Mercan System Inc.

The caller-up was set up in 1980 by Eugene Mer undersurface and the first proceeds was a desalinator. In 1996, the ware line included desalinators, p contrivanceicle extends, ozonators, ion exchange resins, and purifiers. In 1996, sales revenues was intimately $ cd million (annual result average 12% for past quintuplet years), with an expected profit close to $50 million. In 1999, urine purifier was added to product line by development disfigurement name joyousness.The compevery has identified a market for its water purifier in developing countries where on that point is a huge, profitable and attractive market for clean water. Rahul Chatterjee, an International market liaison has been gathering information ab reveal the Indian market for alkali water purification devices. Statement of the Problem Mercan Systems would like to thrive in developing countries. They are seeking market ledger entry elements and entry schema to the Indian market for home purification devi ces.The entry st estimategies would then be compared with those of ii other Mercan liaisons who foc employ on Argentina, Brazil, and Indonesia. Indian market place for alkali Water Filtration and Purification The characteristics of this market is complex but Chatterjee found out that there are about four or flipper competitors in the market with alone one or two companies in Indias 25 states. The market may be in its early growth stages and many Indians felt the need for improved water quality. Target grocery store 44million households comprising of 40 million households of middle- and upper-middle-class households in the unify States and the European unification 4 million households who had similar values and lifestyles In addition, 50% of our tush market used boiling to make clean water, 40% of our engineer market used a mechanical device to improve their water quality while 10% of the target market owned neither a filter nor a purifier and seldom boiled their water. ma rket sectionalisation Traditional Method for foot Water Purification Boiling- Two to five liters of water for 10 minutes, al scurvy it to cool, and hen transfer it to containers for storage (often in a refrigerator). This procedure is cumbersome, time consuming, and ineffective in removing physical impurities and dour odors. Before storage they ordain filter their boiled water done candle filters. Water can become recontaminated during handling and storage. Mechanical Methods for Home Water Filtration and Purification Candle Filters -Low price depend on literal (plastic, porcelain or stainless steel) and easy to use. Candle filters were slow, producing 15 liters (one candle) to 45 liters (3 candles).It is necessitate to be removed, cleaned, and boiled for 20 minutes. Price Rs. 350 to Rs. 1,100. Water Purifiers These are remediate than Candle Filters. There are three steps, the first removed sediments, the atomic number 16 objectionable odors and colors and the third harmf ul bacteria and viruses. Price is Rs. 2,000 to Rs. 7,000. The remain 10% of the target market owned neither a filter nor a purifier and seldom boiled their water. Strategic alternative courses of action Market Entry Options 1)Whether to go to Licensing 2)Whether to go to Joint Venture )Whether to go to acquisition 4)Do Nothing Decision Tree Factor to Consider 1)Qualitative information 2)Quantitative abridgment 3)passport Qualitative Information Foreign Investment in India Licensing Involves supplying divulge purifier components and license fees impart be calculated by per unit rump over the item of the agreement Joint Venture Company Involves partnering with an brisk Indian confederacy and splitting profit equally. Acquisition Involves purchasing an lively Indian conjunction, then expand to include the water purifier with this arrangement.All profit will belong to Mercan Systems, Inc. Three Business Plans for Indian 1. Apply for market entry to the Foreign Investment Promo tion Board, Secretariat for Industrial Approvals, Ministry of Industries. 2. Approval of any royalties and fees, remittances of dividends and interest by Reserve Bank of India, Ministry of Finance. 3. A consulting firm has conscious Chatterjee that approval is Virtually guarantee by his consulting firm. Attractiveness of the Indian Market Tax Rates and Average Return on Assets Corporate valuate rates in India probably were somewhat higher than in the United States The average return on assets for all Indian corporations in recent year was almost 18%, for United States corporations was about 11%. Delight Purifier Uses a combination of technologies to remove four types of contaminants found in beverage water sediments, organic and inorganic chemicals, microbials or cysts, and objectionable tastes and odors. This technology is used to purify water to a level beyond WHO standards. There were two models that were countertop and wall-mount. Positioned as a quality productCompetitors Th ere are many competitors though the three major competitors are Eureka Forbes This is a Joint suppose bon ton between Electrolux (Sweden) and Forbes Cambell (India) which began operations in 1982. The company first brand name was Aquaguard (used ultraviolet rays to kill bacteria and viruses) with a price of Rs. 5, euchre and second brand was Puresip (used polyiodide resin to kill bacteria and viruses) with unit price of Rs. 2,000. The company used 2,500 person salesforce (directly on households) to sell Aquaguard and independent dealers to sell Puresip Ion switch overThe company began operation in 1964, they use brand name was ZERO-B (Zero-Bacteria). The product ZERO-B purifiers uses a halogenated resin technology which helped prevent iodine deficiency diseases and permitted purified water to be stored up to eight hours without fear of recontamination. Consumer needs to replace the halogenated resin at a cost of Rs. 200 every year. utterer This is a company that might be a suita ble partner to manufacture and give way the Delight purifier. Singers product contained nine stages (removed sediments, heavy metals, no-good tastes, odors, and colors, killed bacteria and viruses, fungi, and nematodes).The product life of flow rate is at 3. 