1. Catherine Levine, Xiaoli Huo, Xin Yu, Radu Popescu and Tore Kot Winge
Axeon case study
Group D3:
Catherine Levine, Xiaoli Huo, Xin Yu, Radu Popescu and Tore Kot Winge

2. The project was not anchored in real time
Q1. What do you feel about the initial analysis? Was there, in your opinion, anything wrong with it?
The project was not anchored in real time
No risk analyses or contingency plans
No buffers in time and budget
No market analyses (competitors/ customers)
No fixed costs
1. What do you feel about the initial analysis? Was there, in your opinion, anything wrong with it?
The plan didn’t have any specification of when it would start or how the technology would improve before the seven year point. One would assume that the technology may improve before then and this forecast was very optimistic without presenting any specific disadvantages of the plan or possible risks in building the new production facility.
There was no risk analyses or contingency plans, there were no buffer funds in the budget which would provide for unforeseen circumstances. There was no significant mention of the market analysis for the product, the business, or how the company would go about selling the product and gaining half of the market share. This was mirrored in the comment made by Mr. Oosterling when he stated that the production of AR-42 is complicated.
Ian also did not present possible competitors in the UK market, although the consumption was mentioned, there was no mention of how or where the UK purchased their product.
There is also a risk with borrowing money from the bank, the interest rate may be variable and there is only a mention of a fixed interest rate. There is also no mention of how long they would be able to borrow the money at this rate.
There was no mention of the fixed costs of maintenance, machinery, employee salaries, training, etc. There is an overall mention of cost, but no individual breakdown, which would allow for a more in-depth analysis of the project. There is a mention of depreciation, but this goes without the mention of the cost breakdown.

3. It is not in the best interest of Axeon because:
Q2. Is construction of the new factory in the UK in the best interest of Axeon?
It is not in the best interest of Axeon because:
Too optimistic figures were advanced by Ian
It is only in the interest of the UK subsidiary
Building a new production facility in more or less same geographic area / (at same point in time could mean same market area)
Much better to increase production in the nearby Dutch facility (lower production costs, higher cut loses)
2. Is construction of the new factory in the UK in the best interest of Axeon?
No, the construction of the new factory in the UK is not in the best interest of the company because of Mr. Oosterling’s Report (Report of the Director of Manufacturing) citing two main reasons: “the higher than projected overhead costs and variable costs in the UK.” This mirrors the optimistic sales forecast which is not in line with Axeon’s main business model and common goals of product optimization.
It would make more sense to increase the production in the nearby Dutch facility, also in Europe and ship the product and decrease production costs, without incurring new fixed and startup costs, and Mr. Oosterling mentions the negligible shipping costs from the Netherlands to the UK. The proximity of the Dutch factory is an asset to the company for making the product nearby instead of building a new factory

4. Q3. Why did Mr van Leuven behave as he did?
Enthusiastic
The project mirrored the company’s decentralized management approach
Doubts
Valid concerns about the project
Project not supported by the main company employees
Fear of losing the countrymen’s support
3. Why did Mr van Leuven behave as he did?
Mr. Leuven’s change of sentiment has many facets, at first he was enthusiastic about the idea because it mirrored the company’s decentralized management allowing for each subsidiary to act in the best interest of the main company, but when he saw that he did not have the support of the main company he changed his view. From a business point of view the additional members of Axeon’s Dutch team brought up valid facts, such as the need for trained workers, a lack of experience in the product area, the optimistic project plan, and the fact the endeavor would be much less profitable than making it at the UK facility.
Additionally, the Dutch company brings in 72% (100% - [8% ­ for Southern Europe + 14% for the United Kingdom + 6% for Scandinavia]) of Axeon’s total revenue, which they would lose if this venture were to go forward.
The management decentralization, which brought positive sales and business to Axeon in allowing the subsidiaries to make autonomous decisions, may have led them to have dispersed common goals as well.
As a side issue, Mr. Leuven himself is also Dutch and would lose the support of his countrymen if he were to agree to the new facility.

5. The transfer price should not follow Axeon’s usual practice of pricing
Q4. Discuss what transfer price should be established if AR-42 is supplied from the Netherlands to the UK.
The transfer price should not follow Axeon’s usual practice of pricing
It would be fair to use a negotiated transfer price
Dutch company were to make and export the product
UK company were to take care of the product marketing
They should have a transfer price of around £3000 per ton
4. Discuss what transfer price should be established if AR-42 is supplied from the Netherlands to the UK.
The transfer price should not follow Axeon’s practice of quoting the agent price to the subsidiaries, as this does not allow for the negotiation of a price that is profitable for the seller and the buyer, with the profit centers identified as the UK Axeon subsidiary and the Dutch parent company.
It would be fair to use a negotiated transfer price which would benefit both profit centers, especially because the UK subsidiary researched the market for this endeavor and presented the idea to the Dutch company what the market potential for AR-42. Additionally, if the Dutch company were to make and export the product, the marketing and customer value assessment would be done by the UK company that already has an understanding of their market. The Dutch company adds value to the product by producing it at a lower rate than the UK company would, but in order to complete the value chain, the UK company has to integrate their marketing and sales skills to distribute the product at the planned rate and manage the forecasted sale of 400 tons per year, and have an adequate market penetration.
For the production of 1000 tons, the manufacturing product cost is £1860 per ton with a variable cost per ton of £2060, taking into consideration the shipping and UK import duty (Exhibit 6). They should have a transfer price of around £3000 per ton. In this way, the UK subsidiary would be able to set a final price of £3700, even from the first marketing year, similar to their initial marketing plan (Exhibit 3) excluding the first year pricing plan, for a quick market penetration.

