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case study attached ….there are 6 questions analyzing the business. I have completed a working document template (includes charts to easily fill in so that written answers can be justified) along with an event chronology to make it simple ….see attached documents and let me know if there’s anything unclear MCM721_S14 Strategic Management / Case Exam FRASER RIVER PLASTICS LTD. Instructions: – Case solutions are due June 2nd, 2014 emailed to the Instructor and TA. – Late submissions will be penalized one letter grade for each week late. – Your analysis is to have a maximum of 10 pages (including exhibits and charts). You should apportion pages based upon point worth. – Formats include; 8.5 X 11.5 inch paper, 1 inch margins, 12 point Times New Roman, one and a half spacing. – The exam must be completed individually. Your submission must be entirely your own and may not be shared with other students. – No external information is to be used. The solution is to be based entirely on material contained in the case. Assignment: FRASER RIVER PLASTICS LTD. has decided to solicit the assistance of an MCM Strategic Management student. You are that person! Furthermore, you are to take the role of a consultant and analyze their situation and come up with a recommendation. This means your submission is a formal report to their Board of Directors. FRASER RIVER PLASTICS LTD. is asking you to utilize the Diamond-E construct to help them with the following: 1) (20 marks) Assess the company’s Operating Performance, Organizational Health and construct the resultant Performance Matrix (tool #’s 2-4). 2) (20 marks) Evaluate the Strategy Triangle ((tool #5 which includes Goals (tool #6), Product/Market Focus (tool #7), Value Proposition (tool #8), and Core Activities (tool #9)). You may refer to pages 18 and onward in the text for the theory and then page 33 for an example using WalMart. 3) (20 marks) Conduct an Environmental analysis utilizing all the tools. Apply Porter’s Five Forces (tool #10) model to determine whether the industry is attractive. Include forces and their sub-elements (my graphical in-class hand-out) which have leverage. Also include a PEEST (tool #11) analysis. 4) (5 marks) Construct a Resource Gap analysis (tool #17) – generic responses only, no financials please. 5) (10 marks) Identify Alternatives utilizing criteria you have developed, weighting factors you have deemed appropriate, and analyzed under various plausible scenarios. Refer to Decision Matrix handout received in class. Identify actions to be undertaken in the short, medium and long term (see pages 228-229 in text) 6) (5 marks) Determine position on Crisis Curve (see page 208 in text) 7) (20 marks) Presentation: Is it a well-written report having visual appeal where case facts are supplemented with strong implications (so what?) utilizing proper grammar, spelling, links to exhibits, natural flow from analysis to implications to action plan, as well as having a correct format. Cheers and good luck! As always, we are available to help with the learning but not solutions. FRP Case – 1 FRASER RIVER PLASTICS LTD. This case is not to be reproduced in whole or in part by any means without the express written consent of the authors. Case material is prepared as a basis for classroom discussion only. This material is not covered under authorization from CanCopy or any reproduction rights organization. Any form of reproduction, storage or transmittal of this material is strictly prohibited without written permission from the DeGroote School of Business. Copyright © 1993 by Christopher K. Bart and Marvin G. Ryder. All rights reserved. In early 1993, Elinore Wickham-Jones, President of Fraser River Plastics Ltd., had become uneasy about the cross-currents of opinion that were developing regarding the company’s future direction. Differences of view, perhaps held for some time, surfaced in recent weeks as the merits of several projects – among them a move toward international expansion and an acquisition – were reviewed. There was, Wickham-Jones felt, more than normal agitation in the situation. Lines were hardening on the questions of how aggressively, and in what direction the company should proceed. CORPORATE HISTORY: The Early Years – 1984 to 1988 In the fall of 1984, two Vancouver, British Columbia businessmen, Herbert Rudd and Oliver Farthingham, visited Portland, Oregon on a tour sponsored by the Vancouver Board of Trade. Of the several plants they visited, one facility, Damian Plastics Inc., particularly caught their attention. This plant manufactured heavy plastic products such as utility crates, garbage cans, and packing cartons by injection moulding. Damian was remarkably advanced in the skill of minimizing the raw material weight in the large products it produced, while retaining, through unique design, the essential rigidity and toughness. Both men, and especially Farthingham, who had experience in plastics, felt there was a ready market for the products in Canada: a) in competition with comparable but more expensive plastic products; and b) in substitution for metal products. The two men returned home with a tentative licensing agreement for all of Canada which included technical assistance from Damian and access to all mould designs. The immediate problem facing Rudd and Farthingham was raising the $160,000 equity needed to build a plant and get into operation. By November, however, they put together a group of local businessmen and raised the required funds. Some of the backers, like Elinore Wickham-Jones, were associated with wholesale and industrial supply firms and could assist by providing initial markets for the new plant’s output. On December 9, 1984, the company was incorporated under the name of Fraser River Plastics Ltd. Its three major shareholders were Farthingham (20%), Wickham-Jones (18%) and Rudd (13%). Farthingham became Fraser River’s first President. Rudd was made Secretary-Treasurer and Wickham-Jones became a Vice-President. As the formative weeks passed, Rudd located a two acre site for the company’s manufacturing plant in Chilliwack, British Columbia – a small town near Vancouver. Tenders were called on the building’s construction in February, 1985 and manufacturing equipment was ordered. Through this period, the company was being run by the three officers on a part-time basis, since each had their own full-time business as well. On April 1, 1985 Gunther Heinzman, a former plant manager of a Victoria plastics firm, was hired as General Manager of Fraser River. Heinzman recalled: “Elinore took me out to the site in Chilliwack. It was just a ploughed field! A few days later we did the first public showing of our products at a trade fair in Victoria. All that I had available was two plastic garbage cans, three sizes of the packing cartons, and six pieces of Damian’s literature. One week later, the first carload of products arrived from Portland. Most of it had to be stored in a small warehouse owned by one of our shareholders since there were no storage facilities yet.” FRP Case – 2 In August, 1985, production began at Chilliwack while finishing touches were made on the plant. There was a ready and substantial demand for the products. The price, although high, was accepted and the products were suitable in substitution for conventional products. It was not long before the company operated “in the black”. Through 1986, the company’s operations expanded dramatically. A temporary office annex was erected at the Chilliwack site and the plant’s