Case in: EXC 3602 International marketing

(Process evaluation: 80% part of EXC 3602)

Posted date: 17.02.2015, kl 00:00 Due date: three days before the case presentation, at noon. Total number of pages: 47 pages Case 1: Aurora Light facing their first export venture side 2 Case 2: Yara International side 11 Case 3: Ronstan sailing around the world side 19 Case 4: Orkel what now? side 30 __________________________________________________________________________ Groups of 5 students solve a case. Cooperation between several groups to prepare presentations is considered cheating or attempt at cheating, and is subject to the cheating regulations in the exam rules. A copy of the presentation must be delivered on e-mail to the grader before the case seminars, and changing the content after delivery is not permitted. When the case seminars approach, you will find instructions on Its Learning concerning the e-mail addresses to which you must send your presentation. The file-name of the presentations must be of the following format: GroupnumberXXCasenumberY.ppt (A file name may for example look like this: 13Case2.ppt which means that the file contains group number 13s presentation of Case 2). Note that we prefer file formats of the ppt-form, just in case some of the graders do not have newer versions of power point.

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Case 1: Aurora Light facing their first export venture

by Prof. Carl Arthur Solberg, BI Norwegian Business School. Carl Arthur Solberg

Although the background of the story is real, facts have been changed, in order to disguise

the real company. Any resemblance in any company with the persons mentioned in the case is

coincidental.

"This is a real mess!" Mrs. Sunhill had problems of hiding her temper when she confronted

her marketing manager Mr. Mark Salsbury with a letter received the same morning from their

Italian agent, Mr. Antonio di Napoli. Mr. di Napoli had in fact informed Aurora Light AS that

he ended the contract they had entered into a year or so earlier, and he asked for 600.000 Euro

in indemnities. And, if this was not enough: Their representative in Newcastle, GB-Lite, had

insisted on more changes to be made on the products, in order to satisfy the requirements of

the British market. According to Mr. Counting, Aurora Light's financial officer, additional

adaptation costs would increase the end price to an unbearable level, making redundant all the

efforts put into the British market.

They were lucky to have a good grasp of the Norwegian market, to at least sustain the costs

incurred during the introduction to the new markets. In fact, they were holding a good 25-30%

of the home market, with sales approaching 140 million NOK last year. They felt well

entrenched in the market place with good relations to the distribution channels and a

technological advance to the competitors. Although the profitability was not up in the sky, the

return on sales showed a sturdy 2-6% per year over the last couple of years, and annual net

profits were in the three to six million NOK range. Besides the Norwegian archrival, Light-

Tech, these latter consisted of companies mainly from Sweden and Germany. Typical for this

industry, has over the years been the dominance of the national companies in each market,

Norwegian companies dominating the Norwegian market, Swedish companies in Sweden and

so on and so forth. The major reasons for this industry structure were the local design and

technical standards, and the multitude of different contractors and distribution channels in the

national markets.

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However, the industry was gradually being consolidated, lead by the proactive strategies of

the French Schneider Group. Schneider had in fact initiated an acquisition campaign in

Europe and controlled their Norwegian competitor as well as this latters partner in Finland.

They were also dominant in France and Germany and other countries on the continent. So far

their Norwegian competitor had kept their independence and there were few signs of one

European design of the products. Rather on the contrary: electrical fixtures still had

conspicuous features of being local products.

The background for the export adventure was to anticipate what had to come: the emerging

industry concentration in Europe, and the ensuing inroad of new competitors into the

Norwegian market. So, they started to investigate different avenues for exporting. After some

discussions with people in related businesses and Innovation Norway the Norwegian Trade

and Industry Promotion Agency, and some research on statistics and magazine articles, they

decided to approach the following countries in the EU: Great Britain, Denmark, Italy, France

and Germany. France and Germany were rapidly excluded given the prominent presence of

the mother company of their Norwegian competitor. The markets in Great Britain and Italy

were deemed to be the most interesting ones and Mr. Salsbury was assigned the task to

identify possible candidates for representation in these two markets.

After some investigation - partly through small advertisements in trade magazines, and partly

with the assistance of the local representatives of Innovation Norway - they ended up with a

long list of candidates in each country, most of which seemed quite serious and capable. They

were of the most diverse types of companies, anything from the "one man show"-company to

large, established import firms. Mrs. Sunhill expressed some doubt as to what kind of

company they ideally should tie up with. On the one hand, a large and well introduced

importing company with an established network of wholesalers and customers would

facilitate the task. One major disadvantage with this kind of solution was of course that such

a company could be too big for Aurora Light, and Aurora Light would only be a small and

insignificant supplier to the larger company. On the other hand, "the eager beaver" solution

had its clear advantages in the amount of attention the agent could bring to Aurora Lights

products. After endless discussions on the pros and cons of each alternative, Mrs. Sunhill

decided to try both.

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The British market In the UK they started discussions and negotiations with a company well entrenched in the

business, GB-Lite. This company had been importing electrical fixtures and equipment ever

since the early sixties, and - out of their base in Newcastle, they had developed a large

network of retailers especially in the North East region of England. This company was chosen

among all the other for two reasons: 1) the Managing director, Mr. Jones, seemed to go easily

along with both Mrs. Sunhill and Mr. Salsbury; 2) GB-Lite had shown a spectacular ability to

yield good financial results. With a yearly sales of 34 million GBP and a sales staff of

between 18-20 people, they were regarded as a solid potential partner.

The contract negotiations, however, were a new and unexpected experience for both Mrs.

Sunhill and Mr. Salsbury. In the introductory phases of their negotiations, they had met with

Mr. Jones alone, who gave a refreshing impression of a professional manager, quite unlike the

stereotype picture one typically has of established British companies. When they met to

negotiate the details of the agency contract, Mr. Jones was joined in by three other men: Mr.

P. Halloway, Mr. Jones' partner in GB-Lite, Mr. A.G. Ressing their sales manager, and finally

Sir John Lawson, their lawyer. The four were all equipped with a 10 page sample, standard

contract which they would like to use as a starting point in their further discussions with

Aurora Light. Sir John politely presented the details of its content to the two representatives

of Aurora Light.

Mrs. Sunhill was quite astounded. This was very different from the relaxed meetings they had

previously held with Mr. Jones. During these meetings they had discussed things like

commission and sales volume and had reached a general agreement on these issues. Our

friends from Aurora Light thought that the contract negotiations were a mere formalization of

this discussion. Instead, they were met with a long range of requirements:

Develop an English version of their product catalogue, manuals and service

instructions.

Transfer for one week in Newcastle a product engineer in order to train the sales and

service people involved in the project.

Send GB-Lite within three weeks a complete set of demo-models.

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Take the responsibility of spare parts and the most popular models in a warehouse

facility in the outskirts of Newcastle.

Maximum delivery time to be one month.

Authorize GB-Lite to grant price discounts, accept returns and extend credits of more

than 4 months when deemed necessary.

Contribute at least 90 000 GBP to the introductory advertising campaign, and further

pay 25% of any advertising programs in the future.

Mrs. Sunhill did not find any clause in the suggested contract that really committed GB-Lite

in any significant way, and she and Mr. Salsbury had a hard time introducing terms like:

Minimum sales the first year of 100 000, to be increased to 1 000 000 after two

more years.

A guarantee of not extending credits or pursuing sales to customers who have

exhibited a notoriously bad credit record.

Changes in prices and terms of payment should be submitted for approval in Aurora

Light before being granted.

These "concessions" from the GB-Lite team, did not go without the inclusion of a major

clause stating that GB-Lite is entitled to a compensation of 80.000 if any of Aurora Lights

commitments were breached. This was a bitter pill to swallow, but Mrs. Sunhill and Mr.

Salsbury accepted it because they were quite confident that they would be able to -putting

some extra effort to the job - comply with the clauses. And the British, on their side were

quite stubborn on this clause if they were to soften their stance on the issues put forward by

Aurora Light.

Back home again, our friends in Aurora Light started to fulfill their commitments. They had

the brochures and manuals translated; Mr. Prodding, the development manager of Aurora

Light, was sent over to train the sales and service people; arrangements were made to rent

storage space and transfer spare parts and demo models. And finally, GBP 90 000 was

transferred to GB-Lite's account in Barclay's Bank, the Newcastle branch, to comply with

GB-Lite's requirement on advertising expenditures. At the end of this "exercise" more than

NOK 1 300 000 was spent on the British market introduction. Mr. Counting achieved after

lots of persuasion an extension of the credit line with the local bank, and submitted a request

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for support on part of the money (translation, advertising budget, training program), to

Innovation Norway. After one month of hard work, they could start "breathing normally" and

wait for orders to come.

