Case Study Axeon N. V. ME2028 Behavioral Management Control B7 Jianan Chen A307 Xiaofei Ren A261 Suyu Zhang A280 Xiao Zhou A926

Question1 -What do you feel about the initial analysis? -Was there, in your opinion, anything wrong with it? We do think there is something inappropriate with the initial analysis. First thing is the over optimistic scenario which they have based on. Secondly, since Ian Wallingford want to borrow money for the investment, hence it is critical to analysis the effect of the debt service payment on net present value. Meanwhile the expect return should be higher. All this may decrease the profitability. Thirdly in the analysis of Estimated end-of –life value of UK assets, the salvage value of plant is which is the same as the initial investment, this seems unreasonable since the value of the plant equipment decrease with the time.

Question 2 -Is construction of the new factory in the UK in the best interest of Axeon ? According to the analysis by Marc Oosterling (director of manufacturing) Exhibit 6 Estimated variable cost of manufacturing AR-42 in the Netherlands for shipment to the United Kingdom Expanding the production in Netherland can achieve the Economic of scale and reduce costs.This could be more profitable in a long run than build a new plant in UK. In our opinion expansion in Netherland is in the best interest of Axeon. Variable costs per ton: Manufacturing ￡ 1,860 Shipping from Netherlands to UK100 UK import duty 100 Total variable cost per ton ￡ 2,060 Total variable cost, 400 tons to UK ￡ 824,000

Question 3 -Why did Mr. van Leuven behave as he did? Mr. van Leuven’s attitude: Approval  Indecision His responsibility. Close analysis of the proposal.

Question 4 -Discuss what transfer price should be established if AR-42 is supplied from the Netherlands to the UK. According to the analysis of Marc Oosterling (director of manufacturing) CostPer ton400 ton Variable Ship Import Duty Total Variable Fixed Full

Since no mark-up was given so the transfer price of AR-42 supplied from the Netherlands to the UK: Transfer PricePer ton400 ton Market Prices4000/ / Marginal Cost Full Cost

Question 5 -What is Axeon's corporate strategy ? Unrelated diversification (Page726-7 MCS)  Definition  Features 1. Decentralization business management The subsidiary managers have considerable autonomy. 2. Heavy reliance on financial result controls E.g. A bonus plan based on achievement of divisional revenue growth and “economic profit” targets.

Question 6 -What do you believe to be the critical success factors in Axeon? Product design Sales(Market share) Distribution and promotion Financing and Budgeting Personnel Research and Engineering Production

Question 7 -What do you believe are the key recurring activities in Axeon? Personnel Borrowing money Pay bills Pricing Decesion Purchasing Board meeting

Question 8 -Discuss Axeon in terms of its centralization/ decentralization. Definition Structure Axeon Manufacturing & sales in Netherland Saraceno,S.p.A (Milan) Hollansworth, Ltd (London) KAG Chemicals, AB (Gothenburg)

Responsibilities Sales of all Axeon products Rights 1.Considerable autonomy to decide what to sell. 2.Allowed to decide what to produce. 3.Encouraged to propose the development of new products. 4.Allowed to build their own manufacturing plants if they can justify the investment the investment in their market. Decentralization Subsidiaries do have considerable decision-making right put much emphasis on results controls.

Question 9 -What should Mr. van Leuven do? As the role of a Managing Director (MD), Mr. Van Leuven in this proposal case, two things should be considered seriously, one is to really figure out which side can reach the goal of most cost effective and time efficient, the other one is to lead the autonomy and morale of subsidiary management in the right way. Related to the first one, as we have discussed earlier, we come out with the decision that it is better for Hollandsworth to buy AR-42 product from Netherland than investing a plant themselves. For the second one, we think that communication should be the only way and the best way to minimize the negative impact of this event. Autonomy and morale is important for the subsidiary to achieve the “economic profit”.Better communication and encouragement is necessary.