capacity was increased to accommodate demand. Substantial orders for the company’s products also came in from Alberta. To cut transportation costs and get local exposure, Fraser River purchased an empty plant in Calgary, ordered equipment, and hired a general manager to take charge there. The Calgary plant was in full operation by June, 1986. In time, Fraser River’s success became known among those familiar with plastics processing. Not surprisingly, in 1987 another group of businessmen set up a facility to produce similar injection moulding products in Prince Rupert, British Columbia. Fraser River had no legal remedy since the products and processes it licensed from Damian were poorly protected by patents. In addition, the initial barriers to entry – such as the special moulds and know-how -started to crumble. Although the Prince Rupert firm marketed its products under its own name, there was little, save some cosmetic design differences, to distinguish them from the products manufactured by Fraser River. As one company executive put it: “The plant in Prince Rupert was the first time we really experienced direct competition.” Fraser River’s response was an offer to purchase the Prince Rupert competitor. This offer was accepted in November 1987 and Fraser River retained the old company’s major shareholder as general manager. The purchase was not well received, however, by the Prince Rupert company’s minority shareholders. They took their proceeds from the sale and shortly thereafter set up another injection moulding plant in Nanaimo, British Columbia. By 1988, Wickham-Jones and Farthingham became concerned about limitations of the present three-person board in light of the company’s growth and changing external circumstances. There were also signs, particularly in relation to the acquisition of the Prince Rupert company, that some of Fraser River’s minority shareholders were disturbed and would like to see a broader representation of views at the Board level. As a consequence, Fraser River’s board was increased by three members – Owen Palmer, head of a local supermarket chain, Joanna Young, a management consultant who ran the local office of a large national firm, and Michelle O’Reilly, the firm’s legal counsel. To this time, the organization of the company was loosely structured. Each of the firm’s plants in Chilliwack, Calgary and Prince Rupert had its own managers and field salesforce reporting to Gunther Heinzman, the company’s general manager. Although Wickham-Jones, Farthingham and Rudd were considered the overall management committee with responsibility for major decisions such as site selection, price, expansion and capital investments, they were also involved on an ad hoc basis in many overlapping operating functions. The First Transition: 1989 to 1992 At the suggestion of Farthingham, Joanna Young reviewed the company’s organization in early 1989 to “assess the marketing strengths and weaknesses of the company and to suggest desirable changes.” Her principal recommendation was as follows: “There is a clear need for greater continuity, consistency and detail in the top supervision of overall operations. The current dispersed nature of responsibilities among the company’s executives should be focussed in the hands of a single chief executive with time for close day-to-day contact with the organization. As chief executive officer, this person would be responsible for all company operations and for initiating and implementing policy changes with the concurrence of the Board.” Prior to submitting her report, Young reviewed its content with Farthingham and discussed the need for a full time President. Farthingham agreed with the notion, but noted that his own commitments in other companies prevented him from assuming this expanded role. It was not, in any case, his cup of tea: “I’ve always considered myself a front-man, an entrepreneur, a hustler.” As a consequence, Farthingham FRP Case – 3 suggested that he become Chairman and Wickham-Jones become President. In taking on the President’s role, Wickham-Jones agreed to reduce the time spent on her family business and to run Fraser River on a full time basis. At the time of the reorganization, Gunther Heinzman was made Manufacturing Vice- President. Although his title changed, his operating duties with respect to plant operation and supervision remained the same. Heinzman commented on the reorganization: “It was an inevitable change. As general manager, I didn’t have the time needed to run the sales organization. I didn’t like the pressure at the top. Besides, my strength is manufacturing. That’s what I know best and that’s where I’m most comfortable.” Shortly after the reorganization, Lucas Feck was hired for the position of Marketing Vice-President. Feck recounted his early days: “I suppose it was the entrepreneurial attitude and capabilities of the people at Fraser River which attracted me to the company. It was like running my own business, there was freedom to run things as I thought they should be. When I joined, Fraser River had experienced no stiff competition from new entrants yet. The company was begging for more structure and policies in its administration. For instance, at Calgary, the sales manager had no fixed sales price. Hell, there wasn’t even a price list, so no one in the marketplace – including our customers – knew what the prices of the products were from one day to the next. There was no fixed collection policy for the company, and there was a high turnover in sales personnel. During my first eighteen months, I restructured the sales organization. I set up the company’s first sales forecast and budgets for each territory and established a reporting system so that salespeople knew how they and their region were doing on a monthly basis. I even instituted an advertising budget – another first!” Throughout 1989, the company continued to grow. Demand was strong and prices were reasonable in spite of the advent of significant competition and an emerging economic recession. The year was also marked by two acquisitions: Beaver Plastics in Vancouver, British Columbia and Simcoe Plastics of Kamloops, British Columbia. Beaver Plastics was a company owned by Farthingham which manufactured plastic pipe using an extrusion moulding process. In late 1989, Farthingham expressed concern over having to wear “two hats” in promoting the products of both Fraser River and Beaver. Even customers were associating the two firms as one. Salesmen from the two companies often called on the same wholesaler/distributor accounts. In fact, some of Fraser River’s fittings were made to fit the plastic pipe produced by Beaver. At the same time, Fraser River was looking for opportunities to expand its product lines. On this reasoning, Farthingham offered, in early 1990, his company for sale to the Board of Fraser River. The sale was negotiated for cash and debt and by year’s end Wickham-Jones reported that the sales, profits and growth resulting from the acquisition were “very encouraging”. Simcoe Plastics was a family owned operation which manufactured plastic shower curtains and raincoats using a manufacturing process known as calendering. In October of 1989, Wickham-Jones heard the company was for sale. By purchasing Simcoe, Wickham-Jones believed Fraser River would achieve product diversification plus have access to producing other items such as plastic wall coverings, and backing for upholstery fabrics. Remarkably, Fraser River had completed its purchase of Simcoe by November. The most significant operational change involved experimentation