The Italian experience The Italian experience was quite different. Mr. Salsbury received a telephone call from a

certain Mr. di Napoli, calling from the Oslo Airport, Gardermoen. He had just landed and was

together with his wife for two weeks of summer holiday. Norway was such a different country

and he and his wife were in for a new kind of "experience". He referred to the ads about

representation and would like to "poke his nose" in any time during the next two days to

discuss the prospects for a deal.

Antonio di Napoli happened to be a charming and also knowledgeable man who could refer to

a long list of references of sales assignments in Italy. He had in fact worked in the electro

fixtures industry for several decades and knew the members of the dealer network better than

his own cousins! After a visit in the factory, and a review of the products, their newly won

friend expressed great interest in being assigned the agency for all of Aurora Light's products

in Italy. At the end of a couple of hours discussion, they agreed to the main points in a

contract to be signed when di Napoli passed by on his way back to Italy after his holidays in

Norway, a week or so later. He had in fact accepted the idea of Mr. Counting to have his

references checked before any contract was to be signed. Mr. Salsbury was sitting on the

phone the next couple of days checking Mr. di Napoli's reputation. He also doublechecked

through Innovation Norways Milan branch. All references recommended Mr. di Napoli

without any reservation and Mr. Salsbury was confident they had come across the right man

for the job. Mr. Counting was somewhat more doubtful: what about all the others on the list?

"We haven't even bothered to look at the list!" he exclaimed. But he was overrun by Mrs.

Sunhill and Mr. Salsbury who both felt convinced that he was the man. Besides, he spoke

very good English, and that was not commonplace in Italy, not even within the business

community.

Next Tuesday, they signed a contract with the following terms:

di Napoli would get the exclusive rights to represent Aurora Light's products in Italy.

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He committed himself to sell for at least 500 000 Euro the next year, increasing to 1.2

million the year after and finally reaching and 2.5 million after four years of operation.

Furthermore, he was granted a commission of 10% of the total sales.

Finally, the two parties were committed to develop a good spirit of cooperation.

No mention was made to advertising expenditures. In fact, Mr. di Napoli did not place any

importance on advertising. "What matters", he said, "is a good network and personal selling.

Then the rest comes by itself. Mr. di Napoli even agreed to come by himself to Norway for

an introduction into the technical parts of the product offering, disbursing all the travel

expenses out of his own pocket.

Business as usual? After half a year, approaching Christmas, the status of Aurora Light's export efforts was as

follows:

In the UK trial orders started to come in already two weeks after the first "introductory

month" (when all the preparatory work had been done). GB-Lite had in fact presented the

products on a local trade fair outside Newcastle, and received some noticeable interest from

one dealer. However, Mr. Jones reported that in order to push the sales, they had to grant

substantial price discounts, between 12 and 15%. Mr. Salsbury was not in doubt: "We have to

go along with these requirements, otherwise we will not get the products through the dealers

in the first place, and nobody will get to use them." This made sense, but both Mr. Counting

and Mr. Prodding were reluctant to do anything more for their British representative at this

moment: "Who do they think they are?" exclaimed Mr. Counting. "We have put almost one

and a half million NOK into the venture, and now they ask for discounts!" After one hour of

discussion they settled for a compromise: GB-Lite was allowed to grant 5-7% discount to

particularly interesting customers.

The reaction from Mr. Jones was what one could term a qualified acceptance. After some two

or three weeks' time, Mr. Jones returned with inquiries concerning "minor product

alterations", as he put it. "Our dealers find it difficult to achieve preference for your products

as they now stand and at the price that you quote, etc., etc." He finally suggested some

changes in the design of the products.

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Mr. Prodding was out of his mind, and during their internal discussion of the issue, he

expressed a great deal of annoyance with the whole venture: "We have now ended up in

endless discussions with our British representatives on just about every tiny issue of our

marketing program, and they have not achieved a single major sale. In Italy we don't meet any

of these objections to what we can offer: both the price and the product are being accepted as

they stand, and Antonio has succeeded in getting our product introduced in at least 20 dealers'

network.' I think that we should start looking for a new candidate for our sales in the UK. I'm

fed up with these petty quarrels around details, which don't lead us to anything but higher

costs".

- 0 -

In Italy, things at first seemed to develop much more brightly. There was an endless stream of

orders, first small trial orders, but later on they amounted to much more than the amount of

sales agreed upon in the contract. Aurora Light was very happy and executed the orders as

they came in. "We certainly have found a good niche in Italy", Mrs. Sunhill stated at one

moment. But only a week later, Mr. Counting entered into her office and presented the last

quarter's book report. Only ten percent of all the invoices due from Italy had been honored! "I

don't like this", he grunted, "I really wonder what kind of customers our friend, Antonio, has

led us into".

"I can't understand this", Mr. Salsbury said, "Antonio reassured me about the solidity of his

customer base, and based on the references we have received, I find it hard to doubt what he

is saying". "That's all fine, Mark", the financial officer countered, "but I think that when

twelve out of our fourteen invoices have not been paid in time - and we have granted liberal

credit terms, one month - I think it is time to review our credit policies toward Italy".

Mr. Salsbury conceded that something had to be done and agreed to write an e-mail airing

Aurora Light's concern over late payments. The situation did not get less sour when they two

days later received a note from Banco di Milano, about Stella Lucia, their biggest account so

far in Italy, had filed in for bankruptcy. An inquiry from Mr. Counting to Innovation

Norway's local representative in Milan revealed that a good deal of di Napoli's customers did

not exhibit the world's best track record concerning timely payment. In his report the trade

officer added though that this is not unusual in Italy, and that Aurora Light had to be patient if

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they wanted to retrieve their outstanding balance with their Italian customers. Mr. Salsbury

still tried to be polite and friendly when writing the mail:

From: msal@Aurora Light.no To: Anapoli@lucia.it Time: 06.11.2014, at 1433 Re: Late payment HelloAntonio,IhopeeverythingiswellinItaly.HerethesnowhasstartedtofallandhopefullythisyearwellhaveawhiteChristmas.IwritetoyouaboutthebankruptcyofStellaLucia,andwouldliketoaskyoutodoanythinginyourpowertoretrievewhatispossibletogetoutofwhateverisleftoftheirassets.Wewouldalsoliketomentionthatwehaveexperiencedthatsomeofyourcustomersarenotverypromptinpayingtheirdues,andasyoucertainlyunderstand,wearesufferingfromthis.Untilthisdaywehaveliberallypaidthecommissiontoyouandwecertainlyintendtodosoalsointhefuture.However,wewouldsuggestthatthefollowingpracticesshouldbeintroduced:1.AllnewcustomersshouldpaybyLetterofCredit,andtheestablishedslowpayersshouldalsobeconfrontedwiththisnewpolicy,untilwegettoknowthembetter.2.Wewillnottransferanycommissiononsalesmadeuntilwereceivepaymentfromourcustomers.Itrustyouunderstandthisandlookforwardtohearingfromyouinthenearfuture.Bestregards,Mark The response was not very pleasant: From: Anapoli@lucia.it To: msal@Aurora Light.no Time: 06.11.2014, at 1456 Re: Late payment MarkReferenceismadetoyourmailsome20minutesago,andcaninformyouthatIdon'tseehowIcanworkundertheconditionsstatedinthemail.IthoughtthatIhadtodowithprofessionalbusinesspeople,butyoursuggestionsoncommissionpaymentandL/Csuggesttomethatwewillhaveproblemsingettingalongindoingbusinessinthefuture.IwillthereforebyDecember1ofthisyear,endourrelationshipandwillrequirethatyoupayafeeof600.000Euroinindemnities.AntoniodiNapoli

This was not nice music in anybody's ear, and Mrs. Sunhill concluded her intermezzo with

Mark Salsbury by calling the management team for a meeting to discuss the situation. She

introduced the issues as follows:

"Gentlemen, we have tried for one year to enter two export markets, with so far - I dear say -

very meager results. Off course we are newcomers, but what we now are into exceeds any

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expectation of bad luck. The efforts we have put into this misadventure, runs up to a balance

of at least one and a half million NOK in the UK and outstanding debts of at least two and a

half millions in Italy, plus of course the indemnity hanging over us from Antonio. If this was

not enough, I'm afraid to tell you that our business in Norway has been suffering from this.

