12th of November 2008
Group C2 :
Fabio Ferla
Capanni Livia
Gulomjon Sobirov
Fehim Alper Konuk
Andrea Rodriguez piñero
Question 1
What do you feel about the initial analysis?
Was there, in your opinion, anything wrong
with it?
Analysis considering Rate of return, Cash Flow, Variable
costs, Price, Working Capital
Analysis not considering: Directors initial participation in the
project, Competitors (price strategies), Sensitivity Analysis
However workers performances are incentivised but they
don’t have complete freedom in their choices
Discount Rate 8% less than Cost of Capital 10% (NPV
Question 2
The construction of the new factory in
the UK is the best interest of
Hollandsworth because:
Notoriety of the brand in UK
Personal interest of the people involved in the
Opportunity to compete directly with Axeon
One growth company in the English economy
Question 2
But it’s not the best interest of Axeon because:
Project not viable: forecast sales too optimistic and AR-
42 production too complicated
Axeon Netherlands wants to be the only one in the
group manufacturing AR-42 (Monopoly)
They can use the market research done by
Hollandsworth to enter the UK market
If production of 1,000 tons instead of 600 to supply UK,
reduction of both fixed and variable costs
=> Economy of scale
=> Competitive sale prices
=> Possible to win market share
Question 3
Mr Van Leuven did behave like that in the
meeting because :
He kept silence in the meetings because he
did not do any calculations before the meeting.
He wanted Ian to be able to explain and
support his idea without back-up
He didn’t want to influence other members
He did not tell anyone to evaluate the project
before, even to VP Finance in Netherland
Question 4
Transfer Price of AR-42 from the Netherlands to the UK :
 Axeon can establish transfer price based on 3 alternatives:
1.Full cost transfer price
2.Full cost plus markup transfer price
3.Marginal cost transfer price. We will discuss this alternative because it is the
most appropriate for the corporate strategy of Axeon . And from the investment
center point of view it gives higher ROI than manufacturing in the UK)
 Estimated manufacturing Variable cost of AR-42 (additional 400 tons)
in the Netherlands to the UK
Question 4
Marginal cost transfer price :
Transfer price is £ 2000 per ton.
Axeon can produce additional 400 tons annually with its existing capacity so Fixed Cost
per ton can be considered as 0.
Axeon is an expense center.
Hollandsworth earns profit (before promotion costs and tax)of £ 1700 per ton.
Hollandsworth is revenue center.
We advice to share the profit between companies.
Ian must be rewarded because of his incentive. And reward will encourage him to sell the
product and get the bonus depending on the achievement of subsidiary's revenue growth.
Question 5
Axeon’s corporate strategy:
Axeon highly decentralized company:
Subsidiary managers have autonomy to decide what to sell in their own territories.
Subsidiaries are allowed to produce whatever mix of products they deemed appropriate.
Subsidiaries are allowed to build their own manufacturing plants if they could justify.
Subsidiaries can bargain for the price.
Subsidiaries can change their own production methods, marketing strategy, financial planning.
Economic targets were defined by parent company as part of company’s annual planning
and budgeting process.
Producing high volume in order to produce at lower cost per unit
Axeon has good management control which relies on financial results control build around
profit center structure:
Bonus plan. Rewarding management personnel based on achievement of divisional
revenue growth and economic targets.
Question 6
Critical success factors in Axeon:
“activities required for ensuring the success your business”
1 .Geographical location of the subsidaries that provides a
good Distribution Network
2 .Decentralization:
autonomy and product mix
3. Good training of the
Question 7
Key recurring activities in Axeon:
Meeting of board director
Question 8
Discuss Axeon in terms of its centralisation
Centralisation of important decisions, strategic
decisions (in Netherlands, with administrative
constraints and cultural control giving the feeling of
conflict of interests)
Decentralisation of operative work (subsidiaries
decide the products that they want to sell, with action
Question 9
What should Mr. Van Leuven do?
He must decide to increase production in the
Netherlands and distribute through the UK
He must apologize for not supporting Ian in
the previous meeting.
He must try to explain to Ian that producing
in the Netherlands more profitable for the
company (reasons are clearly explained in the
2nd question)
Question 9
What should Mr. Van Leuven do?
 He must also tell him that by producing in the
Netherlands, company does not need to take
loan and factory in the Netherlands can work at
full potential.
 He must award Ian for his initiative and
based on achievements of UK subsidiary
revenue growth in the future.
Thank you for your