with the production of plastic coated wall coverings. By doing so, the company hoped to take up the apparent slack in Simcoe’s manufacturing facilities. Despite the worsening recession, Fraser River concluded its 1990 fiscal year on a particularly strong note (Exhibit 1). The strong profit record resulting, however, did not completely mask a number of developing problems: (a) The plant manager in the Calgary manufacturing facility was fired because of a failure to reduce inefficiencies and waste in the plant. FRP Case – 4 (b) Inefficiency was also a problem at Simcoe although the waste factor had been reduced substantially since the company’s acquisition. Simcoe was experimenting with production of new plastic products. Costs there were mounting rapidly and beginning to concern Fraser River executives. Some blamed these problems on over confidence in those supervising the company. Simcoe’s plant manager had remained when the firm was acquired by Fraser River. In retrospect, he did not have the necessary qualifications to successfully oversee the plant’s experimental work. As a consequence, he was fired in May, 1990, and Heinzman was instructed to supervise more closely the operation of the plant and its product development activities. (c) Two large competitors had entered Fraser River’s traditional markets. One, Moldform Ltd., was the subsidiary of a large conglomerate organization and the other Plastech, Ltd., was a division of a company involved in other plastic processing operations. Both operated in British Columbia and Alberta. Market shares were unknown but a rough estimate gave Fraser River about 40 percent of the western market, and 15 percent each to Moldform and Plastech. The balance of 30 percent was made up by many small companies manufacturing partial lines and capitalizing on low overheads and local contacts to operate. In 1991, Fraser River witnessed the demand for its products in British Columbia soften due mostly to increased competition and local market saturation. To expand the market, the company built a manufacturing facility in Winnipeg. Sales of Fraser River’s products in Manitoba had risen during the past several years but transportation costs reduced the firm’s competitive position and profit margin. The risk of entering the region, against established competition, was accepted by company executives. The company also had encouraging internal projections covering the size and future growth of the eastern market. At a board meeting, Wickham-Jones later informed the other members that because of the decline in market growth and increasing competition, particularly in British Columbia, she and Lucas Feck were investigating numerous potential corporate acquisitions for Fraser River including a car dealership, a precision tool manufacturing operation, a hotel and a corrugated steel manufacturing operation. To date, no “deal” had been consummated. In September, 1992, Wickham-Jones hired Clayton Dunwood as Fraser River’s vice president for administration. Dunwood assumed complete responsibility for the accounting and financial affairs of the company. In particular, Wickham-Jones felt that Dunwood would help her with her investigations of future corporate acquisitions. However, Lucas Feck, the company’s marketing vice president was especially disappointed with Fraser River’s efforts in this area. He commented on Fraser River’s need for new companies: “Since 1989 I have been pushing other senior managers to find new areas for investment and growth. Fraser River’s bread and butter products have become commodity items. The industry is easy to enter. We have to have other businesses to support the overheads which have built up in the company. When I look at our markets here in British Columbia, I don’t see anywhere to go … and it looks like its going to be an uphill battle to crack the Eastern market. That’s why I firmly believe that we should be planning our growth more – with say, 20 percent coming from new acquisitions. We haven’t had a new company here in some time. It’s very frustrating when you consider the number of firms that we’ve looked at. Of course, you get people like Joanna Young and that lawyer, O’Reilly. Whenever we bring a good acquisition to the Board, they’re always harping on how there are better deals around. Yet, they can’t suggest any themselves.” Through 1992, Wickham-Jones also pursued another venture. Through various publications, she was aware of the need for the type of products produced by Fraser River in other parts of the world, particularly in the lesser-developed countries (LDC’s) in Asia. This represented an opportunity for Fraser River with its accumulated expertise in plastic products. Wickham-Jones especially looked for a partner to provide the acumen and international contacts which Fraser River lacked. Preliminary discussions were held with one such partner – a Canadian manufacturer of logging and sawmill equipment with sales offices in a number of foreign countries and a record of joint venture projects with nationals of those countries (mainly to FRP Case – 5 set up logging/sawmill operations). The proposed agreement was for the two companies to form a joint venture limited partnership supplying capital, equipment and expertise for new ventures in the manufacture of plastic products. Hopefully, Canadian based resin suppliers could be brought into the deal. Conscious of the reactions multinationals received when they “invaded the LDC’s”, the joint venture company was to keep a low profile in its international undertakings. By December, Wickham-Jones reported that she had identified several countries in Asia as possible sites for a first undertaking. The pursuit of the joint venture’s arrangements was, for the most part, being conducted by Wickham-Jones alone. She was, many felt, personally committed to the project and was devoting more and more of her time to it. Wickham-Jones commented: “Sure, I’m committed. I really believe we can turn Fraser River into a world wide organization and provide a useful service to other countries at the same time. “And, yes, this project is taking up a lot of my time. But that’s because we don’t know anything about operating on an international level. Once I know what’s involved, I’ll probably hire another vice president and put him in charge of our international operations. In addition, the universities are full of young aggressive people who can be brought on board to help “fill the gaps” created in Fraser River…We should also be able to buy talent either from the market or other organizations…” (Although there was no official organization chart prepared, organization charts for the various companies controlled by Fraser River and for corporate headquarters are presented in Exhibits 2 and 3 respectively.) The Situation in Early 1993 In January 1993, Wickham-Jones received drafts of Fraser River’s financial statements for the 1992 fiscal year. Overall, growth in company sales was sluggish resulting from sharper competition – in particular, from some of the smaller local plastic manufacturing plants. They had contributed to the considerable market erosion experienced by Fraser River, especially in British Columbia. The company’s share in Alberta, on the other hand, had remained strong. Profits had slipped a bit due to interest payments. Unfortunately, Simcoe Plastics had not made much progress. To improve the situation, a qualified and experienced plastics engineer had been hired in late 1992 to take over the plant. The Board considered making Simcoe more independent, by hiring a general