Cycle & Carriage

Q1) How important was the Mercedes Benz distribution agreement to C & C?

The Mercedes Benz distribution agreement was important to almost everyone associated with C&C, including employees, customers, shareholders. However, since the question states 'how important', it is essential for us to define how Mercedes Benz is the most important and to whom in C&C. As seen from the case, we know that Mercedes Benz distribution agreement made up the largest proportion of profits in C&C due to its prestigious brand name. Thus, we feel that the shareholders were most concerned with the distribution agreement.

Based on the case, we can group the benefits that Mercedes Benz brought about to C&C into two main categories, namely tangible benefits and intangible benefits.

Tangible benefits - Financial strength

- C&C car sales accounted for 80% of total revenue, while sales of Mercedes Benz accounted for 80% of the total profits.

Intangible benefits - Reputation / Brand Value

- C&C was associated with Mercedes Benz in the minds of Singaporeans.

- Mercedes Benz cars were the ultimate status symbol in Singapore and Malaysia.

- The brand is so strong that even the demand for these cars was not affected by frequent and longstanding complaints of C&C's poor customer and after-sales service, as well as the high prices and waiting lists.

- Sales were also fairly resistant to broader economic conditions. Mercedes-Benz sales rose 6% in 2001 to 3457 units, despite Singapore suffering its worst recession in decades.

Based on the Porter's Generic Strategies, C&C's approach to owning Mercedes Benz's sole distribution rights was Focus Differentiation strategy.

Differentiation

Overall Cost Leadership

Focused Differentiation Focused Cost Leadership

As seen from the framework above, C&C's strategic target group is particularly the high-end consumers, who are looking for a car that can match up with their status. Also, their strategic advantage lies in the high uniqueness of Mercedes Benz perceived by customers, as can be seen from customers' willingness to pay or wait for the car. Hence, we have grouped C&C's strategy as Focused Differentiation.

In conclusion, Mercedes Benz brought about a high brand value to C&C, which was very important to C&C due to its high brand association. This in turn translated into high profits and shareholders returns, which made the Mercedes Benz distribution agreement the most important to shareholders of C&C.

Q2) What upset C & C's relationship with DaimlerChrysler?

The Porter's 5 Forces are applied on Singapore's car industry from DaimlerChrysler's (DC) point of view. This explains why DC wants to take back the distribution rights for Mercedes Benz from C&C.

From the analysis, the 5 forces are in favour of DC's position in Singapore's car industry. DC decided to withdraw the Mercedes Benz's distribution rights and claim them back for itself. Doing so would gain control over its operations in Asia, as well as increase its market share and profits in Asia. Also, C&C upset DC by refusing to honour the worldwide warranty issued by Mercedes-Benz for cars sold by parallel importers in Singapore.

Mercedes Benz was doing well in Singapore; being C&C's most lucrative brand, losing it resulted in a loss of confidence from shareholders and a fall in share price by more than 60%. This critical loss of profits upset C&C greatly. Furthermore, C&C made huge investments of $100 million in the franchise. Thus from C&C's perspective, DC's claiming rights to distribution was unjustified.

This conflicting issue of Mercedes Benz's distribution rights would mean a major loss in profits for C&C, thus it upset the relationship with DC.

Q3) Evaluate C & C's acquisition of PT Astra.

C&C's means to achieving diversification is through acquisition. A SWOT analysis of PT Astra is conducted to analyse the diversification strategy and assess if they have met their motives through making use of Astra's strengths and weaknesses to convert them into opportunities and minimising threats.

Strengths  Dominant car assembler in Indonesia

 Largest independent automobile group in SEA

 Indonesia's best-run firm

 Diversified conglomerate

Opportunities  "Unique opportunity" for expansion with Astra's extensive distribution network in Indo

Weaknesses  Troubled Indo car manufacturer

 High debt, Net income negative (2000)

Threats  Political uncertainty, unstable country

1. Classify type/ reasons for diversification

Characteristics of Value-neutral diversification:

* Low performance,

* Uncertain future cash flows

* Risk reduction for C&C

* Tangible resources

* Intangible resources

2. Diversification Strategy

a. Strategy Implementation

i. Literature review diagram (refer to Appendix I)

Strategy Implementation

Restructure resource portfolio  Restructured operations

Bundling