Axeon N.

V, a Dutch chemical manufacturing company had acquired Hollandsworth in

the U.K. and other subsidiaries ranging around the world. Initially, the subsidiary’s profits

dipped but were turned around by their hire of a new Ian Wallingford as the managing director.

He had expertise in subsidiary management and had experience in the field. The management

style of Axeon allowed for decentralization where subsidiary managers were allowed to come up

with investment proposals, to develop their own plants, in their respective countries. Each

subsidiary was accorded the responsibility of marketing and selling Axeon products in their

respective regions. Ian Wallingford proposed the building of a chemical plant to produce AR-42

in the U.K. He initially presented the idea to his board of directors who asked him to produce

more detail. After a while, he came up with a proposal that the board seconded and that was later

forwarded to Axeon headquarters, in the Netherlands. The managing director, Anton Van

Leuven received this proposal but first had his team look into it and critically analyze it. This

process took a while and the executives at Hollandsworth in the U.K felt disappointed that their

plan had not been approved. A board member of the U.K subsidiary, Jeremy Noble had been so

frustrated that he threatened to quit the company’s board. The issue did not only touch on the

proposal itself but was also, a question of the freedom of each subsidiary was really being

allowed, in terms of managing operations and investments The team in the Netherlands advised

Van Leuven to reject the proposal. According to their assessments, Wallingford had

overestimated his sales projections by stating that they projected sales would span around four

hundred tons of the product. The project had also been projected to cost 1.4 million pounds with

other costs of setting up the factory. Wallingford had also estimated an eight percent interest rate

with which he could borrow the money to build the plant in the U.K. On the other hand, Van

Leuven received a letter from the director of manufacturing, Oosterling, indicating that the
project was uneconomical due to variable and overhead costs. He cited savings that would be

made if the product was manufactured in the Netherlands increasing production from six

hundred to a thousand tones, with the U.K taking four hundred of these.

What are the goals & objectives of Axeon’s Strategic Planning?

Axeon bought AB that operated in Sweden, KAG in Gothenburg, Saraceno in Milan and, Hollandsworth
in London. The company wanted to take advantage of the different locations of these subsidiaries to
allow marketing and sales of their products in these locations. This allowed for decentralization and
freedom for the subsidiaries. The company handled operations for the Netherlands and AB. KAG
accounted for six percent of total sales, Hollandsworth fourteen percent and Saraceno eight percent.
Stratecig planning allowed the subsidiaries to assess their respective markets and to come up with
proposals on the investments they found. They were also allowed to sell the products they wanted in
their territories.

Is the establishment of a new factory in the UK in the best interest of Axeon?

The factory itself was a good idea but it failed in its viability in financial and economic terms. Had the
factory been built Hollandsworth and its management would have had their own level of freedom in
setting up their own manufacturing plant. The specific benefits of product quality and the coating
capabilities of the product would have ensured that consumers receive an improved product. The costs
associated with shipping products from the Netherlands would have also been avoided. Although, it was
more viable to continue shipping product from the Netherlands through increasing the plant’s
production capacity. Overall the costs associated with increasing production in the Netherlands were
lesser than the investment costs and requirements of building a plant in the U.K. This includes the initial
plant set up cost of 1.4 million pounds and operating costs of one hundred and sixty thousand pounds.
In two years of full operations, the operating costs would increase and total capital requirements would
exceed one hundred and ninety thousand pounds. The plan would also depreciate each year and it was
no given that U.K. would buy four hundred tons of the product as specified.

If the factory were not established in the U.K & AR-42 were shipped from the Netherlands, what should
be the transfer price between parent & UK subsidiary?

The total production including the projected four hundred tons to the U.K. of one thousand tons, would
have seen Axeon realize large raw material purchases, lower set up costs and longer production runs. As
a result, there would be a huge purchase of raw material, better handling of those material and lower
purchase prices. There would also be a decrease in the average variable costs of forty pounds from on
thousand nine hundred to one thousand eight hundred and sixty pounds for each ton. This decrease
would save Axeon twenty four thousand pounds if the U.K. consumed four hundred pounds as
stipulated in the proposal. The capital requirements included one hundred and twenty pounds as an
initial sum to allow for added inventory. By the end of the second year, this sum would go up to one
hundred and sixty thousand pounds. The variable and fixed manufacturing costs were also viable. For
the four hundred tons shipped to U.K. without a factory would be at the price of sixteen thousand
pounds.

The taxable amount for both countries would be one hundred and twenty thousand pounds. There
would be shipping costs and negligible duty. The U.K. would have to pay tax for the four hundred tons of
AR-42 imported. These would be values added to tax, marketing licensing, product quality assessments,
marketing tax, transportation tax, and others. The same tax requirements will be necessary for the
Netherlands as tax accommodations are similar.