8 liters per minute was at 40,000 liters (4. 4years for 25 liters per day), but slower liters per minute was 70,000 liters (7. 6 years for 25 liters per day). They described their product as state of the art and singer was a well-known and respected brand name in India otherwise competitors include The Delta Is a carbon copy of Aquaguard, Alfa Water Purifiers, symphony orchestras Spectrum, The Sam Group is Water Doctor purifier, and lastly Batliboi Other Relevant Information about Competition Sales volume of ZERO-B and Singer was or so 60,000 units in 1996. Sales volume of Aquaguard and Puresip was 190,000 units. More than 100 Indian companies made and marketed candle filters. All of purifier sales came from large urban ar eas and only ten to fifteen percent of the entire Indian population could be reached. Pros & Cons of alternative means of entry Licensing Pros There is relatively low risk and low cost associated with this alternative. Also there will be no need for Mercan to study Indias culture Cons Mercan will not make water control over activities of Licensee and they may lose image Joint venturePros Mercan will be actively involved and would have control over backing activities Cons tall cost and high risk is involved. There will be low returns and long-term payback period Acquisition Pros approach nest egg and fewer local restrictions may come with this mode of entry Cons High cost and high risk is involved Distribution Channel/ orchestrate used by competitors Eureka Forbes Uses 2,500 persons sales force and independent dealers. Ion Exchange Uses door-to-door sales force and consumer advertising. Singer Uses 3,000 independent dealers, 210 owned showrooms, and 400 salesmen.Product Pri ce Product Positioning Activities of competitors Promotion Eureka uses Television, newspaper and clip advertising Ion Exchange uses Television advertising while Singer uses television, newspaper, outside and transit advertising. Quantitative Analysis Licensing Capital cost of production facilities and equipment = $30,000 Cost of office facilities and equipment = $5,000 Annual fixed cost ranged between $15,000 $40,000 Average royalty = Rs. 300 gibe cost (min) = $30,000 + $5,000 + $15,000 = $50,000 Total cost (max) = $30,000 + $5,000 + $40,000 = $75,000 Exchange rate is 1$ = Rs. 35 B/E (min) = ($50,000 x 35) ? 300 = 5,834 units B/E (max) = ($75,000 x 35) ? 300 = 8,750 units Joint Venture/ Acquisition- Four Regions (110,000Units) SkimmingPenetration DealersalesforceDealerSalesforce sign InvRs. 8,000,000Rs. 8,000,000Rs. 8,000,000Rs. 8,000,000 headstrong CostRs. 7,000,000Rs. 14,000,000Rs. 7,000,000Rs. 14,000,000 functionRs. 650/UnitRs. 500/unitsRs. 300/unitRs. 200/unit B/E Inv12,30 8units16,000 units26,667 units40,000 units B/E contribution10,770 units28,000 units23,334 units70,000units % market9. 79%25. 45%21. 21%63. 64% Total Contribution contribution*110,000)Rs. 71,500,000Rs. 55,000,000Rs. 33,000,000Rs. 22,000,000 Joint Venture/Acquisition- Two regions (55,000units) SkimmingPenetration DealersalesforceDealerSalesforce Initial InvRs. 4,000,000Rs. 4,000,000Rs. 4,000,000Rs. 4,000,000 Fixed CostRs. 4,000,000Rs. 7,200,000Rs. 4,000,000Rs. 7,200,000 ContributionRs. 650/UnitRs. 500/unitsRs. 300/unitRs. 200/unit B/E Inv6,154units8,000 units13,334 units20,000 units B/E contribution6,154 units14,400 units13,334 units36,000units % market11. 19%26. 18%24. 24%65. 45% Total Contribution (contribution*55,000)Rs. 35,750,000Rs. 7,500,000Rs. 16,500,000Rs. 11,000,000 Joint Venture/Acquisition- National Market (430,000units) SkimmingPenetration DealersalesforceDealerSalesforce Initial InvRs. 30,000,000Rs. 30,000,000Rs. 30,000,000Rs. 30,000,000 Fixed CostRs. 40,000,000Rs. 88,000 ,000Rs. 40,000,000Rs. 88,000,000 ContributionRs. 650/UnitRs. 500/unitsRs. 300/unitRs. 200/unit B/E Inv41,154units60,000 units100,000 units150,000 units B/E contribution61,539 units176,000 units133,333 units440,000units % market14. 31%40. 93%31%102. 3% Total Contribution (contribution*430,000)Rs. 279,500,000Rs. 215,000,000Rs. 129,000,000Rs. 6,000,000 Recommendation From both quantitative and qualitative analysis strategic focus on rural or smaller urban areas would not be wise, at least at the start. Cost of skilled labor in India was around Rs. 20 to Rs. 25. Mercan Systems Inc. should find an Indian partner. Joint Venture/ Acquisition using the skimming pricing strategy with dealers will be most profitable. shoot to use promotion like TV commercial, magazines etc. The company can invest 1% of total contribution for promotion activities by using TV commercials and magazines (1% of 279,500,000= Rs. 2,795,000 advertising).