We have paid too much attention to our situation in our new markets and opportunities in

Norway have been left behind. I think time has come to look at our strategic position and

reassess the whole investment. This should be done, I think, before we discuss how to proceed

with Antonio and our British "friends" in the short term. I open the floor for comments.

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Case 2: Yara International

by Prof. Carl Arthur Solberg, BI Norwegian School of Management, Oslo in cooperation with

Mr. Egil Hogna, Vice president Downstream, at Yara International, Oslo.

Note: this case has been developed for class discussion in international marketing and

management courses. Although the case describes a real life situation, certain facts have been

changed in order to conceal critical information. This does not however essentially alter the

issues raised in the case. For background information about Yara, please visit their home

page www.yara.com

NB! It is not permitted to contact the company or its employees when solving this case.

It had been a demanding week for Mr. Egil Hogna, Senior Vice President Downstream at

Yara International ASA. He had been travelling across Latin America visiting four countries

in six days and was now heading back home to the Oslo headquarters of the worlds largest

fertilizer company. This was his third trip to Latin America over the last four months since he

took over the job as SVP Downstream and he realised that they now had come to a cross-

roads on their market presence in Colombia. Mexico, Guatemala and also Ecuador were an

easy ride compared to Colombia. There they had already established a local presence through

their own sales office, and the visit there was more of a courtesy kind.

The story was however quite different in Colombia. Senr Cesare Gonzales, their local and -

most would say - very loyal and devoted distributor since the last 23 years was utterly

opposed to any of the solutions suggested by Yara to the dilemma that they were confronted

with. He could still hear the resounding mantra given by Mr. Gonzales: You are the

producers we are the marketers. He was so frustratingly stubborn and single minded -

You are the producers we are the marketers and Mr. Hogna slowly developed a sense of

antipathy for the guy they all worshipped only a couple of years back. Sitting back in the

business lounge at the Baranquilla International Airport, Ernesto Cortissoz, recollecting the

discussions over dinner the night before, he realised that he was about to change his mind

about their presence in Colombia, but that he would have a hard time convincing some of his

colleagues back in Norway of the necessity to shift to another operation mode in this

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important market. He knew that at the Monday meeting next week he needed to persuade a

lot of people who were staunch supporters of Mr. Gonzales and of the idea of continuing with

him as their sole distributor in Colombia. Mr. Hogna was quite adamant that something had

to be changed, but he was still worried about the consequences and he was unsure of how to

tackle the marketing task in the wake of an indispensable and - he hoped - imminent break

out.

It was not easy. A lot was at stake. In fact, Colombia had over the last two decades evolved

into one of the most important markets for NPK fertiliser from their Porsgrunn plant in

Norway, taking about 10% of its total production of some 2 million tons of NPK and Mr.

Gonzales had been the key architect behind the success. Only China and Scandinavia were

larger markets for the Porsgrunn plant. You know Egil the local plant manager, Mr. Ola

Earthgood, had insisted before he left, we risk a 10% loss of our NPK output and that

represents a turnover of some USD 80 million. Were gonna have a hard time to find other

markets to offset such a loss, and in the long run we could jeopardise the viability of the plant

itself. It will take a nerve to challenge Mr Gonzales bearing this in mind..... And he was of

course right in that the profitability of the plant hinges on its utilisation rate and, as to make

matters worse, that the 2008-2009 financial crisis had made a big bite into both sales and

profits. Yara downstream activities were particularly hard hit by the crisis. For instance in

Latin America sales in 2009 fell one third from the year before a combined effect of lower

prices and lower volumes.

Only a few years earlier they were reluctantly accepting things as they were. Mr. Gonzales

had through his firm Ferticol SA developed Yara to be one of the major players in the

Colombian market achieving a market share of some 35-40%. His dealer network of some 80

dealers was well located in central agricultural regions of the country and represented the

upper crust of the industry. Their first contact originated back in 1986 at a trade fair in

Madrid, were Mr. Gonzales expressed interest in a presentation held by a Yara (then Norsk

Hydro1) agrochemical engineer. He was particularly impressed by the reported crop yields

provided by the Yara NPK prills. Actually, their product was in many ways different from

those of their main competitors at the time as they were producing compounds as opposed

the more generally used blends. One of the key differences between the two lies basically in

1 Yara International AS was spun off from Norsk Hydro in 2004. For the sake of simplicity we will in the following use Yara as the name of the company throughout the rest of the narrative, even though Norsk Hydro was the name of the company before 2004.

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the fact that in the Yara product the three main nutrients of the fertiliser Nitrogen (N),

Phosphorus (P) and Potassium (K) were all present in each prill with equal parts in the

whole batch, whereas most of the competitors supplied a blend where the components

randomly were present with varying degree of concentration. Hence the yield was superior

with the Yara product and a lower dosage could be used than with that of the competitors. Mr.

Gonzales had indeed experienced the variance of fertiliser yields from his time in the

horticultural industry in Colombia. This experience would be a perfect background for him to

represent Yara in his country. A year later they were in business, at first only on an individual

purchase contract basis, but it evolved with time into a close distributorship relation, where he

de facto was their sole distributor in Colombia.

Their relationship was built on trust gained through a professional handling of business

matters and an evolving friendship between Mr. Gonzales and key personnel at Yara. Yara

was delivering good products at a slightly higher price than the general market price level for

blends, but Mr. Gonzales was able to communicate the higher product quality to the market

and therefore rapidly gained the commitment of the best dealers in Colombia. If there was a

problem in the delivery Yara would instantly give him accurate information; if he expressed

the need for extended credit terms it was granted at times it could go well beyond the

normal 90 days. Certainly, the then controller at the Porsgrunn plant, Ms. Peggy Credilane,

was at first not happy with this, but the upside was a loyal distributor and also a more rational

logistics solution (larger and fewer shipments), and if Yara needed to push product, Mr.

Gonzales would have available warehouse space as long as the credit terms were generous

enough.

However, the profitability of the Colombian operations was not among the best in the Yara

system rather it was ranking as a middle of the ground performer in their portfolio. If truth

be told, top management of Yara was already back in 1998-99 starting to ask questions about

the Return On Capital Employed levels of the Colombian venture. True, Mr. Gonzales had

managed to get a good grasp of the market, reaching almost 40% market share; true, the

Colombian market constituted a significant addition to the capacity utilisation of the

Porsgrunn plant, thereby securing essential scale economies and its competitiveness.

Nevertheless, some key people at headquarters in Oslo started to ask impertinent questions

about the potential for improved returns. First the then President Mr. Thorleif Enger

expressed concerns about the Colombian venture not yielding better results even after fifteen

years of operation: Yes - we do have a comfortable market position in Colombia, but things

have not really moved the last couple of years and our volumes and returns are not showing

any sign of improvement. And as the present CEO, Jrgen Ole Haslestad, was professing:

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We need to get closer to the customer in order to understand what is happening in the market

and how the customers think. To that effect they established in 2001 a liaison office in

Bogot in order to get a better grasp of the market. Two people, one from headquarters in

Oslo and one local were hired to both overlook the market operations and to spot new market

opportunities in Colombia and beyond. This was not well viewed by Mr. Gonzales as he

persistently was telling his mantra (You are the producer I am the marketer), however he

acquiesced and acknowledged that as long as he was in command of the operative marketing

and sales programme he was not to be challenged by headquarters.

Concurrently with the decision to set up a liaison office, Yara eventually formalised the

relationships with Ferticol SA, as the uncertainty concerning the future was increasingly

worrying Yara management. Mr. Gonzales saw this as a clear advantage in that he secured his

position in a potential termination conflict. In fact with no distributorship contract until that

date, he believed that he still was to be regarded an agent by Colombian Code of Commerce.

This was only partly true, since he de facto was their distributor, buying and taking title to the

product rather than as in the agency contract acting on behalf of the principal, receiving a

commission or a fee. So for severance payment accruing to the agent, this was indeed a point

of uncertainty, since agent he was not. They settled for a severance payment of 1 million USD

in case of termination, whatever the cause of the contract cessation by Yara. At the same time

they also formalised the producer-marketer role distribution, so as to assure Mr. Gonzales of

his position in the value chain.