6. Q5. What is Axeon's corporate strategy?
They have acquired other companies, in order to be present in those markets, with the products of the acquired subsidiaries
The company intends to establish itself on a multinational level
5. What is Axeon's corporate strategy?
A corporate strategy was not presented in this case, as far as an overall strategy, as it is defined, certain questions are proposed to be answered with the company strategy, such as:
- Which business does the company compete in?
- What is the competitive advantage of the corporation as a whole?
- What business and markets should the company operate in?
- What is the current company vision and what do they intend to become.
- What is the nature of the company, and what are their commitments in their chosen markets.
Source:
Axeon N.V. is a Dutch company, competing in the industrial chemical industry. does have as a business strategy, they have acquired other companies, in order to be present in those markets, with the products of the acquired subsidiaries, all together consisting of 24 factories. They have a decentralized management structure with too few controls, with no set controls of manager and their performance, there is only an emphasis on Results Control, emphasizing final profits. They also do not have control on their line of products, meaning that each subsidiary could be losing money on certain products and gaining profit on others, the head company is predominantly concerned with the final overall profit.
The company does not take full advantage of their individual expertise in each subsidiary, not sharing human resources, information, or markets, thus not taking advantage of each subsidiary which would benefit the company as a whole.
The company intends to establish itself on a multinational level, which it has already begun, with its acquisition of the various subsidiaries. A performance measurement and vision of these companies were not specified.
The nature of the company is the production and sales of industrial chemicals, specializing in large quantities, the chosen market is not specified.

7. Q6. What do you believe to be the critical success factors in Axeon?
High market share
In-house technology
Manufacturing very large quantities of chemicals
6. What do you believe to be the critical success factors in Axeon?
Their market share of industrial chemicals, which is aided by their in-house technology to develop and sell these products, taking advantage of a low production costs, allowing for a high market share and profit margin. They produce very large quantities of these chemicals which aids in this overall success factor.

8. Q7. What do you believe are the key recurring activities in Axeon?
Mass manufacturing
Sales
Pricing
7. What do you believe are the key recurring activities in Axeon?
Mass manufacturing and sales are emphasized in this case as the key recurring activities. They make chemicals on a large scale in their own factories, training their workers themselves, and they sell these products themselves. These activities are overlayed by a constant eye on the market for the product, assuring that they have priced the product to maximize sales and profits, simultaneously meeting the needs of supply and demand.

9. Q8. Discuss Axeon in terms of its centralisation / decentralisation.
Initially based on a simple functional organizational structure (manufacturing and sales)
After acquirements - highly decentralized organisation style
large responsibility for the subsidiaries and gave them considerable autonomy
Case study shows that there were still parts of the decision making that were highly centralized within Axeon`s organization in the Netherlands
8. Discuss Axeon in terms of its centralisation / decentralisation.
At the beginning the organization structure of the company was based on a simple functional organizational structure consisting of one manufacturing division and a sales division.
After the acquiring of the foreign based companies Axeon became a multinational company. The organization style changed to a highly decentralized style.
Axeon headquarters assigned large responsibility for the subsidiaries and gave them considerable autonomy to determine their product mix (what to sell), encouraged them to propose the development of new products, and allowed to build new facilities if justified.
The subsidiaries produced products that competed with those produced by Axeon, there was a lack of direction when producing products each subsidiary was allowed to mix his/her products as they pleased.
However, from the case study it seems as if there were still parts of the decision making that were highly centralized within Axeon`s organization in the Netherlands.
The subsidiary managers were allowed to produce and mix their products, but they had to justify and go through the organization in Netherlands when 1)proposing the development of new products and 2)investing and building their own manufacturing plants.

10. Q9. What should Mr. van Leuven do?
Restructure their management control tools in order to have a structured decision making process
Maintain the results control with emphasis on the company profits, but improve the Culture Control
He should emphasize the interdependence of the company and its members, and the benefits of camaraderie
Common market strategy
9. What should Mr. van Leuven do?
Mr. van Leuven should restructure their management control tools in order to have a structured decision making process. They could stimulate collaboration between the similar departments in the various companies, such as research and development, etc. This would gear the strategy from that of competition to one of collaboration. They should set up a financial center as well, to change the control system and pricing structure.
They should maintain the results control with emphasis on the company profits, but they should improve their Culture Control, which now poses a risk between companies because of the high level of competition and internal conflict. Action controls can enhance their culture control objectives, especially with their mass-manufacture of chemicals, which still be the company focus, but will only be improved with these new controls being implemented.
Mr. van Leuven should communicate with the employees and let them know what their individual skills can bring to the company and clearly define their goals. He should emphasize the interdependence of the company and its members, and the benefits of camaraderie, a common market strategy will also benefit the company.