Axeon, N.V. |
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General Management |
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Management Control Systems |
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Organizational Behavior |
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Intermediate |
8 |
Available.
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$9.00
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In October 1998, Anton van Leuven, managing director of Axeon N.V., a
large Dutch chemical company, was faced with a difficult decision. Ian
Wallingford, managing director of Axeon's British subsidiary,
Hollandsworth, Ltd., and Jeremy Noble, a member of Hollandsworth's
board of directors, were frustrated that an investment proposal that
had been presented some time ago had not yet been approved. The board
member had even threatened to resign his post. But Mr. van Leuven had
received advice from some of his other managers to reject the
Hollandsworth proposal.
THE COMPANY
Axeon N.V. was headquartered in Heerlen, in the Southern part of the
Netherlands. Axeon produced an extensive product line of industrial
chemicals in 24 factories.
Early in its history, Axeon had a simple functional organization
structure, with just one manufacturing division and a sales division.
Over the years, however, Axeon acquired some foreign companies. These
included Saraceno, S.p.A., in Milan, Hollandsworth, Ltd., in London,
and KAG Chemicals, AB, in Gothenburg, Sweden. To take advantage of the
geographical expertise in these acquired companies, each of these
subsidiaries was asked to assume responsibility for sales of all Axeon
products in their assigned territory: Southern Europe for Saraceno; the
United Kingdom for Hollandsworth; and Scandinavia for KAG. Southern
Europe, the United Kingdom, and Scandinavia, respectively, accounted
for 8%, 14%, and 6% of Axeon's total sales. All other sales were
handled by Axeon's organization in the Netherlands (see Exhibit 1).
The style of Axeon's top-level managers was to emphasize a high degree
of decentralization. Hence, the subsidiary managers had considerable
autonomy to decide what to sell in their territories. For products
produced in the Netherlands, the Axeon Dutch sales organization would
quote the subsidiaries the same prices as they quoted agents in all
countries. The subsidiaries could bargain, but if, in the end, they did
not like the price, they did not have to sell the product.
In some cases, the foreign subsidiaries produced products that competed
with those produced by Axeon factories in the Netherlands. To date,
little attempt had been made to rationalize the company's production.
The subsidiaries were allowed to continue to produce whatever mix of
products they deemed appropriate. The subsidiary managers were also
encouraged to propose the development of new products, and they were
allowed to build their own manufacturing plants if they could justify
the investment in their own markets.
Assignment
1. Is construction of the new factory in the U.K. in the best interest of Axeon N.V.?
2. Ignoring your answer to question 1, if the plant
were not built and AR-42 were shipped from the Netherlands to the U.K.,
what transfer price would be appropriate?
3. What should Mr. van Leuven do?
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