manager, but that action had been deferred for the moment. Beaver Plastics was also in trouble. The British Columbia market for extruded pipe was saturated and extremely competitive. At present, there were few growth prospects available until the international and eastern projects began to “take-off”. Yet, the eastern market had become a sore spot. Acceptance of Fraser River’s products had not been as favourable as initially thought. Wickham-Jones forecast, however, that within two years, the Manitoba plant should be self- supporting. In the meantime, two specific issues had arisen and required action. Fraser River’s potential partner in the international joint venture reported that its office in Indonesia had conducted preliminary inquiries with both government officials and local businesspeople and substantial interest had been expressed. A request had been made for Fraser River to send an investigative team to Indonesia. Wickham-Jones felt that should she delay too long on the matter, her “partner” might begin to doubt Fraser River’s good faith or abilities to proceed. In addition, Wickham-Jones had heard of another plastics company which was for sale and which, if acquired, might serve to strengthen and broaden Fraser River’s product line. The company involved was called Plasti-Weave and was located in Kelowna, British Columbia – approximately 80 kilometres away from the Chilliwack facility. Plasti-Weave was a very small operation with sales of less then one million dollars in FRP Case – 6 1992. See Exhibit 4. It had developed a significant and potentially patentable process to “weave” plastic strips into sheets. These sheets had great strength and were used as substitutes for jute in carpet backing, furniture manufacture, etc. In 1992, Plasti-Weave required a major expansion. A new plant and warehouse would have to be built in Kelowna at an approximate cost of $750,000. The owner of Plasti-Weave, Clifford Bell, who was also the inventor of the manufacturing process, did not want to commit himself to this level of debt at the age of 62, or to be responsible for managing the company. Two heart attacks in the past year resulted in his decision to sell, if the price was right, and on the condition that he be retained as a consultant to the company for at least ten years. Wickham-Jones was enthusiastic about the potential acquisition. However she was unsure what the board’s reaction would be in light of the one million dollar asking price. She was confident, nevertheless, that the board would approve the deal – if she pushed for it. LOOKING TO THE FUTURE Oliver Farthingham – Chairman of the Board Oliver Farthingham began his own business on graduation from high school. He had interests in an automotive body repair business and a partnership in a Canadian distributorship for narrow-aisle fork-lift trucks. As Chairman of the Board, Farthingham’s day-to-day involvement with Fraser River was limited but this did not stop him from what he liked to do best – promote the Fraser River name. In fact he was regarded as one of the most outspoken people in the company. Farthingham commented on Fraser River and its operations: “As chairman, I’m a “positive thinker.” I’m sure not a worrier…I’m a doer and a real strategist. I also think that I have an ability to persuade people and inspire confidence. Although my job and title around here has changed, I still have the reputation for being a “high price” zealot. Fraser River’s prices have generally been the highest in the industry. Sometimes our shareholders question me on this point. I always tell them that we’re not in business to make plastic products – but rather to make profits. People respect me for that. The world is full of pessimists and timid people. That’s not my style. I’m quite innovative and have a knack for foresight. Look at our acquisitions. For instance, there’s our plant in Prince Rupert. It made us look strong in our clients’ and competitors’ eyes. Sure it’s not as strong today due to the competition but that’s because the guy we have running the show there has lost his aggressiveness. As for the purchase of Simcoe, I don’t buy the stories about our failure in developing new products there. The problem is that we’ve just been fooling around and haven’t devoted our full efforts to these experimental projects. Plastics, unfortunately, is a cyclic industry controlled by the economy, crude oil supplies and costs. This means, therefore, that we have to look for new products and new companies. We should especially be considering more exciting ventures like sports bars, cappuccino kiosks or even roller blade clubs. They’re the rage in the U.S. right now. Market demand is phenomenal – 200% annually. Competition is low. We can get in on the ground floor. And we can buy the managerial talent we need to run them for us. They are opportunities that won’t wait for us. The pessimists, however, say that we don’t have the resources to handle these deals. Well, Fraser River has been in this position in the past and we’ve survived. Look at how we originally got started. To be an entrepreneur takes guts! I’m a risk taker and I know when the odds are in our favour. We can’t afford to burden ourselves with negative thoughts. I feel I have a personal obligation to all of our shareholders to keep our reputation and profits the most attractive in the industry. After all, we still have the same number of shareholders we started out with. To keep them, we have to show them that their investment is better left in the company and to reward them with bigger dividends. We also have to provide them with some vehicle for eventually cashing out. So, I guess this means we’ll have to consider going public. I think it would enhance our image greatly too.” FRP Case – 7 Elinore Wickham-Jones – President Elinore Wickham-Jones had accomplished two of the major objectives in her life – she was financially well-off and she had built a company “from the ground up.” Wickham-Jones used most of her personal savings to invest in the formation of Fraser River. As vice-president of Fraser River, she was known for her analytical brilliance. When she became president, she committed herself to making the company grow into a national plastic manufacturing concern. “From 1985 to 1991, we managed to grow in spite of ourselves and our mistakes. To our credit, though, we moved quickly, we were flexible, and did not get bogged down in bureaucracy or paperwork. Today, not all of our operations are as strong as we’d like, but there is still potential in them. Take Beaver Plastics for instance. It was a natural combination with Fraser River. Sure, things are slow right now, but once we establish ourselves out east or in other new territories, we will do alright. Simcoe Plastics is another case in point – and there, our plant manager was not as good as we thought he was. We’ve learned a lot from our R & D work at Simcoe – even though it cost us $200,000. I’d like to see Fraser River grow on an even-keel basis through acquisitions and international expansion. Of course, we’re only interested in profitable and growing ventures. But we can’t afford to be in it just for the money. We need to maintain our profits so that we can fund other projects as opportunities present themselves. That’s why I’m particularly keen on both our Plasti-weave acquisition proposal and the joint venture. Right now, we’re heavily committed to what are essentially simple plastic products in just one market, Canada. Consequently, we have to reduce the associated risks. We haven’t begun to exploit the American