A year later in late 2002 - the expat head of the Bogot office, Mr. Ole Clerck, reported back

to headquarters that some of Ferticols local dealers expressed concern about being financially

squeezed and that some of them had been forced into bankruptcy by Mr. Gonzales. This was

possibly not a big surprise as the whole world was in financial disarray in the wake of the

bursting of the dot.com bubble that year. But it raised some eyebrows at headquarters when

they learnt that the credit line offered by Mr. Gonzales was only 30 days, whereas Ferticol was

often given more than 180 by Yara! It was only after they bought Kemira OYs fertiliser

business in 2007 that their suspicion was given real substance . In fact Kemira Growhow as

they now where labelled, had sales offices both in Colombia and Ecuador, and they reported

much higher returns than Yara in this latters relationship with Ferticol, and that came at much

lower volumes and only after 6-7 years of operation. It appeared that Ferticol not only

squeezed the dealers on credit terms, but also on price. So on 100 USD in the market the

dealers would typically only have a margin of some 15%, and Ferticol reaping the bulk of the

margin of some 30%, leaving 55% to Yara. This equation was quite different in the Kemira

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case: roughly 20% at the dealer level, 20% at the local sales office level and 60% at producer

level.

Discussing the matter with Mr. Clerck during his last visit to Colombia, Mr. Hogna asked how

this could be: I mean, how can Cesare sit back with those profit margins at the expense of his

dealers, whereas most of the competition is operating with much lower margins? Mr. Clerck

offered the following explanation: You know Egil, Cesare has been very successful in

building an image of being the industry leader in Colombia. He has used our logo for what it

is worth: Yara and the Viking ship are basically seen as a household, local brand. And in

support of this Ferticol has over the years invested in a very competent sales force, with great

product knowledge and with frequent and close relations with their dealer network. And

remember, he added, Ferticol also has a wide product range, offering other products than

just ours, so many of their dealers have developed a certain dependence on Ferticol. Also

and lets not forget that Cesare has grown into an important figure locally in Baranquilla, not

that I make any allusion to any wrongdoing, but of course, when you are centrally placed in

the industry network, you find most of the time ways to improve your situation..... That was

indeed true: Mr. Hogna recalled the occasional receptions and cocktail parties held by Mr.

Gonzales at his residence outside Baranquilla, where he had the chance to meet local

figureheads and also some local horticultural leaders. These were useful inputs in his

formation of the total picture of the marketing situation. And indeed, at these occasions he

also got the opportunity to experience Mr. Gonzales devotion to Yara: in the middle of the

pear shaped swimming pool a mosaic blue and white Yara Viking ship gleamed from the

bottom. There was no doubt where his loyalties were....

Eventually, after years of hesitation and internal deliberations, in early 2009 Mr. Jrgen Ole

Haslestad suggested a solution to the dilemma: a joint venture initially to be owned 49% by

Yara and 51% by Ferticol, but with Yara to take a majority ownership after four years. They

also offered an unbalanced distribution of the dividend from the JV the four first years:

Ferticol 65%/Yara 35%. This proposal was advanced after several attempts had been made to

more closely monitor Ferticols marketing activities. But to no avail: Mr. Gonzales now 76

years old was the big boss, his producer-marketer mantra was constantly repeated and he

was uninterested in whatever change was suggested in the operating conditions of their

relationship. Two of his sons were involved in the discussions, but they were only regarded as

apprentices and were despite their age: 42 and 39 years - not given any decision making role

in the firm.

16

Back in Norway, Monday morning, 09:00 oclock meeting with top management of his

department. Mr. Hogna still a bit jet lagged felt well prepared for the discussion. Present: the

regional sales manager Latin America, Ms. Elfrida Rodrigues, Mr. Earthgood, and Chief

Legal Officer Mr. Trygve Faksvaag.

Mr. Hogna opened the meeting with a warm Good morning everyone. I hope that you have

had time to consider the facts of the situation in Colombia. It is not a straight forward

decision to take, and we need to make sure that all the aspects of the situation are properly

evaluated before we decide what to do. As far as I am concerned we have two major

alternatives: 1) stay with our present distributor, Ferticol, or 2) move all our importing

activities to the Kemira Growhow sales office, thereby riding on our market experience

acquired through their network and their operations in the market. In this latter case, we will

most likely change the name of our subsidiary to Yara Colombia Ltda. We may of course

also set up a totally new Yara sales office and let the Kemira brand sail on its own each

brand then will operate with their own distribution network and their own marketing strategy,

independently and side by side. This third solution will however meet resistance in the board

of directors, as the sentiment there is to rationalise rather than setting up double sets of sales

units abroad. If we continue with Ferticol, we need to try and persuade them to take a more

customer friendly stance toward their dealers. We all know that these lately have been under

financial pressure, both concerning credits and price and I think that with some patience and

some pressure from our side we may in the longer term succeed in that endeavour.

Remember that Mr. Gonzales is now soon 80, and his sons seem to be more willing to discuss

viable solutions with us than the old man, but we dont really know how long time it will

take before they will be able to take the helm. And we dont know how competent they are.

Ola Earthgood was the staunchest advocate of the status quo in the group and he reminded his

colleagues of the vulnerability of the Porsgrunn plant should the volumes drop. He has been

serving us pretty well after all. I agree that his pricing policies are dubious, and that our

margins could be better in that market, but on the other hand losing ten percent of our total

volume is much more serious. Even though we may take advantage of the Kemira Growhow

dealer network, that network is much weaker compared to our existing distribution. Not only

is it much smaller with their 35 dealers, but also it mostly consists of second tier dealers

compared to Ferticols structure. Elfrida Rodrigues filled in: and not only that, she said,

but rumours have it that the Russians are actively searching for new outlets in South

17

America, and if we cease our relationship with Senr Gonzales I am convinced that the two

will be in business in the course of less than one week!

The Russian fertiliser company, Acron - second only to Yara in terms of compound NPK

output, was one of Yaras main competitors in world markets. It was generally known that

they were about to review their own presence in Colombia, as they up till this date only had

occasional deliveries through direct sales to some of the larger dealers around Bogot based

on the dealers attempt to pressure Ferticol on price. Their product quality was, however, not

as good as Yaras, but they were indeed a serious player in the market. Mr. Hogna thought by

himself Well so much for Cesares loyalty.... Now that we plan to set up our own sales

unit the quality seems to be more than good enough, even for him .... He will have a hard

time biting his own words. As a matter of fact Cesare had always been dismissing Acron as

low quality supplier, and had gone to length to communicate this viewpoint to his dealers.

Mr. Hogna said: I agree that we are vulnerable since we do not have the direct link to the

dealers or to the end users. But that is one of the main problems that we want to address:

customer contact. And furthermore, our brand name is well known in the market, and if I am

not mistaken, a great deal of these guys would rather welcome us as their main supplier

instead of Ferticol. Cesares tough policy towards many of the dealers has given him a

reputation in the market that probably will help us retain a large part of them. And given a

properly conducted marketing campaign, I think we will be able to increase our market share

in the course of a couple of years.

This may be true, but we dont really know Ms. Rodrigues countered. One problem that

we are sure to encounter is the fact that we are culturally extremely far from Colombia. Of

course daily etiquette is relatively easy to learn even though there are lots of pitfalls even

here, but the mechanisms that follow in the wake of hierarchical rules and social network ties,

are something far less permeable. And these things are extremely important in B2B relations.

As far as I am concerned this will prevent us from an easy ride into the market. And I can say

this, Egil, since I am half Spanish, speak the language and feel that there are many things

going on there that I cannot fathom! Using a local figure to head the subsidiary is of course a

way around, but then again, we will still struggle with the problem of understanding and

interpreting the information that he might give us! It took us a long time to understand the

way in which Cesare was operating I say no more!

18

This was not the first time Mr. Hogna heard the cultural argument, and of course he was

aware of the problems: It is certainly true that we are way away from Colombia also in

cultural terms. And we have heard rumours of .. ehem... should we call it irregular business

practices. That has however not prevented the Kemira people to successfully penetrate the

market, and their top guy in Colombia was a Finnish expat. I dont think that we are any

worse than the Finns he said. To what Mr. Earthgood retorted Success is relative : the

Kemira Growhow brand sells possibly a fifth of our volume. Yes Ola, we all know that,

Mr. Hogna resignedly replied, but Kemira entered the market only ten years ago, in a

situation where we were already the market leaders and had captured the best dealers. And to

be true, I think that precisely this year is a good time to do the switch, since Colombia just

recently has entered into a new deal with the EU, which I am sure that will have an effect on

their agribusiness exports and thus boost the fertiliser market.

