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BAXTON TECHNOLOGY ARIJEET PAL, 2018BLP027

BACKGROUND & PROBLEM DEFINITION:


Baxton Technology was founded by Mark Baxton. He set up a plant in Lachine which was financed by
venture capital firm and started manufacturing and marketing of hoists called as Braxton Lift which is
a service automotive hoist, a product used by garages, service stations and repair shops to lift cars for
servicing. It had its operation in US market and Canada. Mark Baxton is faced with two of the following
decisions: to further expand his company in an existing market by focusing his efforts in the United
States, in particular the east coast, or the second option is to go global and introduce the product into a
single European market. And if entered then which expansion would be best suitable for: licences, joint
venture or direct investing.
MARKET AND INDUSTRY ANALYSIS:
Approximately 49,000 hoists were sold each year in North America, with Baxton contributing to 1,054
units with sales of $9,708,000 in 1999. In that year, about 60% of sales were to the United States with
the remaining 40% to the Canadian market. 30% of units sold is new car dealers. The company competed
mainly in the speciality shop segment and in particular those which dealt with wheel alignment which
constitute of 85% of company sales. The industry is worth $150 million. There is a total of 16 companies
competing in the automotive lift market, 4 Canadian and 12 U.S. firms. Two types of hoists were In-
ground and Surface Lifts which claims to be 21% and 79% of total sales respectively in 1999. The two
big players in US market: AHV Lifts with 40% market and Berne Manufacturing with 20% market share
gave a competition in the in-ground and two post surface markets. Both used a combination of
wholesalers and company sales, competing primarily on price. Braxton Technology used three
distributors: Company sales force, Canadian distributors and US Automotive wholesaler. In total
company sales force generated about 25% of the units sales each year.
EVALUATION AND ALTERNATIVES:
Setting up a sales office: A sales office in New York to service a huge potential population of registered
vehicles and expand its distribution expertise and market information. Direct sales would have channel
conflict with US wholesaler. A major distributer might be lost and possibly 60% of their sales
(5,824,800$) as in 1999.
Encouraging the US wholesaler: As US market got a huge sale of lifts, as the number of vehicles is
about 10 times that of Canadian market. Encouraging the US wholesalers to push the Baxton lift would
increase their market share which accounts for less than 20% of US wholesaler. However, US wholesaler
s major objective was to sell a hoist, not necessarily Baxton lift.
Expansion through Licensing: European market got a huge market potential and investment site
opportunities. A French firm, the Bar Maisse has already expressed an interest in manufacturing the
Baxton lift, so the licensing option is a real possibility. If Baxton did business with them, they would
enter into a three-year licensing agreement with Baxton Technology to manufacture the Baxton Lift in
Europe with royalty rate of 5% of gross sales to Braxton. But this can lead to overall control of operation.
Expansion through Joint venture: If Baxton Technology decided on a joint venture with Bar Maisse,
they would have the opportunity to learn more about the European market, as well as gain a reasonable
share of the market with proper marketing. There is also the greater chance of making more money with
the two companies sharing the investment and profits.
Expansion Through Direct Investment: Establish a Manufacturing facility and set up a management
group to market the lift in the European market. The estimated costs involved in setting up a plant in
Europe would be around $1,530,000. Baxton can afford this option, but the one disadvantage is they
would have to go through the expansion without Bar Maisses knowledge of the European market.
CONCLUSIONS:
Baxton Technology should enter the European market, which is a single market with internal free trading
and keeping in mind that nearly 20 million vehicles were used. Baxton should Joint Venture with Bar
Maisse. They should explore the market in Germany which has huge market potential and investment
site opportunities. Its beneficial than licensing and direct investing as it is less risky. And it also ensures
more equal power-sharing between Bar Maisse whilst also reducing costs. Baxton would also benefit
from the expertise that Bar Maisse has of the market in Europe already.