market opened to us through the Canada-U.S. Free Trade Agreement and with a North American Free Trade Agreement soon to be complete, markets in Central and South America are becoming available. Unfortunately, these new programmes always seem to bring us back to the issue of financing. So, we need more capital and that probably means an equity issue. The question, however, becomes one of when and how?” Herbert Rudd – Senior Vice President Herbert Rudd completed his schooling up to Grade 10 but left because his parents could no longer afford to have him going to school instead of working on the farm. Like most farmers, Rudd became an expert in home repairs. When he left home, he worked for a small home contractor until he decided to start his own construction business. As Senior Vice-President, his primary responsibility had been to represent the company at industry and trade fairs and exhibits both in Canada and abroad. Rudd commented: “Oliver and I are the real entrepreneurs in this company. So, we make decisions primarily on gut-feel. But I do think I have good business sense and that’s what I use to guide me in my judgements. Looking back, I feel our biggest mistake has been the operation of large plants such as we have in Chilliwack and Calgary. Right now, small competitors have lower overhead and transportation costs and a more competitive price… The joint venture project is a fantastic concept with unlimited potential for our company. I can’t give any firm projections but something tells me that this is the right road to go on. Look at Mexico. There are more people earning over $50,000 per year than there are living in Canada. I expect a western hemisphere free trade agreement by the year 2000. Some people are worried about staffing international ventures. Heck, there’s a lot of talent in this company that’s just not being used. After all, a boy doesn’t become a man until he has a man’s job to do… Looking at the products we manufacture, though. I can’t honestly say if they’re better than everybody else’s. I know they do the same job. But, looking at them, there’s nothing to distinguish them from your ordinary loaf of bread. I also think that we have a problem communicating to our customers. Our salesmen could do a better job finding out what our customers want and what new products we should be producing. Another major concern of mine is that we’re just a limited product company and there’s too much risk in it. That’s why I’m in favour of diversification. And I really don’t care what sort of companies we acquire. We can always hire someone to run them for us.” FRP Case – 8 Lucas Feck – Vice-President (Marketing) Lucas Feck received his B. Comm. from a large American University. Upon graduation he joined a multi-national chemical company which operated a subsidiary in Canada. Within four years, he became its general manager. After the subsidiary was purchased by another multi-national conglomerate, Feck became disenchanted and resigned to start his own small business. Despite his own company’s success, Feck became bored and sold his interest in that business to go back to university and get his MBA. After graduating, he contacted several large executive placement firms looking for a position in a small to medium sized growth business. This led to his being hired as marketing vice-president for Fraser River Plastics. By far, Feck was the most avid promoter of expanding the company by means of acquisitions. Because of the number of acquisition investigations in which he had been actively involved – but which had failed to result in a concrete purchase – Feck now believed that one of the reasons for this lay in the company’s present structure. Feck commented on the most critical problems facing the company: “Our neck is really in the noose today because of the competition we’re up against, especially in British Columbia. So I’m pretty strong on the idea of acquisitions. They’re the key to our future. Personally, I believe we could run or manage any type of company – hotels, food processing, even steel corrugation plants. Others don’t. Take this Plasti-Weave acquisition. It’s a natural combination with our business – plastics. But, better still, it represents a real chance for Fraser River to latch onto a proprietary item. It involves a new technology. We can get the jump on the industry and at the same time start moving out of our “commodity product” line. As for the joint venture idea, I think we have some real problems because we’ve never considered: (a) who’s going to be moving from Fraser River to staff the project, and (b) who we’re going to find to fill the gaps created in Fraser River. I’ve been pushing Elinore on this point, but he keeps saying, “not to worry.” I think our biggest problem around here, however, has to be that senior management is perpetually caught up 110% with day-to-day tasks. I don’t think that we’ll ever find any new growth or good acquisitions as long as we don’t free up some of our time. Elinore Wickham-Jones has a problem divorcing herself from finance and administration. She’s also been spending a lot of her time these days on the joint venture project…That’s her style though. Oliver Farthingham’s style, however, is to `represent’ the company. He shouldn’t be doing that as Chairman of the company. He should be setting goals. After all, isn’t the Board responsible for the overall direction of the company. So what if “management” wants to do one thing. The Board can just overturn it. I do know this…I only get my kicks from challenges. Day-to-day work is a necessity, of course, but it’s not challenging to me. I’m not interested in managing a division. I just want senior management responsibility and exciting work. Otherwise, I get bored.” Gunther Heinzman – Vice-President (Production) Heinzman was in charge of the company’s six plants located in Chilliwack, Vancouver (Beaver), Prince Rupert, Calgary, Winnipeg and Kamloops (Simcoe). Each plant had its own production manager reporting directly to Heinzman. A native of Germany, Heinzman emigrated to Canada with his parents. His first job was in a small manufacturing concern, working on the production line. Since then, he has spent most of his life in production. Heinzman discussed the company: “I learned this business from the ground up. Every free moment I had during the day and at night was spent reading every trade journal I could get my hands on. But, I guess you could say that even today, I’m kept pretty busy just keeping my end under control. I’ve never been a frivolous person. I suppose it comes from my German background. That’s why I have always run a tight ship. If Elinore ever told me to cut costs, I wouldn’t know where to start because I think we’re at maximum efficiency. And I’ve tried to instill this objective into each one of my plant managers. I’ve trained every one of them, except the Simcoe manager, and I’m very proud of them. Naturally, I’m a little more liberal today but I like to do things as cheap as possible. Sometimes, Elinore has to say to me: `Don’t hold the penny so close to your eye Gunther, that you can’t see the dollar behind it. FRP Case – 9 When I look at our acquisitions, there are some real lessons to be learned. I don’t regret our purchase of the Prince Rupert plant because it has always supported itself. The manager there runs the company as if it was his own. After all, it used to be his own. Simcoe, however, should be a warning to future acquisitions. And, as for this Plasti-Weave deal, I won’t say anything about it because I don’t know anything about it. And