Loctite International
Presented by:
Ayushi Singh Isha Singh Abhishek Patil Ankit Kapur Shashank Sharma Manisha Kansal Bhishma Gaglani
Question 1: What is Loctite’s distribution strategy? Answer: Loctite was organized into four regional groups: North America, Latin America, Europe & Asia-pacific
and the structures varied by region. Regions organized the operations to t hree business groups: industrial market; retail & consumer market and automotive aftermarket. The corporation was run in a decentralized fashion. Planning was a bottom-up process, which required national units to present their detailed plans annually to visiting corporate staff. A typical distributor in these mature markets carried approximately 100 stock keeping units (SKUs), consisting of various sizes of some 30 Loctite products. Around 25% of SKUs were common to virtually all distributors and these typically generated at least 50% of a distributor’s sales. Having built its business on the se core products, a mature market distributor then expanded its range of Loctite products according to the type of customer industries it served. In many less developed markets, by contrast, Loctite was still building its core industrial business. Question 2: How does the channel strategy differ between the domestic North American market and International market? Answer: Loctite’s channel strategies do not differ significantly around the world and thus its North American market strategy and its international strategies are similar.
However, there are some differences mainly because Loctite cannot own 100% of the dealership business in six countries because these country laws don’t allow 100% ownership by private enterprise. Some Key Points: 1.
Joint Venture with companies in Norway, Indonesia, China, Taiwan, Thailand and Venezuela. In all the other countries, Loctite owns 100% equity in distribution.
2.
In North America, distribution strategy is selective (Allows 2-3 distributors to carry the products) which in turn leads to superior level of service to its customers and 40% sufficient market coverage.
A typical distributor has 1-2 salespersons and 4-5 counter staff. Having a joint sales effort with distributors and seminars at the end user was one solution. The other solution was providing high margin to the distributors in the range of 30-35% which in turn is 50100% more than any other company. History and strategy applied in other regions/countries: 1.
First Joint Venture was opened in Belgium, then in UK, Spain and Italy.
2.
By 1992, Joint Venture, Wholly Owned Subsidiaries and Distributorship.
3.
100% equity in all countries except Switzerland, Portugal, Sweden and Denmark and Finland by 1992.
4.
For Asia Pacific, same equity interests in Asian distributors employee placement in distributorship to provide technology and sales education. Their main aim was to increase the industrial market which was bread and butter.
5.
Specifically, in India they faced problems as in 1970s only 40% stake was allowed
6.
Ventured into China with a 50% ownership with an eye on Vietnam as earlier US had imposed sanctions on Vietnam.
7.
In Hong Kong, there was distributor unwillingness to invest more to expand Loctite business. Unwillingness to cooperate more closely with Loctite on business plan, sales management, etc.
Question 3: What factors are driving Loctite’s acquisition of International distribution channel? Answer: Distribution in North America (Selective distribution strategy):
Single outlet distributors (1600)
Large distributors (eg. Bearing inc.)
2 or 3 distributors in one market so that customers have a choice
Training and extensive support to each distributor
Direct sales managed by specialised sales rep (in 1990 direct sales was 40% of total industrial business)
Maintenance market- separate 5500 distributors apart from the above
No overlap between two distributors in same area in terms of product line
Distribution in Europe:
Entered through joint ventures and subsidiaries 1992- Acquired all European operations except a few countries where there were independent distributors and JVs
Distributor grew the business and loctite acquired it in a few years
Eastern European countries- started with exports and then wholly owned subsidiaries were formed
Distribution in Latin America:
Subsidiaries in Costa Rica (Central America) and Sao Paulo (South America)
All distributions were handled through these subsidiaries
Distribution in Asia Pacific:
Growth was low as distributors were not aware about the product
Loctite started buying stakes in distributorship and placed their employees in the distributorships
First bought 51% and agreed to buy rest 49% in next 5 year
A distributor was first given 8 to 10 core products so that he becomes familiar with the Loctite products.
Question 4: What should Loctite do About Distribution in Honkong? Answer: PROBLEMS WITH HONKONG DISTRIBUTION:-
1)Unwillingness of local distributor to expand its Business.
2) Unwillingness to Co-operate more closely with Locatite on Business Plan not giving control to Loctite. 3)Loctite’s P.R.C. joint venture was already competing with the Hong Kong distributor to supply factories offering prices substantially lower than those offered by Loctite’s Hong Kong distributor. Accounting for 25% of the Hong Kong distributor’s sales.
FREEMAN THE COO BELIEVED: -A good distributor in Asia/Pacific, forinstance, might be able to grow the business by 35%-40% annually, and we wouldexpect a minimum of 10%-15%. The main reason why France is our second-largestmarket is not because it has greater potential, but because over a long period thedistributor1 reinvested a large proportion of his profits back into growing thebusiness.
Loctite had three options regarding theHong Kong operation: 1. Buy 51% or more of the existing Hong Kong distributorship, and grow the business from its existing base. 2. Find a new distribution partner, probably an established local business, and form a second joint venture in Hong Kong. 3. Buy out 100% of the Hong Kong business and attempt to build a Greater China subsidiary.
SOLUTIONS:The joint ventures lagged Hong Kong; penetration of market opportunity with less than 50 % of market penetrated so far. LOCTITE should try and reinforce its policy to its current distributor and try and buy 51% of existing HK distributorship giving the company access to info and helping in more market penetration. Loctite should interact with its P.R.C joint venture and specify a price range which should benefit both the companies analysing the market penetration.