Mr. Faksvaag had been listening to the discussion, and many of the arguments were known to

him. However, he warned against a problem that was so far not given so much attention.

We dont know for sure, he said, but I have heard rumours of Mr. Gonzales registering a

trade mark that is profiling a Viking ship. Granted it has a somewhat different shape than our

logo, but possibly still similar enough to potentially confuse some of our end users when they

see the two products together. We need to look more seriously into that, and consider what

possible legal actions to take. I dont say that this should preclude any switch to fully owned

operations, but it might affect the way in which well approach our marketing in the wake of a

break-up.

The meeting was drawing towards the end and Mr. Hogna concluded: Well we all know

that we have different views on the situation. I will now, together with Elfrida and Trygve,

set up a PM to top management, where we discuss these matters more in detail, and outline

the consequences of the two alternatives, particularly with a view to the local marketing

effort. Thank you for your contributions.

19

Case 3: Ronstan sailing around the world

By A. Murray , Welch, Arambewela. ( 2011)

Revised twice by Lawrence S. Welch and Runar Framnes for use at BI Norwegian Business

School, last update February 2015.

NB! It is not permitted to contact the company or its employees when solving this case.

Ronstan International is an Australian company specialising in the production of high quality

fittings for yachts; and architectural products (various stainless steel applications such as

structural and aesthetic cables and rods, predominantly in the infrastructure and building

sector). For its type of marine hardware, Ronstan is the leading manufacturer in Australia and

second or third internationally, with about 10% of the global market after Harken in the

U.S.A. and Lewmar in the U.K., each producing a similar range of marine hardware. It has

been a successful exporter from Australia over many years, winning a number of government

sponsored export awards in recognition of its achievements. Ronstan was the 2009 winner of

the inaugural Australian marine industry export award. International sales in 1987/88 were

$2.75 million (AUD), which represented 30% of the company's total sales. Its overall sales

increased to about 15m in 1994, 27m in 2001, and +35m in 2011 - about 70% being foreign

sales. Ronstan has a strong identification with Australian participation in international

yachting contests such as the America's Cup and the Olympics. In 2010, Ronstan moved from

its original site into a specially built factory and office facility in the Melbourne suburb of

Braeside.

In 2012, Ronstan had about 175 employees in total. Turnover of staff is very low, team

atmosphere is strong, and the management team is stable its turnover is zero. Forty eight

of the current staff have been with the company for 25 years or longer. To build a cohesive

workforce, the new facility has a large, well equipped canteen with an outside eating area;

staff are not permitted to eat at their desks (a rule that applied to everyone, including the

Managing Director). This encourages intermingling of factory, office and managerial

employees. An indication of the companys ethos is the listing of all employees by name in its

official history published in 2003. Ronstan is currently a private company, with the bulk of

20

equity held by its managers (see Table 1 for the changes in the companys ownership over the

years). The current managing director, Alistair Murray, is a part of the shareholding group and

has been heavily involved in the development of Ronstans international operations: earlier as

export manager and later as general manager of Ronstan (US), and then Managing Director.

The Board of Directors of the company is composed of 4 people: a non-executive Chair, the

managing director and two other Ronstan executives (see organizational chart).

Table 1: Ownership changes

Year Event 1977 Ronstan acquired by Australian Reinforced Concrete

1980 ARC acquired by Humes Industries

1981 Humes Industries acquires Fico Marine, Ronstans main Australian competitor and merges it

with Ronstan

1985 Fortuna, a New Zealand conglomerate, acquires Ronstan from Humes Industries. Fortuna

had also acquired RC Marine, a New Zealand producer of marine hardware

1990 Fortuna goes into receivership, although Ronstan is trading profitably

1991 Syndicate of investors buys Ronstan, 10% held by company executives

1995 Ronstan acquired by UK company, Chemring

1999 Management buyout (buyback!) of Ronstan: ownership in the hands of 16 people, 14 of whom

work for Ronstan

2007 Ronstan owned by a private syndicate of 18 people, the majority of whom had participated in

the 1999 buy-out.

2012 The syndicate now comprises 15 people, with Alistair Murray still as the Managing Director

While there were steady increases in profit in the 10 years to 2007, the company has since

experienced a decline in total sales of about 20 per cent, attributed to the global financial

crisis and the strengthening of the Australian dollar. From late 2008 to 2011 the Australian

dollar rose by about 60%, however, during 2012-2014 the strengthening of the USD made the

AUD fall approx. 25% and restored a large part of Ronstans currency competitiveness.

Ronstan mainly sells into the marine products after-market (about 80%). About 20% of total

marine product sales are represented by the OEM market. Had the company been relying only

on boat builders, the downturn in the marine industry would have had serious consequences:

in 2009 sales of boats were down about 50%. The increased competitiveness and the high

Australian dollar made Ronstans home market attractive to their major competitor Harken

which was prepared to offer their products at prices 20 to 25% lower than Ronstan. In the

three years up to 2011, modest profits had been achieved as a result of significant cost cutting

21

including a reduction in staff numbers (25 employees), but since 2012 the tide has turned and

sales picking up. Exports are generally priced in Australian dollars.

The domestic phase origin and growth The company was started as a backyard boat building project in 1953 by two partners, RON

Allatt and STAN Lenepveu in the Melbourne bayside suburb of Sandringham. Production was

mainly wooden hulled yachts but some stainless steel yacht fittings were also manufactured to

satisfy their own requirements and also the growing requirements of local yachtsmen. In

1960, a retail showroom, the Ronstan Marine Centre, was established.

The decision to leave the boat-building field and concentrate entirely on the manufacture of

fittings was taken in 1961. To remain as boat builders the company needed to convert from

wood to fibreglass construction due to the rise in popularity of this material. The capital

required was not forthcoming due to the government's credit squeeze at the time, but

sufficient capital for tooling and machines to make marine hardware on a production basis

could be raised in conjunction with the sale of the Marine Centre. This ability to mass produce

fittings gave Ronstan a significant advantage over the competition and in particular its major

Australian competitor Fico.

The off shore phase getting their feet wet Up to this time Ronstan had given no particular consideration to the possibility of export but

in 1965 an order was received from Canada from a Canadian airline pilot who had become

familiar with the products on visits to Australia and who saw a potential for them in the

Canadian market. The trial consignment proved successful and the Canadian became the first

overseas distributor for Ronstan. The company realised that further expansion would be

greatly limited if it were to rely solely on the Australian market. Also the market was highly

seasonal which resulted in the need to retrench staff in winter, a procedure which the

company disliked. The opportunity to establish a distributorship in the U.S.A. arose through

an order from an American of Australian origin who was in contact with the Canadian

distributor.

Over a period of time the exports to these two markets grew on an ad hoc basis. Though

responsive to exporting, the domestic market was Ronstans primary concern. The lack of key

22

personnel with relevant international marketing experience at this time made it reluctant to

commit to servicing distant markets of which it had little knowledge. Consequently, no formal

plans were made to increase penetration of these markets or to attempt to enter other export

markets. However the Australian government's support for exports with export promotion

grants and market advisory services for which Ronstan qualified as a new exporter resulted in

a change of thinking. The success of more committed export efforts led, in 1970, to its first

export award. A further influential factor in setting Ronstan's course was the success of the

exporting activities of Fico, its main Australian competitor. Eventually, Fico was taken over

and merged into Ronstan.

The American experience From the time of establishing the distributor in the U.S.A. in 1966, Ronstan was quite happy

with the progress made there. Sales grew steadily, mainly on the west coast, but in 1977,

without warning, sales suddenly dropped by 50% following strengthening of the Australian

dollar. As the distributor was independent, the company had neither control over the internal

working of the agency nor service to the trade, and therefore lacked the ability to deal with

problems that arose. Further, it had no real knowledge of the distribution system in America,

having relied entirely on the distributor to market the products there. At this stage Ronstan

was faced with the decision of whether to find an alternative distributor or to set up a

company owned and staffed operation. As Ronstan's marketing manager at the time said, "It is

difficult to recover or remedy the situation as you do not actually know the people who have

been buying your product from the distributor". The American market for marine hardware of

the type made by Ronstan was substantial (annual retail sales exceeding U.S. $60 million) and

competition was intense. Distributors required a stock turn rate of 4 to 5 times annually

otherwise they dropped the product. High standards of product, price, service and delivery

were required to maintain sales.