that’s because I haven’t been involved in the discussions. I’m not opposed to acquisitions but I’m naturally afraid of things that I don’t know too much about. Elinore, of course, is more enthusiastic about acquisitions. Me, I’m a little more nervous about them only because I’m not sure how much more work I could handle. As for this joint venture project, Elinore is again playing her cards close to the vest and I don’t think it’s such a good idea. It’s a big responsibility for her to be carrying alone. Besides, I’m a nationalist. Canada has been good to me and to this company. I think we could spend our dollars much wiser here.” APPENDIX A The Plastics Processing Industry in 1993 Although the history of plastics and plastic products goes back over one hundred years, the industry was still generally regarded in North America as young and growing. In fact, it has only been since the second world war that plastics began to achieve their status as a major primary or substitute manufacturing material. In 1993, there were over 1,400 firms engaged in plastic processing in Canada with most of the companies located in Ontario and Quebec. Of these Canadian firms, the majority had sales of less than two million dollars. The bulk of company shipments constituted proprietary products. The remainder were either produced on a custom basis or as “captive operations” for a larger manufacturing entity. This breakdown, however, is difficult to confirm precisely due to the variety of business practices in which any one manufacturing concern engaged. In terms of the future, world shipments in the plastic processing industry were estimated to be moderately “favourable” given the tentative signals of economic recovery. The factors contributing to this projection were: an anticipated moderate level of economic growth; a continuing substitution of traditional materials with plastics; and the emergent growth in the manufacturing sector. Costs depended largely on the type of process used. For instance, “reinforced” plastic products such as boats or storage tanks were relatively labour intensive while “extrusion” products (e.g., pipes, films, etc.) were relatively capital intensive. In comparison with other global industries such as petrochemicals, the plastics industry was still considered a labour intensive area since the capital investment per production related employee ranged between Cdn. $5,000-$42,000 while in petrochemicals it was about Cdn. $200,000. It was anticipated that Canadian plastic manufacturing capacity would be sufficient to meet Canadian demands. In addition, Canadian resin prices, which at one time exceeded world prices by 10%, were seen as becoming more competitive with U.S. and other international prices given the recent Canada-U.S. Free Trade Agreement. The prospect, in 1993, of a potential Canada-U.S.-Mexico free trade agreement was expected to result in significant downward pressure on world prices and consolidation of the North American industry participants through mergers and bankruptcies. FRP Case – 10 EXHIBIT 1 Fraser River Plastics Ltd. Consolidated Statement of Operations (Audited, December 31, 1992) with comparative figures for 1991, 1990, 1989, 1988 (in thousands of dollars) ASSETS 1992 1991 1990 1989 1988 Cash 25 30 5 565 110 Term deposits & marketable securities – 583 2 – 690 Accounts receivable 2,453 1,155 1,215 423 540 Inventories 3,827 2,625 1,923 2,163 357 Deposits 13 25 140 2 3 Total Current Assets 6,318 4,428 3,285 3,153 1,700 Property, plant & equipment, at cost less accumulated depreciation 4,453 2,935 2,743 1,940 1,468 Other assets 17 28 7 15 60 Excess of cost of subsidiaries over the net book value of acquired assets, at cost less amortization 105 145 185 105 130 Total Assets 10,893 7,536 6,220 5,213 3,358 LIABILITIES AND SHAREHOLDERS’ EQUITY 1992 1991 1990 1989 1988 Current Liabilities: Bank overdraft & loan 2,348 863 515 – – Accounts payable & accrued charges 892 1,042 338 1,063 145 Income & other taxes payable 618 738 962 1,065 260 Royalty payable – – 70 90 400 Total Current Liabilities 3,858 2,643 1,885 2,198 805 Deferred revenue 28 33 33 – – Long term debt 3,150 1,120 1,282 715 875 7,036 3,796 3,200 2,913 1,680 Shareholders’ Equity: Preferred shares – – – – 253 Common shares 205 205 205 32 32 Contributed surplus 70 70 70 70 70 Retained earnings 3,582 3,465 2,745 2,198 1,323 Total Shareholders’ Equity 3,857 3,740 3,020 2,300 1,678 Total Liabilities & Shareholders’ Equity 10,893 7,536 6,220 5,213 3,358 FRP Case – 11 EXHIBIT 1 (Continued) Fraser River Plastics Ltd. Consolidated Statement of Operations (Audited, December 31, 1992) (in thousands of dollars) 1992 1991 1990 1989 1988 Net Sales 16,445 15,750 10,903 7,835 5,403 Cost of sales 11,228 10,765 7,178 3,990 3,455 Gross Profit 5,217 4,985 3,725 3,845 1,948 Selling, general & administrative expenses 3,605 2,750 1,898 838 655 Royalty expense 332 332 332 625 338 3,937 3,082 2,230 1,463 993 1,280 1,903 1,495 2,382 955 Interest & other income 128 135 40 163 80 1,408 2,038 1,535 2,545 1,035 Interest, long term debt 493 138 92 70 77 Amortization of excess cost of subsidiaries over net book value of acquired assets 40 40 35 27 – 533 178 127 97 77 Earnings Before Income Taxes 875 1,860 1,408 2,448 958 Income taxes 480 825 610 1,208 453 Net Earnings 395 1,035 798 1,240 505 Earnings Per Common Share .08 .20 .15 .24 .10 Dividends paid 278 315 251 365

case study attached ....there are 6 questions analyzing the business. I have completed a working document template (includes charts to easily fill in so that written answers can be justified) along with an event chronology to make it simple ....see attached documents and let me know if there's anything unclear

MCM721_S14 Strategic Management / Case Exam
FRASER RIVER PLASTICS LTD.
Instructions:
- Case solutions are due June 2nd, 2014 emailed to the Instructor and TA.
- Late submissions will be penalized one letter grade for each week late.
- Your analysis is to have a maximum of 10 pages (including exhibits and charts). You should apportion pages based upon point worth.
- Formats include; 8.5 X 11.5 inch paper, 1 inch margins, 12 point Times New Roman, one and a half spacing.
- The exam must be completed individually. Your submission must be entirely your own and may not be shared with other students.
- No external information is to be used. The solution is to be based entirely on material contained in the case.
Assignment:
FRASER RIVER PLASTICS LTD. has decided to solicit the assistance of an MCM Strategic Management student. You are that person! Furthermore, you are to take the role of a consultant and analyze their situation and come up with a recommendation. This means your submission is a formal report to their Board of Directors. FRASER RIVER PLASTICS LTD. is asking you to utilize the Diamond-E construct to help them with the following:
1) (20 marks) Assess the company’s Operating Performance, Organizational Health and construct the resultant Performance Matrix (tool #’s 2-4).
2) (20 marks) Evaluate the Strategy Triangle ((tool #5 which includes Goals (tool #6), Product/Market Focus (tool #7), Value Proposition (tool #8), and Core Activities (tool #9)). You may refer to pages 18 and onward in the text for the theory and then page 33 for an example using WalMart.
3) (20 marks) Conduct an Environmental analysis utilizing all the tools. Apply Porter’s Five Forces (tool #10) model to determine whether the industry is attractive. Include forces and their sub-elements (my graphical in-class hand-out) which have leverage. Also include a PEEST (tool #11) analysis.
