brought about important changes in the way the company operated, the actions he took were actually beneficial for the company, taking it from bankruptcy to a situation of annual profits with annual revenues growth about 12%.To procure the success, the company did not apply complex strategies, nor invested in neither revolutionary products nor innovative diversification in his own words the plan was to apply just common sense. The company moved from a paternalist ic leadership to a functional organization, Connelly also eliminated the divisional line and staff concept, he were able to reduce with this actions Crowns payroll by 24% in less than two years. some other key to success was that they were focused on enhancing the existing product line.Connelly was not interested in researching new materials or packaging, because of that he closed the Central Research Facility, and worked closely with large breweries in the development of two-pieces cans. level off though it was not a company based on innovation, Crown worked closely with their customers to provide them technical foul assistance and to satisfy their requests. To successfully carry out its policy of controlling costs and improving quality, Crown also needed to focus its growth policies in developing countries, taking advantage of new business opportunities to expand its market share.Connelly emphasized national management wherever possible to develop the internationalization proces s. bare-assed challenges in the industry The most significant changes that are taking place in the industry are the more often using of plastic containers and glass bottles, and the diversification and subsequent consolidations due to low profit margins, excess capacity and rising material and labor costs within the metal can industry. Some competitors have invested in stuff such as insurance, energy exploration, glass containers or high-technology market.In our opinion, Bill Avery should react with a thorough market analysis, assessing each of Crowns options to keep its market share and hence choosing the most profitable in terms of revenues and duration. Only once they have done this analysis, they are able to make the correct decision, which can be to remain in the metal can industry, the diversification to other segments of the market, or to merge with Continental Can. That implies the need to think deeply in each option in the beginning make the decision of either change Con nelly strategy or remain in the same market segment with the same strategy. 2