In view of the potential of the U.S. market and the success of the company's products up to

this time, it was decided to incorporate Ronstan in the U.S.A., setting up a subsidiary in 1978

with warehouse facilities and a comprehensive inventory, hiring staff and developing a total

service and promotion programme. The appointment of American sales staff who had a deep

knowledge of the nature and subtleties of the market was effective in increasing sales. These

sales representatives operated in a different manner from their counterparts in Australia, not

23

being actual employees of the company but representing several companies and selling on a

commission basis. It was found that the more time that could be spent with them in imparting

product knowledge the harder they would sell for the company.

This policy produced such successful results that in 1980 a second warehouse facility was

opened in California, which gave the company a presence on the west coast as well as the east

coast, the first warehouse having been established at Clearwater in Florida. Sales in the

U.S.A. continued to grow at a satisfactory rate, increasing from $1.53 million in 1982/83 to

$1.91 million in 1984/85, which represented 25% of total sales worldwide, until the fall in the

Australian dollar between June 1984 and June 1985 caused distribution costs in Australian

dollar terms to escalate sharply. As a result, Ronstan's parent at the time felt that the higher

distribution costs were unwarranted and was uncomfortable about involvement in offshore

investments. As a result, the two warehouses were sold to the former manager of Ronstan

USA and the American operation reverted to a distributor basis.

Developing other markets Following its early success in the Canadian and American markets Ronstan began to

investigate the possibilities of other overseas markets, taking stands at major international

boat shows in Europe such as Hamburg, London and Genoa as well as exhibiting at the major

American boat shows in Chicago, Miami and Long Beach in California. The initial purpose of

these exhibitions was to attract interested parties who would be suitable for appointment as

distributors in the various countries, on the principle of one distributor per country.

Subsequent exhibitions were used to support Ronstan's international marketing effort. In 1970

Ronstan appointed its first European distributor in Switzerland, a market where there was no

local manufacture of similar products. This lack of local competition enabled Ronstan to

achieve a 50% share of the Swiss market whereas in other countries, where there are local

manufacturers, market penetration has been significantly lower.

A somewhat extreme example has been the French market, penetration of which has been

difficult for Ronstan. Indifferent performance from earlier distributors resulted in a less than

1% market share in the late 1980s. The French manufacturers held 95% of the market. These

manufacturers on the other hand made no international sales. To try and rectify this situation

Ronstan exhibited at the Paris International Boat Show in 1987 for the first time, which

24

resulted in interest being shown by four or five different companies. One of the interested

locals was chosen as a distributor for Ronstan, but after difficulties for about 2 years, a new

distributor was tried and sales began to take off. By 2010 France had become one of the

more important markets in Europe.

While the US has been the main market for Ronstan over many years, the position has been

changing in recent times, so that now Europe is roughly equivalent to the US. In Europe, key

markets are the UK, France, Germany, Denmark, Italy and the Netherlands. New Zealand has

been maintained as an important market for Ronstan products. While early penetration of the

Japanese market resulted in steadily increasing sales of marine hardware, this has stalled in

recent times. Asia in general has not proven to be a rewarding arena for Ronstans marketing

efforts on the marine side. The managing director commented that for a given amount of

effort there has not been the same return in Asia. The greater potential is definitely in the

architectural business. The marketing effort in Asia recently has been focused on

architectural products. As well, it has until recently achieved particular success exporting to

China a range of sophisticated components used in the manufacture of kite boards for sale in

world markets.

Ronstan has, like most other companies coming from a high cost country, experienced

copying and price pressure from low cost countries, making their management rethink future

position and strategy.

Ronstans MD commented in an interview in 2011: We have less and less of a commitment

to being a manufacturer. Were a marketer and ideas and solutions provider. We are not

committed to making things so if I could source anything that we could make for better quality

and a lower price, then we would do it. I dont want to commit to making something

inefficiently, and buying something for less is better than making something for more. And

with a high dollar Australian dollar we are going to be upgrading our sourcing activities

- we are going to be looking harder, challenging ourselves more because if we dont, then

were going to be beaten by the competition that does.

25

Products The marine products market in which Ronstan operates is highly responsive to product

performance (racing and safety). The association with yacht racing has helped to enhance the

companys image as a producer of high performance equipment, and its products are sold at

premium prices. Ronstan has always had a strong emphasis on quality and been heavily

involved in product development. The MD has commented that product development,

continuous innovation, has been a cornerstone for us. Ronstan has sought to be at the leading

edge of technology, making a significant commitment to R&D. A major recent development

has been the patented Orbit range of ultra-light weight but high performance blocks which

won an Australian design award in May 2007. The R&D expenditure on this range was about

AUD $3 million. The new product was not only an improvement on the previous range but its

revolutionary design allowed significant cost reductions that resulted in a 25% reduction in

the equivalent retail price. Three new patents have been applied for in relation to the new

Orbit block series. The Ronstan trademark has been registered in all markets.

In early 2005 Ronstan began supplying pulley and block systems for kiteboards (e.g. for kite

surfing) to manufacturers in China they are the main manufacturers globally of kiteboards.

The systems allow greater control and safety of kite boards, particularly in large wind ranges.

This was so successful that Ronstan became the largest supplier globally of such kiteboard

systems in 2007. By 2011, volumes decreased, due to the manufacturers changes: they

simplified the boards, taking the blocks out of some of the kite boards so there is less need for

the Ronstan parts. The business is still going, but not at the same volume.

In the 1990s, Ronstan diversified its product range into the architectural/industrial area,

utilising its expertise in stainless steel technology (eg cables). Its products have been used in a

wide range of applications, such as building sites at Sydneys Darling Harbour, on American

jets during the Gulf War, and in over 60 cable-stayed suspension bridges worldwide since

1976. The MD explains that the architectural business is about selling solutions: We now

design projects from the ground up. The latest example is the Taronga Zoo in Sydney. The

chimpanzee enclosure is pretty much designed by Ronstan the mesh and cables and all sorts

of things so thats a landmark project for us.

26

The architectural products side of the business has been very successful in Australia: If an

architect thinks stainless steel cabling, it is Ronstan. We are the main player., and

increasingly so in other countries. According the MD, in 2011 this line of the business made

up about 25% of total sales. The main market is the domestic market.

We have the people to provide solutions domestically and are developing the same

capabilities in the U.S. now. Success is a long way off elsewhere we are only just getting

started now. Theyre the only two markets where were up and running. It is going well this

year, making up for what we are losing on the marine side so its been a good diversification

for us.

During the 1990s Ronstan expanded into importing activities, developing a portfolio of

products for which it acted as distributor, for example, lifejackets from New Zealand, and

rope from Austria: FSE Robline line from Austria, which is the best yachting rope in the

world, we have only had that for a few years as a distributor and they are so pleased with the

job we did that they have given it to us in America as well. We are now their American,

Australian and New Zealand distributors. Overall, the importing business is worth about 25-

30% (up from 15% in 2001). Apart from these imports, a very small proportion of

components (about 2%) is produced for Ronstan in China. In 2008, Ronstan entered into an

arrangement to sell a range of Puma sailing clothing. After an initial promising start in the

US, and to a lesser extent in the UK and Australia, Ronstan decided to drop this arrangement.

It was considered that Puma was not adequately developing its sailing product range, or

supporting Ronstans sales effort.

Foreign Acquisitions and Subsidiaries In a change of strategy, Ronstan undertook acquisitions in 2001 and 2010 as way of

expanding into new, but related, product and market areas. Both were located in Denmark.

The 2001 acquisition, Frederiksen Boat Fittings, is a manufacturer of high quality hardware

for large racing sailboats with a worldwide reputation for making the worlds best big blocks .

It complemented Ronstans product range and lifted its overall global profile in the field of

marine hardware. . On taking over Frederiksen, there was considerable discussion within the

management group about whether to retain the Frederiksen brand, given its high profile and

reputation within the global market. However, it was decided to switch to Ronstan from the

27

outset. Now trading as Ronstan Denmark, it continues to manufacture its specialised product

range.

