Crown Cork & Seal in 1989

Strategic issues and options open to Avery In browse to develop a future strategic decision jut out we have assessed pinchs vocation with a SWOT analysis, keeping in mind al ace issues Avery has to consider. That implies an evaluation of the different strengths, weaknesses, opportunities and threats of Crown Corks business.The analysis is as follows Strengths Crowns payoff on equity and total return to dowerholders was ranked much higher than its competitors, creating high value to its clients Crown has a tremendous skills in die forming and surface fabrication, and they wad move to alter to the customers pick outs faster than anyone else in the industry Crowns research teams also worked closely with customers on specific customer requests. Weaknesses Growth slowing in coat containers the possibility of diversifying beyond the reconstruct of containers was not at hand, because while Crowns competitors had aggressively spread out in a variety of directions, Crown had be en cautious. Opportunities expand its product quarter beyond the get of alloy cans and closures, since industry observers forecast plastics as the addition rear for containers in the 90s Avery also considered the growing opportunity in wish-wash containers the bidding for all or part of Continental Can would almost double its size and generate them even more international. Threats Avery k advanced that most mergers in this industry had not worked out well the challenge of taking 2 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 coat cans. Regarding to the strategic options which are open to Avery, we have thought roughly three options as the most lucrative and likely ones.The first one would be to expand its product parameter beyond the manufacture of alloy cans and closures, aiming its business to the plastic container segment which held much promise. The second option would be to merge with Continental Can. It would supply them such(prenominal) size in metal can industry that they would be the highest can metal manufacturing company in the globe. The last option would be to remain on the metal can industry without merging with Continental Can. This option would be the less profitcapable one, but on the other hand it would be the less godforsaken one.They would be able to try to improve even more its manufacturing branch and taking receipts of its competitors diversification. The growth in metal can segment is supposed to be stuck, but maybe they would rise its market parting reaching higher revenues to Crowns shareholders. Metal container industry afterwards the John Connellys reorganization and strategic changes, Crown grapples in the metal containers industry, more specifically in the beverage cans market and the aer osol market.To compete in this market, since the seventies, Crown has developed a conversion from steel to atomic number 13 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 heavy(a) 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 box 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 delinquent(p) to the industrys high barriers to entry. both(prenominal) of these barriers are a) High initial capital investment Each two- piece can line plus its peripheral equipment needed cost about $20-$25 million. b) Strong rivalry among competitors five established and experienced firms prevail the industry with an aggregate 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 preference with glass bottle that would work to its advantage in the coming years. Bargaining power of buyers There were large 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 provider and they could punish poor service and uncompetitive prices by cuts in order sizes. In addition, many large brewers moved to hold can be down by developing their own manufacturing capability. Bargaining power of suppliers The inelegants three largest aluminum suppliers were Alcoa, Alcan and Reynolds Metals. Aluminum prices incre ased 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 & pestle (7%), and Ball Corporation (4%). Pricing was very competitive among them. Most companies offered multitude discounts to encourage large orders. John Connellys thrust to success Connellys arrival to the presidency of Crown brought about important changes in the vogue 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 achieve the success, the company did not apply complex strategies, nor invested in incomplete revolutionary products nor innovative diversification in his own words the plan was to apply just common sense. The company moved from a paterna listic leadership to a functional organization, Connelly also eliminated the divisional line and staff concept, he were able to reduce with this actions Crowns paysheet by 24% in less than two years. Another primal to success was that they were pointed on enhancing the existing product line.Connelly was not fire 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. Even though it was not a company based on innovation, Crown worked closely with their customers to provide them technical assistance and to satisfy their requests. To successfully carry out its polity 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 realistic to develop the internationalization process. Ne w challenges in the industry The most probative 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 wear out 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, report Avery should respond with a thorough market analysis, assessing each of Crowns options to keep its market share and then 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 before make the decision of either change Connelly strategy or remain in the same market segment with the same strategy. 2