The Timken Company (A1): Timken and Poland
The Timken Company is one of the oldest and one of the world's leading anti-friction bearing company. The company had two primary aims: firstly the company wanted a higher position and reputation in the market and secondly that the company aimed to have a source of bearings to export. The Timken Company was keenly interested to expand and develop its company overseas. It wanted to capture maximum area it can by either production in home town or by exporting it in foreign places. There were lots of things which were been taken into account when they first thought of keeping their feet and buying a company in the East Europe in 1993. The company had always built its own new plants rather than buying the pre-established business. However due to some unpleasant financial situation in 1990's due to financial crisis, the company planned to buy a pre-owned private sector in less capital investment which can be owned and developed by the Timken company. The Timken Company had got an offer to buy the Hungarian plant which made ball bearing, cylinder bearings and tapered roller bearings but the company had to put a lot of money and the half of the plant they were going to buy was not worth buying. The Timken was just looking for the tapered roller bearing (TRBs), so they refused the offer of the Hungarian plant and started hunting for some other plants in the same sector which can be more useful to achieve their target.
Jon Elasser, the managing director for Europe, Africa and West Asia who was driving the project was not sure if they were right by taking the decision of keeping their feet in East Europe for this particular business. They already were familiar with the East Europe company reputation in market. The East European companies in the same sector were not been found worth for its quality. The U.S companies were not thinking of setting up their business in their business in East Europe. But about in year, there were lot of automobile companies like Fiat and Volkswagen who collaborated the company with the European companies like Polish car manufacturers and Skoda respectively. The Timken Company had increased its chances of getting success in the field of TRBs in the East Europe due to different automobile companies invading the European market. The west Europe branches in Duston (U.K) and Colmar (France) of the Timken Company were facing serious problems with their plant capacity. The companies had a medium scale and production capacity and the order was not being completed on time due to over capacity of the consignments. They were spoiling their relations with many companies and because of that they were running out of business. Even the U.S branch of the company was not able to help them due to the same problem been faced by them.
In mean time, Polish government decided to transfer its all four state-owned companies to private sector. This was a turning point for the company. There were many different companies like SKF who wanted to acquire all the four branches, and were one of the competitors of the Timken. The Timken did not wish to let the TRBs Company go to some other hands. Prema Milmet, one of the four Polish companies, who manufactured TRBs. The Timken Company should look forward to acquire Prema Milmet, the Polish plant.
The reasons for Timken Company to acquire Prema Milmet's Polish plant are:
§ They would capture major segment of the TRBs market in Eastern Europe
§ If the Swedish firm, SKF will buy the plant than they will acquire the most of the market and form a monopoly in their business
§ Once any other acquires the Prema Milmet and gets at good position than it would be very difficult to compete the company with a new market position
§ All the SKF and German manufacturer FAG account for 70% import bearing in Poland would be stopped and would be acquired by the Prema MIlmet as it a home company and product would be cheap because of less transportation cost.
§ They will develop good relationship with the CIE Impexmetal, by which can easily handle all the goods which can be import and export
§ If the Company (Prema Milmet) in Poland would be successful in high production quantity, than they can export it to the Duston (U.K) and Colmar (France) branch of the Timken Company, which would maintain their good image as well as make some good profit out of the joint venture of branches
§ The newly invading automobile companies like Fiat and Volkswagen would increase their production and keep them good in business
§ The aim of the company would be achieved by getting maximum amount of business through all the branches
§ Due to the financial crisis in Poland, the company are been sold for less price. Once the financial status of the country goes high and the market is acquired by some other TRB manufacturing company than it would be very difficult for the company to step in East Europe market for the business
In beginning of 1990's it was proved to be a major point for all bearing manufacturing companies. All the worlds leading bearing manufacturing companies like German manufacturer (FAG) and SKF were facing major problems with their production and sales. Initially at the peak time FAG and SKF were the two leading companies of bearing manufacturing who had acquired around 70% of the Poland's bearings imports which valued around $25 million annually. The Prema Milmet was run by the Japanese bearing company, NSK LTD. The company had a very high profit and was most successful till the beginning of the post-Soviet era. As mentioned earlier in early 1990's the Polish government was facing severe credit crunch and sector dropped to 50%. The bearing manufacturing companies in Poland had no government subsidies and therefore they had lack of money to put in their business for modernising and upgrading their manufacturing line and therefore they started hunting for any partnership company which can help them to fulfil their financial needs.