In October of 2010, Ronstan acquired Frederik Andersens Maskinfabrikk. Again, the

company will be renamed as Ronstan, but the Andersen brand will be retained. As the MD

explained, many years ago we thought of making their winches under licence. It is a very

good marriage. The number two brand in deck hardware is probably us and we didnt make

winches and the number three brand for winches in the world is Andersen but they dont have

deck hardware. Another advantage is both Danish acquisitions were located in the same

town. Were going to shut down Ronstan [the former Fredriksen] and move it into Andersen

because Andersens big enough to absorb both. The current MD of Ronstan Denmark is now

in charge of both operations. He is a Danish national and a shareholder. The original Danish

distributor, Palby Marine, remains as distributor to the after-market.

As well as its subsidiaries in Denmark, Ronstan operates through subsidiaries in the U.K. and

the U.S. In 2002, Ronstan set up a sales office and warehouse in the UK. Two of the Danish

staff were moved into this operation, and were joined by two of the staff from the original UK

distributor, Bainbridge International. The U.S. subsidiary (Ronstan International) handles

Ronstans business in the U.S, its largest foreign market. Its largest customer is West Marine,

the largest retailer of marine products in the US and Canada, with about 300 stores. Ronstan is

its No. 2 brand of yacht fittings. West Marine takes stock from the US subsidiary as well as

direct exports from Australia. From 1985 to 1992, Ronstan was represented in the US by an

independent distributor. As to why the company set up its own subsidiary in 1992, the

managing director explained:

Sales had started to slide and we were not doing [as] wellIt was the realisation that

nobody is as dedicated as yourself. That is what it really came down to ... We decided to

commit ourselves to the US market and the big commitment was putting me [Ronstans export

manager at the time] there. We incorporated and ended up buying his [the independent

distributors] business out and taking on his employees.

The current managing director of Ronstan spent four years in the US, from 1992-1996, setting

up the subsidiary and re-launching its marketing efforts. Since that time there has been

28

substantial growth in US sales. The US national in charge of the US subsidiary is one of the

15 shareholders that own Ronstan.

Distribution A critical part of the export success of Ronstan has been its distribution network. It currently

has around 40 distributors, mainly in Europe (including Russia); as well as parts of Asia and

the Pacific islands; Canada, South Africa, Chile, Argentina and the U.S. Overall, with the

Australian base, they provide relatively widespread coverage of the global market for yacht

fittings. It is estimated that Ronstan products are sold into about 50 countries. Twenty of the

distributors have been with Ronstan for more than 20 years. The MD refers to the distributors

as a major strength, even though there are no formal agreements with them only handshake

agreements:

It is amazing the relationship with our agents. Talk about long standing. We have a fantastic

relationship with our distributors. We have some who have been with us for more than 35

years...I mean to stay with them. And we have a lot of success with themWe have spent a

fortune over the years [with them]...bringing them over here [Australia]. We have had a

program for years of bringing distributors over here at our expense. They are our friends, our

allies, our partners. Part of the familyIf we come out with a new product we have people

around the world who can hardly wait to get their hands on it. Without doubt our biggest

strength is our distribution. [Although] if we had lousy products, our distributors would lose

interest, its all part of the package.

The upper management group in Ronstan is heavily involved in foreign sales visits to

distributors, attendance at trade shows, and building and maintaining relationships with

customers. There is a core of 6 of us that travel a lot, and another 14 that swing in and out

of it. The managing director has been spending about 3 months himself on the road but

indicates he would like to reduce that commitment. It is a hard life. He has delegated a lot,

but is still an important face for the company and for many of the key relationships. He

stressed the importance of personal relationships. He added: It is the relationships with the

customers. They want to be dealing with us. It is not just showing your face, it is the market

intelligence, seeing what our competitors are doing, meeting the owners of the businesses,

rather than just dealing with them at the purchasing level, looking at the trends. To some

29

extent, the international travel and visits by other members of the management team are seen

to be part of building a broader set of strong personal relationships building up their

profile.

One of the problems in developing the non-marine side of the business is the existing

distributors of Ronstans marine products. While enthusiastic, even dedicated to marine

products, they have tended to be less inclined to push the architectural side of the business,

which of course requires the opening up of a new customer base, and requires new types of

expertise.

Your task: Your task in this case is to analyze and discuss the companys approach to distribution. Howe

would you formulate the companys strategic problem? What solution would you use? Would

you change the current distribution strategy? Acting as a management consultant, outline your

recommendations for future international expansion of Ronstans marine division.

Figure 1: Organizational chart

30

Case 4: Orkel what now?

by Runar Framnes and Jon Bingen Sande, BI Norwegian Business School.

Note that some of the information in this case has not been confirmed by the company

(especially concerning internal organization and the details of the agreement between CNH

and Orkel). However, students should assume that all information provided in the case

document is correct, even if they have or find contradicting information elsewhere.

NB! It is not permitted to contact the company or its employees when solving this case.

Company history Orkel (see www.orkel.no) is one of the many small and medium-sized export firms in

Norway. It is based, with all its activities, at Fannrem in Orkdal community. Orkel was

established 1949 by Johan Gjnnes. He started by purchasing a welder to make toys, such as

tricycles and chair sledges, for neighbors and friends. The firm became involved with

agriculture through the production of bicycle trailers, milk wagons and in 1966 a trailer

for farm tractors. The same year they started building their factory at Fannrem.

Over time, Orkel became a brandname in the market for agricultural equipment, known for its

high quality. More employees were hired and they built a nationwide distribution network.

Orkel started its first export venture in Sweden in the early 1980s, selling feeding cars

(Norwegian: frutlegger).

31

In 1986 they built their first Orkel round baler. The round hay bales opened the world for the

company, and in 1991 they got their first Japanese customers. Orkel export their balers and

compactors to approximately 40 countries around the world.

Products and production Their current product portfolio includes:

Round balers

Compactors

Trailers for tractors

Motor snowplows

Mowers

AgriNIR forage analyzer (forage= plant material eaten by grazing livestock)

Rakes (for merging and distributing hay)

Orkel is a market leader with several of their products in Norway. They have a particularly

strong position with their trailers for tractors. Trailers, snowplows, mowers, AgriNIR and

rakes are mostly marketed in Norway and not abroad. Their goal is to become Norways

leading specialist on roughage (Norwegian: grovfr).

To realize position as Norways leading specialist on roughage they will in 2015 offer a full

line of grass-related products including mowers and rakes in addition to the round balers. The

round balers are primarily developed for Norwegian conditions, and are used to create round

bales of grass. Orkel emphasizes high feed quality, efficient harvesting and reliability as the

core attributes of their round balers. These attributes help their customers (i.e., farmers) in

improving profitability. Over the years, Orkel has implemented a number of innovations in

their round balers, including weighing systems and the use of broad plastic films to make

more compact and watertight bales. As noted below, while involved in product devlopement,

Orkel does not anymore produce the round balers at Fannrem. Instead the round balers are

produced by the company CNH, and marketed under the Orkel brand.

The new line of mowers and rakes will be produced by a Slovenian producer, SIP, but

marketed under the Orkel brand through Orkel Direkte.

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The mechanical products are now complemented by the AgriNIR forage analyzer, which is a

portable system for analyzing fresh grass, silage (Norwegain: silofr), wholecrop (Norwegian:

helsd or helgrde), and total mixed ration (Norwegian: fullfr) developed by the Italian

company Dinimica Generale S.p.A. p. (http://www.dinamicagenerale.com/agrinir_analyzer).

The AgriNIR is an expensive suitcase (it costs NOK 200 000), but it can help farmers save

significant costs by analyzing fodder. Farmers will be able to take tests and get results

immediately, instead of waiting one or two weeks for laboratory results. The tests assesses

fodder quality on several important parameters, including dry matter, starch, crude protein,

and fiber. Such analyses help the farmer understand the quality of the inputs, and to determine

how he or she should combine different types of inputs in the livestocks fodder to optimize

production. Thereby it is also possible to prove fodder quality. Orkel believes that the

AgriNIR forage analyzer and their 30 years of experience in round bale production and

development puts them in a strong position in Norway as a specialist on roughage. The

AgriNIR further underlines how Orkel concentrates on helping customers to improve their

bottom line, by not only supplying machines, but also knowledge and solutions more broadly.

