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AXEON N.V. CASE PROPOSAL MEMORANDUM
TABLE OF CONTENTS
INTRODUCTION    1
DISCUSSION    2
RECOMMENDATIONS    5
REFERENCES    6
CASE STUDY MEMORANDUM:
TO: Mr. Van Leuven
SUBJECT: Detailed analysis of Axeon N.V. case proposal discussion and recommendations
INTRODUCTION (ISSUES): Axeon N.V. headquartered in Netherlands, contains a various product line of industrial chemicals in 24 factories. The hierarchical system of the company emphasizes a decentralized system where the subsidiary managers have considerable autonomy to decide what to sell in their territories. This case proposal throws light on management problems between the parent (Axeon) and subsidiary (Hollandsworth) company. The problems seen in the case proposal shows incapability to take major decisions by the top management though it is a decentralized firm. The managerial behavior seen from different authorities has positive and negative characteristics. The major issue seen includes the hard work by a committed professional to establish a new plant for AR-42 in UK equivalent the one in Netherland, but the top management of Axeon does not approve due to the transfer cost involved in it though higher pay back is shown in the proposal. It also shows the control and loss of freedom inside a decentralized hierarchy system.
Some of the alternatives that can be suggested is that there is a need to applaud the sincere efforts of Ian Wallingford, who joined the subsidiary company and increased the sales to £160million and also put forth a proposal to set up a factory in UK to produce a protective coating AR-42, with financial exhibits that proves that though the initial investments would be high, the sales would be equivalent to that of Netherlands factory. He must be informed in a formal manner to continue production plan in Netherlands factory itself clearly explaining the difficulty involved in transfer price increase and the cost involved in setting up the plant. Also, there is a need to discuss the disadvantages seen in the managerial discussion and the ignorance attitude shown towards the sub-ordinate’s efforts towards working for the improvement of the company.
The ineffective management of performance and lack of strategic control should be worked upon and the efforts of the sub-ordinates must be recognized. There is also a need to explain the shortfalls in the proposal and the reasons for rejection for the proposal which becomes a boost up for professionals like Ian to work towards more betterment of the company.
All subsidiary managers have concentrated in developing and managing the sales of their own territories to have short term gain and did not focus and contribute the long term sustenance of the parent company. A proposal that has shown decent profits in the future, duly approved by Board of Directors, but later on questioned by Axeon’s head.
1
DISCUSSION (ANALYSIS OF OPTIONS):
Axeon N.V. started as a small company has grown into a multinational chain through their acquired subsidiaries. They had improper implementation of strategic control though they had shown a decentralized system which was in a way controlled, as there was competition between subsidiaries to prove that they are the best and the subsidiary managers were rewarded based on this. The performance evaluation did not take into account the whole of the Axeon Company.
The proposal was prepared with a plan to set up a manufacturing plant of AR-42 similar to the one in Netherlands based on the findings from a study conducted among trial consumers. The findings proved that the total market potential of UK market is 800 tons per year. Since Netherlands market has 400 tons sales per year, if the products from UK market are sold at £3,700 per ton, it is said that they would be able to capture 400 tons market per year in three years period. The plant was also estimated to be built £1,400,000.
The initial financial analysis which has used a discounted rate (Exhibit 2) of 8% shows an internal rate of return of 20% even when the cost of debt (loan borrowed to set up the plant) is 8%. This IRR does not seem practical as any firm, once it starts earning pay back or profits would majorly concentrate to cover up the debts in the initial years. This would help them to earn more profits in the coming years. Here, the pay back forecast is also shown only for 7 years with a reason that there would be improvement in the plant or expansion plans after 7 years. If the IRR at initial years is 20%, then in the coming years the IRR may increase but the liability will also increase if the loans are not covered up as the interest factor of loan is hidden in this proposal. Thus, the expansion plans expected to happen after 7 years as per the exhibits will not have sufficient funds from the returns earned during this 7 years as the...