In 1992, the European bearing manufacturing companies had faced a very critical time. The automobile company had reduced its new cars sales across European Union by 25% in one year, which directly affected the companies who supplied bearings to the automobile company. Timken Company had faced some minor problems but later it was proved to be a boon for the company. The competitive companies were facing big dilemma in that period.
Timken's competitive predicament in Europe:
In 1990, there were lots of changes occurred in the company positions, financial situations and European automobile market. The automobile sector in Europe reduced its supply till a great extent which affected the bearing supply companies in the particular sector. The company had literally reduced the manufacturing as well as supply quantity to a great extend. After Berlin wall fell in 1989, the German manufacturer, FAG was completely downsized and Eastern European market collapsed. Due to severe financial crisis the company had accumulated debt of $1.15 billions and lost its market position. The world leading reputation it had was completely lost and shattered. It had to forcefully cut down the workforce by 43% letting 3500 workers to go off.
Considering the other world's top leading bearing manufacturing company, SKF was having same problems. It had downsized the workforce by 1500 workers. Combined lost of FAG and SKF reached over $280 millions in an year (1992 - 1993). SKF had to close it U.K and Spain plants. The automobile sector wanted very high quality parts in a very low price. The Timken used to supply the bearing to the Peugeot car company. Due to downturn of the Peugeot Timken's company got affected as well.
Timken's Company started manufacturing the products such as “Sensor Pac” which was a bearing with electronic design. At that time Timken Company had collaborated with Tata iron and steel company in India and added over 40% share in the joint venture. Timken Company even looked forward for venture in China which was proved to be very positive potential for them. Later the company was doing very good busy and was competing the top ball bearing manufacturing industries and had a very good position in market. Looking at the revenue of Timken from 1992 to 1996 was almost doubled to around 2250 million $U.S. In comparison to the other companies, the profit was still far more less. It had its highest business in automotive sector followed by general machinery and rail road. It was even supplying the parts to Aerospace and mining but it was less than the others. In 1994 , Timken had acquired over 10% of the total market in the bearing sector which was more than INA and FAG. It was still behind the SKF which had 19% of global marketing.
Elsasser analysed Prema Milmet Company with his team of engineers and executives from Canton and Colmar. There were various constraints which were attached to the company. They keenly analysed and found some advantages and disadvantages of the recent company working condition. The company produced around 7 million bearings a year, but the capacity can be increase several times higher by a proper management. The company was profitable in future. The best thing in the company production was that they fabricated their entire product from the scrap. From forging to finishing and even assembling all its parts was from scratch. The plant had a potential to make good business if been properly maintained. Elsasser would personally develop this company with his few experienced employees to bring it at the peak point.
There were few issues which the Timken's assessment of Prema Milmet identified, in which some could have been resolved and some were major issues which could cause trouble down the road. The issues regarding the company were:
§ The quality:
The quality of the product the Prema Milmet company fabricated was not up to the Timken's Company standards. The purity pf steel used in manufacturing the bearings contained lots of impurities which would cause a catastrophic failure of the bearing. It was probably running at low standards which the Timken could not accept. But still the problem was been able to resolve. They can sell the product to the local automakers and aftermarket, using a different brand name and later deal with the increasing the quality once the company gets properly handled by the top executives and Elsasser himself.
§ Brand Name:
Due to the poor quality of the product it was very difficult to meet the requirements for the company to give its premium brand name. The Timken Company had to meet its standard and at least have the product manufacturing with a legal ISO 9000 quality certificate which can proudly represent the company standard and reputation in the market. The problem could be resolved by giving a different brand name and hence sell the product at that present quality.
Elsessar, the manager was wondered about the rising in the labour cost in Poland every year. As FAG Company faced in East Germany, they could face the same problem. The company would have to face huge losses in business and would be difficult to deal with the problem. This problem was totally depended on the Polish Government and the country's financial conditions. The chances of the problem were very less. And the labour wages was not in Prema Milmet which can be handled by them.
§ Relationship with Impexmetal:
Impexmetal used to handle all the sales work of the Prema Milmet's management, so Elsasser had no idea about the sales. This was not a major issue. The Timken's Company could continue good relationship with Impexmetal and hence train them properly within a few years which can help them to manage their complete sales and even help to increase the yearly sales by collaborating with different companies.