The major export product are the round balers and, in particular, the compactors: MP2000,

MC1000 and MC850. For students not acquainted with round baling and compactors, we

recommend the following Wikipedia article as a brief introduction:

http://en.wikipedia.org/wiki/Baler. Orkels youtube and vimeo channels are also illustrative:

https://www.youtube.com/user/orkel100/feed and https://vimeo.com/user2078576. The

following video with the MP2000 Compactor is particularly informative:

https://vimeo.com/66367228. This video provides statements from customers in the UK using

the MP2000 Compactor: https://www.youtube.com/watch?v=bgRSZFje68k.

The compactors are used to compress and create bales of a variety of bulk materials. A chief

difference between the round balers and the compactors is that the compactors handles shorter

materials and are not exclusively used for grass. The compactors reduce the volume of the

bulk materials by 60-70%, which reduces transportation and storage costs. The plastic film

covering the bales prevents moisture from penetrating into and out of the bales, which means

that bales can be stored outdoors. The MP2000 Compactor was originally developed for

compressing maize, but they soon discovered that it could be used to compress a number of

other materials as well. The compactors are therefore currently used for more than 25

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different types of bulk materials. Example of bulk materials compacted by the Orkel

compactors include:

Waste materials: domestic waste, industrial waste, grape mark, paper/plastic, and auto

fluff.

Agricultural bulk materials: grasses, forage mixes, crimped grain, forage maize, and

manure.

Industrial bulk materials: sugar pulp, compost, peat, and cotton.

According to the UK distributor, K S Baling Ltd (http://www.ksbaling.co.uk/), companies that

have invested in the MP2000 Compactor baler have seen costs plummeting by 40%. Orkel is

currently the worlds only producer of mobile compactors that can be used to compress waste.

See http://www.orkel.no/products/compactors-en-GB/compactors/ for a more detailed

description of the compactors, and the following brochures for information about the MP2000

Compactor: http://www.orkel.no/assets/Produktinformasjon/Compactors/brochure-MP2000-

agriculture-english.pdf and

http://www.orkel.no/assets/Produktinformasjon/Compactors/brochure-MP2000-industri-

english.pdf.

Markets and demand Although many of Orkels products are sold in Norway, 80% of their round balers and

compactors are exported. About 50% of the operating income in 2013 were from exports.

Orkels is represented in about 40 countries on 5 continents.

Orkel has experienced increased demand for their products in recent years, in particular the

compactors. For example, recent EU policies aim to minimize the depositing of waste in land

fillings, increase energy recovery, recycling, reuse and prevent waste the creation of waste in

the first stage. As a consequence of these policies Orkel was a few years ago contacted by

customers in Germany to help create solutions for efficient storage, logistics, and use of

waste. Waste materials such as paper, plastics and textiles can be used as fuel, but such use

typically requires storage and transportation of waste.

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Orkel experiences high demand also in more traditional agricultural markets. For example, in

December 2012 Orkel received a 100 million NOK order from Advanced Machinery

Equipments Inc. (EMEI) in China to deliver 84 baling machines (Orkel MP2000 Compactor

Balor and GP1260 HiT round baler). EMEI will in turn deliver the machines to Shanghai

Dairy Group (SDG), a state-owned cattle feeding company in China with more than 30 000

milk cows. SDG will use the compactors to compress and package maize (i.e., corn) that will

be used as fodder. The principal advantage for them of using Orkels products is that it

maintains fodder quality, which in turn helps SDG in maintaining a high milk production

throughout the year. Orkel will deliver the 84 machine over a two-three year period.

The high demand also gives Orkel challenges. In fact, SDG wanted Orkel to deliver more than

84 machines, but CEO Jarl Gjnnes had to ask for a smaller contract because of capacity

constraints.

Organization The Orkel system consists of the mother company, Orkel Holding AS, which is controlled by

various members of the Gjnnes family, and six wholly-owned subsidiaries:

1) Orkel AS,

2) Orkel Compaction AS,

3) Gjnnes Eiendom AS,

4) Orkel Direkte AS,

5) Orkel Development AS, and

6) Orkel EU Ltd.

Jarl Gjnnes is the CEO of Orkel Holding AS as well as all the subsidiaries.

Orkel AS and Orkel Compaction AS are the two main income generating subsidiaries. In

Appendix 1 we therefore include the accounting data for only Orkel Holding AS, Orkel AS

and Orkel Compaction AS. Orkel Compaction AS concentrates on production and distribution

of compactors, in particular the MP2000 Compactor. In 2013 the company (Orkel Holding

AS) had and operating income of 200 million NOK. Orkel Compaction AS had operating

income of about 50 million NOK, a sizeable portion of the companys revenues.

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Export marketing is primarily handled by CEO Jarl Gjnnes and marketing manager Ragnhild

Borchsenius (see also: http://www.orkel.no/contact/sale-office-factory/ for a full overview of

the export marketing and sales organization). Gjnnes has worked in Orkel since he graduated

as a civil engineer within machine technology and product development in 1978. Borchsenius

was hired in 2014 with a background in agriculture. In contrast to the many engineers in the

company, she is trained as an agronomer from NMBU, and has for 21 years been working as

an advicer in Norsk Landbruksrdgivning (Norwegian Agricultural Extension Service) in Sr-

Trndelag. Her specialty is roughage quality, giving her a strong understanding of customer

requirements within the agricultural sectors around the world.

In the past, Orkels export efforts have been characterized by little planning, the use of the

occasional reference, and word of mouth. Hence, the company has spread their activities to

many countries. As noted above, they are currently represented in about 40 countries. Orkels

web-pages list 26 agents and distributors around the world.

In Norway, Orkel sells most of their products through Orkel Direkte. They have a long-term

agreement with Felleskjpet concerning trailers for tractors (www.felleskjopet.no). In

addition they provide after-sales service through 15 service points around the country. See

http://www.orkel.no/kontakt/ for a full overview of employees in the sales, marketing, and

service.

Strategic partnership with CNH In 2012 Orkel entered a long-term partnership agreement with CNH Global NV

(www.cnhindustrial.com), the world second larges producer of agricultural and construction

equipment (see Appendix 2 for the press release). CNH is a majority owned subsidiary of Fiat

Industrial S.p.A. (FI.MI). It produces and distributes New Holland and Case IH tractors,

combine harvesters, and tools, through more than 11 000 dealers in more than 170 countries,

and had annual sales of 17 billion Euro in 2011.

With this agreement, CNH acquired Orkels technology in the area of fixed chamber round

baler products, and Orkel became CNHs preferred engineering partner for the development

of high performance/heavy duty new generation of fixed chamber round baler products.

However, Orkel would still sell and market round balers and compactors for their own

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distribution, and they will in addition produce round balers and equipment for round balers for

CNH for a certain period.

When Orkel entered the agreement CNH Orkel had about 40 employees involved in

production of balers (and 70 in total). However, they had to hire more personnel, both within

production and in product development. At the time of entering the agreement with CNH,

they had already hired three engineers and were planning to hire two to three more.

Part of the background for this agreement was that Orkel understood that it would become

increasingly more difficult as a small producer to survive the competition with the large full-

line producers like CNH and John Deere. We needed a big brother to continue developing

ourselves and stay competitive Jarl Gjnnes said to the magazine Norsk Landbruk last fall.

Future development Although Orkel continues to produce round balers, the agreement with CNH means that Orkel

in the near future will cease to produce round balers, also on behalf of CNH. Instead CNH

now produces round balers for Orkel1. They will continue to deliver rolls and shafts to CNH

as well as some specialty equipment that is not standard on the balers from Case IH and New

Holland. The partnership with CNH thereby frees up time and resources in Orkel, so that they

can concentrate on the compactors, including the MP2000 Compactor.

One of the most exiting projects concerns the use of MP2000 Compactor to package

wholecrop (Norwegain: helsd or helgrde). Wholecrop means that grain (Norwegian: korn)

or legumes (Norwegian: belgvekster) are harvested when they have reached the stage of

development when they are cheesy and ripe. In other words, if you squeeze a grain between

your fingers, you will not squeeze out any juice; instead you will see the cheesy white meat

inside the grain. The main difference between wholecrop and grass is that wholecrop contains

starch. Wholecrop consists of the entire plant, including the straw, blades and the grains, for

example from wheat, barley, peas, or beans. The reasons for using wholecrop as fodder is that

it combines fiber-rich roughage, with easily dissolvable starch from the grains, and easily

1 This is how we interpret a recent article in Norsk Landbruk by Jsang, whi