Statement of the Problem
1. Mueller-Lehmkuhl GmbH (MLG) is one of the four major suppliers of apparel fasteners in Europe, having a 17% market share.
2. The market is acting in an almost-oligopolistic manner. Barriers to entry include a long-standing business relationship between sellers and buyers. The $551 million European market is also very mature, growing 1% annually.
3. MLG is limited by its recent joint venture with an American firm in terms of possible other markets. Its strongest hold is the European market which is the main source of its revenues. In 1986, MLG is profitable company, with gross revenues of 103 million.
4. Hiroto Industries (HI) is threatening the business of MGL. HI is a Japanese firm with critical mass supporting its operations in Japan. It is targeting 25% of its total business to come from Europe, thereby invading MLG and the other entrenched player’s market.
5. HI has successfully gained foothold in the market (7.2% in 1986). It does so by focusing only on the production and sale of apparel fasteners. In contrast, MLG’s business model combines the production of apparel fasteners and the machines needed to attach them. HI is offering the same quality fasteners at a 20% discount.
6. The concern of MLG is how could HI enter a mature market, sell the same quality of apparel fasteners at a 205 discount to current market prices and remain profitable? With no mention of technical superiority or other advantages, why is HI’s strategy working?
7. How can MLG change the way it is doing business and still protect core values, retains its commitment to quality and corporate identity, and long-term viability?
8. What can MLG do operationally different to ensure profitability of its core business and what directives should it take regarding the business of manufacturing, selling and servicing attaching machines?
Executive Summary
1. Mueller-Lehmkuhl GmbH (MLG) produces 17% of the apparel fasteners in Europe. Its business model involves the production of fasteners and attaching machines. The production, sale or rental, and servicing of the attaching machines are viewed by MLG as one of its most effective market protection mechanisms. It sells and rents out machines that are only used for its own fasteners. Coupled with free-servicing, MLG has been able to cultivate a long-standing business relationship with its customers.
2. HI has changed the business by segregating the business of selling fasteners and selling attaching machines. Firstly, it offers fasteners at a 20% discount to MLGs price. Secondly, it does not own, produce or maintain any attaching machine. The attaching machines, which can be used for HI’s fasteners or even MLGs, are sold to distributors, who in turn offer the service to customers, thereby competing with MLG as well.
3. To survive, MLG must change the way it is doing business. If it copies HI’s strategy, the calculated results show that MLG will in fact be more profitable selling fashion apprarel fasteners only and spinning off the production of attaching machines as another business. MLG’s net income will grow from $9.5 M (current business model in 1986) to $35 M in the same year. It will have an average gross margin of 21% versus 18% gross margin using the current business model.