4) (5 marks) Construct a Resource Gap analysis (tool #17) - generic responses only, no financials please.
5) (10 marks) Identify Alternatives utilizing criteria you have developed, weighting factors you have deemed appropriate, and analyzed under various plausible scenarios. Refer to Decision Matrix handout received in class. Identify actions to be undertaken in the short, medium and long term (see pages 228-229 in text)
6) (5 marks) Determine position on Crisis Curve (see page 208 in text)
7) (20 marks) Presentation: Is it a well-written report having visual appeal where case facts are supplemented with strong implications (so what?) utilizing proper grammar, spelling, links to exhibits, natural flow from analysis to implications to action plan, as well as having a correct format.
Cheers and good luck!
As always, we are available to help with the learning but not solutions.

FRP Case - 1
FRASER RIVER PLASTICS LTD.
This case is not to be reproduced in whole or in part by any means without the express written consent of the authors.
Case material is prepared as a basis for classroom discussion only. This material is not covered under authorization from
CanCopy or any reproduction rights organization. Any form of reproduction, storage or transmittal of this material is
strictly prohibited without written permission from the DeGroote School of Business.
Copyright © 1993 by Christopher K. Bart and Marvin G. Ryder. All rights reserved.
In early 1993, Elinore Wickham-Jones, President of Fraser River Plastics Ltd., had become uneasy
about the cross-currents of opinion that were developing regarding the company's future direction.
Differences of view, perhaps held for some time, surfaced in recent weeks as the merits of several projects -
among them a move toward international expansion and an acquisition - were reviewed. There was,
Wickham-Jones felt, more than normal agitation in the situation. Lines were hardening on the questions of
how aggressively, and in what direction the company should proceed.
CORPORATE HISTORY: The Early Years – 1984 to 1988
In the fall of 1984, two Vancouver, British Columbia businessmen, Herbert Rudd and Oliver
Farthingham, visited Portland, Oregon on a tour sponsored by the Vancouver Board of Trade. Of the several
plants they visited, one facility, Damian Plastics Inc., particularly caught their attention. This plant
manufactured heavy plastic products such as utility crates, garbage cans, and packing cartons by injection
moulding. Damian was remarkably advanced in the skill of minimizing the raw material weight in the large
products it produced, while retaining, through unique design, the essential rigidity and toughness. Both men,
and especially Farthingham, who had experience in plastics, felt there was a ready market for the products in
Canada: a) in competition with comparable but more expensive plastic products; and b) in substitution for
metal products. The two men returned home with a tentative licensing agreement for all of Canada which
included technical assistance from Damian and access to all mould designs.
The immediate problem facing Rudd and Farthingham was raising the $160,000 equity needed to
build a plant and get into operation. By November, however, they put together a group of local businessmen
and raised the required funds. Some of the backers, like Elinore Wickham-Jones, were associated with
wholesale and industrial supply firms and could assist by providing initial markets for the new plant's output.
On December 9, 1984, the company was incorporated under the name of Fraser River Plastics Ltd. Its three
major shareholders were Farthingham (20%), Wickham-Jones (18%) and Rudd (13%). Farthingham
became Fraser River's first President. Rudd was made Secretary-Treasurer and Wickham-Jones became a
Vice-President.
As the formative weeks passed, Rudd located a two acre site for the company's manufacturing plant
in Chilliwack, British Columbia - a small town near Vancouver. Tenders were called on the building's
construction in February, 1985 and manufacturing equipment was ordered. Through this period, the company
was being run by the three officers on a part-time basis, since each had their own full-time business as well.
On April 1, 1985 Gunther Heinzman, a former plant manager of a Victoria plastics firm, was hired as General
Manager of Fraser River. Heinzman recalled:
"Elinore took me out to the site in Chilliwack. It was just a ploughed field! A few days later we did the first
public showing of our products at a trade fair in Victoria. All that I had available was two plastic garbage
cans, three sizes of the packing cartons, and six pieces of Damian's literature. One week later, the first
carload of products arrived from Portland. Most of it had to be stored in a small warehouse owned by one of
our shareholders since there were no storage facilities yet."
FRP Case - 2
In August, 1985, production began at Chilliwack while finishing touches were made on the plant.
There was a ready and substantial demand for the products. The price, although high, was accepted and the
products were suitable in substitution for conventional products. It was not long before the company
operated "in the black". Through 1986, the company's operations expanded dramatically. A temporary office
annex was erected at the Chilliwack site and the plant's capacity was increased to accommodate demand.
Substantial orders for the company's products also came in from Alberta. To cut transportation costs and get
local exposure, Fraser River purchased an empty plant in Calgary, ordered equipment, and hired a general
manager to take charge there. The Calgary plant was in full operation by June, 1986.
In time, Fraser River's success became known among those familiar with plastics processing. Not
surprisingly, in 1987 another group of businessmen set up a facility to produce similar injection moulding
products in Prince Rupert, British Columbia. Fraser River had no legal remedy since the products and
processes it licensed from Damian were poorly protected by patents. In addition, the initial barriers to entry -
such as the special moulds and know-how -started to crumble. Although the Prince Rupert firm marketed its
products under its own name, there was little, save some cosmetic design differences, to distinguish them
from the products manufactured by Fraser River. As one company executive put it: "The plant in Prince
Rupert was the first time we really experienced direct competition."
Fraser River's response was an offer to purchase the Prince Rupert competitor. This offer was
accepted in November 1987 and Fraser River retained the old company's major shareholder as general
manager. The purchase was not well received, however, by the Prince Rupert company's minority
shareholders. They took their proceeds from the sale and shortly thereafter set up another injection
moulding plant in Nanaimo, British Columbia. By 1988, Wickham-Jones and Farthingham became
concerned about limitations of the present three-person board in light of the company's growth and changing
external circumstances. There were also signs, particularly in relation to the acquisition of the Prince Rupert
company, that some of Fraser River's minority shareholders were disturbed and would like to see a broader
representation of views at the Board level. As a consequence, Fraser River's board was increased by three
members - Owen Palmer, head of a local supermarket chain, Joanna Young, a management consultant who
ran the local office of a large national firm, and Michelle O'Reilly, the firm's legal counsel.
