This case study is about an alliance between two companies JFP and AEG to sell each other products in certain specified markets. JFP is a small company and its Managing Director Miguel Tey Feliu de la Pena is the managing director of JFP. JFP is in lighting element business where as AEG is a big company belonging to the Daimler-Benz group which is composed of several companies based in Germany. JFP is a well known manufacturer of lighting elements known for its modern design in spain. Miguel Tey has several questions in his mind to sign or not to sign the contract with AEG thus to make the final decision the JFP must consider the following factors.
ASSESSMENT OF THE PARTNER
JFP has to assess several factors of JFP so as to make a conclusion whether to sign the contract or not, for assessing the partner firm JFP has to workout on the strengths of AEG that would be useful in the improvement and the development of JFP and also the weakness of the firm which could be a problem to JFP. After taking these factors JFP can decide whether to sign the contract with AEG or not and whether it would be a strong bond with the company.
The strengths of AEG are: 1. AEG-LT a lighting business company is a part of Daimler-Benz Group that includes other large companies which were successful in their own industry/sector. It owns the brand names, like Mercedes-Benz, Deutsche Aerospace A.G., Aktiengesellschaft and is even link with the Deutsche Bank makes, AEG-LT itself a well reputed company all over. 2. AEG has a product range of both indoor and outdoor lighting element except the accent lighting element. It has several models for out door street lighting, parks, roads and highways. The models it has for interior lighting included lighting for offices, factories, warehouses, supermarkets.
3. AEG-LT has a strong sales network across the Europe, not only the distributors AEG-LT also has their subsidiaries in different parts of Europe, which adds the another strength to the AEG as a partner, which can give a boost to JFP sales on the other hand this will also allow JFP to market their product in different countries more efficiently. 4. Sales volume is one of the strengths of AEG, at present there is no comparison between the sales volume of AEG and JFP, as in 1990 only AEG was able to produce 23 billion pesetas of total sales, which make them far ahead from JFP.
Looking at the bifurcation of sales revenue made by AEG i.e. 8% for office and communication techniques; 6% for railway systems; 22% for automation techniques, 35% for electronic equipment and components; 9% for microelectronics; and 20% for household appliances, indicates the high range of the products and strong connections of AEG in the whole Europe with different industries where lighting equipments could be sold. This is another dimension where JFP can increase their product portfolio and build their connections with different players
5. Further, as mentioned in the case study company also serves different markets with the huge verity of their products. This is a positive sign for the company like JFP, as union with such a well established organization can boost the future business prospects of JFP as well. 6. AEG has the money to meet the businesses challenges that may arise in future. The strengths of AEG which are advantageous to JFP but there are certain drawbacks of having a contract with AEG (Weakness):
1. AEG will be selling JFP’s product under its own brand, thus there would be lose of identity of JFP brand Troll. AEG will be selling JFP’s product under its own brand, thus there would be lose of identity of JFP brand Troll. The reason is that it is mentioned in one of the articles of the agreement that JFP products would be sold in Germany labelled as “AEG” products; however leaflets would include the indication of “designed by TROLL” which is not adequate to represent the whole company.
2. AEG is too big company and there are chances that it cannot work in coordination with JFP. 3. JFP would have to make huge investments for meeting the requirements of the contract. For instance there would be extra cost on technology; this would be essential for the reason that there is necessity for additional technological capacity, because of business expansion. 4. AEG intentions might be to take over JFP and the same is even realised by the JFP’s M.D. Miguel Tey.
AEG was one of the bidders to acquire the business of JFP and since then the management of AEG has keen interest in their operation and kept a close eye on the business of JFP. So the intentions of the partner are actually creating an ambiguity in this alliance because the future business intentions of AEG are not very clear. For which some people as already started joking that, “In no time at all, we’ll all be wearing AEG T-shirts…” 5. The marketing costs would be borne by the importer, this also includes the obligation to hold the adequate stock and to have a spare parts stock and after sales service. This would require JFP to acquire huge volume of stocks which directly escalate the warehouse expenses, and additional employees to handle the after sales services.(Brooks, 2004)
BREADTH OF PURPOSE JFP being a family oriented business has limited resources and technology. By entering into this alliance JFP can utilize the resources and technology of AEG. Further Upon the realization of the contract, the TROLL lighting elements will be distributed in Germany on large scale. In the future JFP can offer to their products in other international market, especially in Europe in which the AEG already has their distribution network.
There are many reasons for JFP to get into the alliance with AEG: 1. JFP is facing greater challenge from local players in Spain. Thus it needs to find new market for itself an alliance with AEG will allow JFP to fulfill this objective as it has a well developed channel of distribution not only in Germany but also in Europe. (Patrick ; Bruce, 2000) 2. JFP’s customers are demanding other lighting elements both for indoor and outdoor as well but it does not have that and neither it can make them their own. AEG has those kinds of products and by this contract it will be able to meet the greatest challenge it is facing.
3. JFP’s products are considered of poor quality while it’s contrary for the AEG’s product. AEG will have to provide the technical help so that JFP can improve the quality of products to make them suitable for them to sell the JFP products. (Yadong, 1999) 4. The technical improvement in its products and a tie-up with AEG will make it easy for JFP to get VDE certification of Germany which will in turn what JFP has been looking for as the customers were asking for any kind of certifications.
VALUE The values that will be created for JFP after AEG alliance is- 1. JFP will be able to access new markets and increase its customers. It will be able to offer a complete lightning element range. It will be able to make new customers and at the same time serve them better with the improvement in quality after alliance with AEG. 2. A union with such a well established organization as AEG (which has bonding with brands like Mercedes-Benz, Deutsche Aerospace A.G., and Deutsche Bank will boost the future business prospects of JFP. It will help it improve its image and increase company prestige in the lighting segment.
3. The alliance with AEG will make JFP business more profitable. JFP can increase its product portfolio and build their connections with different players. 4. AEG will purchase from JFP. JFP will sell AEG-all this products and JFP will use the AEG distribution channels to sell in more countries – all this will mean more sales for JFP and hence greater profits 5. JFP will be able to give better service to its customers. This is so because now it will be selling more products, with better improved quality and will be having greater reach in various markets. This will result in more customer satisfaction and increase in its market reputation.
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