5a

Mr. Wallingford could have improved his proposal by communicating better with all stakeholders and
allowing for exhaustive review of the proposal details, and the overall viability of building the plant. Mr.
Wallingford could have made a SWOT analysis which stands for Strengths, Weakness, Opportunities, and
Threats. It would not only have allowed for thorough assessment of project’s viability, beyond financial
and economic figures but also the labor costs, skills required and overall efficiency. As such, the project
would not have reached Axeon’s executives as determination of its lack of viability would have been
made by Hollandsworth’s managers. He should have also communicated with his own team and the
team in the Netherlands to allow for exhaustive and joint analysis of the project. Lastly, he should have
advised his board member to be patient and to not threaten to resign, as it is crucial for any leader in
business to remain objective.

5b

No, the board for Hollandsworth should have examined the proposal exhaustively. They should have
remained objective and realized the flaws of the proposal. Experts should have analyzed the provisions
of the proposal and to provide reports. Their analysis should also have compared the viability of setting
up a new plant in the U.K. with increasing production in the Netherlands. The board for Axeon did the
right thing by not accepting the proposal.

5c

Mr. van Leuven should not fire Mr. Wallingford should not be fired as his suggestions and planning and
contribution of work for the proposal should be commended. He may have been misguided or clouded
for the want of more freedom for his subsidiary. Also Mr. Wallingford’s work ethic should also be
commended as he worked hard to do his proposal. It is unclear if the bonus provisions gave way to the
faulty decision making but proposing something meant to increase the profitability of the business.
Although his threat to resigning and leaving the company should be taken into account and disciplinary
action should be taken into account for that but he should not be fired.
6

The first thing that should be done to avoid similar dilemmas in the future is effective communication.
The company should facilitate for effective communication with all its subsidiaries and this would allow
for better information flow and more collaboration between subsidiaries. Business analytics would allow
the company to have better data that would come in handy to realizing opportunity and investing in
better ways. The company can do so through hiring experts on financials analysis and researchers to
allow for effective project analysis. The next step would be cost effectiveness where the company
should put measures to allow for cost effectiveness. There are different factors in different regions that
should be considered in order to allow for consumer targeting and finding better price strategies. The
last thing to do is just overall efficiency, the company should build on provisions it has in place to ensure
production efficiency, logistical efficiency, and sales and marketing efficiency. By doing this it would
allow for better cost management and ensure all opportunities, and viable markets can be targeted.

Brexit would have been terrible for subsidiaries located in the U.K. First, the company would see delivery
times delayed and products staying on the road for a couple of days or weeks. There would be customs
involved on imports, and this would see the costs of production go up. Taxation costs would also
increase and this would cause the selling price of products as consumers would have to pay more.
Hollandsworth would have to source products from Netherlands on much ahead of time in order to
always ensure that there is inventory. There would also be a lot of bureaucracy involved in acquiring
permits, and paying licensing which would be much harder to get and would take longer, also new
licenses would have to be acquired. With Brexit the product standards would change and new
assessments would have to be made as regulations change. Doing business between the U.K. and
Netherlands would be very expensive and the legal requirements would change as well. The interest
rates would not be similar either leading to a double charge in interest rates. Brexit would be bad for
business, political and overall society in Europe. The U.K. economy could go into a recession with Brexit
and many companies most likely would move their offices.

Conclusion

Hollandsworth’s proposal was well intended but it had it problems in its provisions and

projections. The team in the U.K could have done a better job of analyzing the facts. The

strategic planning for Axeon was intended to allow for freedom for the subsidiaries and

decentralization of leadership. Consequently, the company would realize increased business in

the respective subsidiary regions. Establishing a factory in the U.K would be unviable for the
company as it would be more costly than beneficial. Additionally, running AR-42 factories takes

skill and capital and costs for these provisions would only increase the overall costs of setting up

a factory. The best approach would be to increase the production capacity of the factory in the

Netherlands. Increasing production would lower overall production costs and avoid setting up

costs. The leadership of Mr. Wallingford was faltered by the fact of trying to get his own

freedom for his subsidiary especially with the bonus, even though his team’s intentions and his

own, were good for the company. He should have remained more objective and critically

analyzed the proposal. A good way to do this would have been to allow experts to analyze it and

also to consider costs other than financial or economic ones. For instance, labor costs, and

availability of raw materials, the skills and expertise required, among others. By doing this, the

dilemma would not have taken center stage. The board at Axeon did the right thing by consulting

experts and comparing the cost of setting up a new factory with increasing production in existing

factories. Overall efficiency, better analytics, objectivity and effective communication would

allow for avoidance of such dilemma in the future. Brexit may drive out Axeon out of the U.K as

overall business efficiency will be curtailed. There will be decreased convenience and several

fold increases in the cost of doing business in the U.K.