To this time, the organization of the company was loosely structured. Each of the firm's plants in
Chilliwack, Calgary and Prince Rupert had its own managers and field salesforce reporting to Gunther
Heinzman, the company's general manager. Although Wickham-Jones, Farthingham and Rudd were
considered the overall management committee with responsibility for major decisions such as site selection,
price, expansion and capital investments, they were also involved on an ad hoc basis in many overlapping
operating functions.
The First Transition: 1989 to 1992
At the suggestion of Farthingham, Joanna Young reviewed the company's organization in early 1989
to "assess the marketing strengths and weaknesses of the company and to suggest desirable changes." Her
principal recommendation was as follows:
"There is a clear need for greater continuity, consistency and detail in the top supervision of overall
operations. The current dispersed nature of responsibilities among the company's executives should be
focussed in the hands of a single chief executive with time for close day-to-day contact with the organization.
As chief executive officer, this person would be responsible for all company operations and for initiating and
implementing policy changes with the concurrence of the Board."
Prior to submitting her report, Young reviewed its content with Farthingham and discussed the need
for a full time President. Farthingham agreed with the notion, but noted that his own commitments in other
companies prevented him from assuming this expanded role. It was not, in any case, his cup of tea: "I've
always considered myself a front-man, an entrepreneur, a hustler." As a consequence, Farthingham
FRP Case - 3
suggested that he become Chairman and Wickham-Jones become President. In taking on the President's
role, Wickham-Jones agreed to reduce the time spent on her family business and to run Fraser River on a
full time basis. At the time of the reorganization, Gunther Heinzman was made Manufacturing Vice-
President. Although his title changed, his operating duties with respect to plant operation and supervision
remained the same. Heinzman commented on the reorganization:
"It was an inevitable change. As general manager, I didn't have the time needed to run the sales
organization. I didn't like the pressure at the top. Besides, my strength is manufacturing. That's what I know
best and that's where I'm most comfortable."
Shortly after the reorganization, Lucas Feck was hired for the position of Marketing Vice-President. Feck
recounted his early days:
"I suppose it was the entrepreneurial attitude and capabilities of the people at Fraser River which attracted
me to the company. It was like running my own business, there was freedom to run things as I thought they
should be. When I joined, Fraser River had experienced no stiff competition from new entrants yet. The
company was begging for more structure and policies in its administration. For instance, at Calgary, the
sales manager had no fixed sales price. Hell, there wasn't even a price list, so no one in the marketplace -
including our customers - knew what the prices of the products were from one day to the next. There was no
fixed collection policy for the company, and there was a high turnover in sales personnel. During my first
eighteen months, I restructured the sales organization. I set up the company's first sales forecast and
budgets for each territory and established a reporting system so that salespeople knew how they and their
region were doing on a monthly basis. I even instituted an advertising budget - another first!"
Throughout 1989, the company continued to grow. Demand was strong and prices were reasonable
in spite of the advent of significant competition and an emerging economic recession. The year was also
marked by two acquisitions: Beaver Plastics in Vancouver, British Columbia and Simcoe Plastics of
Kamloops, British Columbia.
Beaver Plastics was a company owned by Farthingham which manufactured plastic pipe using an
extrusion moulding process. In late 1989, Farthingham expressed concern over having to wear "two hats" in
promoting the products of both Fraser River and Beaver. Even customers were associating the two firms as
one. Salesmen from the two companies often called on the same wholesaler/distributor accounts. In fact,
some of Fraser River's fittings were made to fit the plastic pipe produced by Beaver. At the same time,
Fraser River was looking for opportunities to expand its product lines. On this reasoning, Farthingham
offered, in early 1990, his company for sale to the Board of Fraser River. The sale was negotiated for cash
and debt and by year's end Wickham-Jones reported that the sales, profits and growth resulting from the
acquisition were "very encouraging".
Simcoe Plastics was a family owned operation which manufactured plastic shower curtains and
raincoats using a manufacturing process known as calendering. In October of 1989, Wickham-Jones heard
the company was for sale. By purchasing Simcoe, Wickham-Jones believed Fraser River would achieve
product diversification plus have access to producing other items such as plastic wall coverings, and backing
for upholstery fabrics. Remarkably, Fraser River had completed its purchase of Simcoe by November. The
most significant operational change involved experimentation with the production of plastic coated wall
coverings. By doing so, the company hoped to take up the apparent slack in Simcoe's manufacturing
facilities.
Despite the worsening recession, Fraser River concluded its 1990 fiscal year on a particularly strong
note (Exhibit 1). The strong profit record resulting, however, did not completely mask a number of
developing problems:
(a) The plant manager in the Calgary manufacturing facility was fired because of a failure to reduce
inefficiencies and waste in the plant.
FRP Case - 4
(b) Inefficiency was also a problem at Simcoe although the waste factor had been reduced substantially since
the company's acquisition. Simcoe was experimenting with production of new plastic products. Costs
there were mounting rapidly and beginning to concern Fraser River executives. Some blamed these
problems on over confidence in those supervising the company. Simcoe's plant manager had remained
when the firm was acquired by Fraser River. In retrospect, he did not have the necessary qualifications to
successfully oversee the plant's experimental work. As a consequence, he was fired in May, 1990, and
Heinzman was instructed to supervise more closely the operation of the plant and its product development
activities.
(c) Two large competitors had entered Fraser River's traditional markets. One, Moldform Ltd., was the
subsidiary of a large conglomerate organization and the other Plastech, Ltd., was a division of a company
involved in other plastic processing operations. Both operated in British Columbia and Alberta. Market
shares were unknown but a rough estimate gave Fraser River about 40 percent of the western market,
and 15 percent each to Moldform and Plastech. The balance of 30 percent was made up by many small
companies manufacturing partial lines and capitalizing on low overheads and local contacts to operate.
In 1991, Fraser River witnessed the demand for its products in British Columbia soften due mostly to
increased competition and local market saturation. To expand the market, the company built a
manufacturing facility in Winnipeg. Sales of Fraser River's products in Manitoba had risen during the past
several years but transportation costs reduced the firm's competitive position and profit margin. The risk of
entering the region, against established competition, was accepted by company executives. The company
also had encouraging internal projections covering the size and future growth of the eastern market.
At a board meeting, Wickham-Jones later informed the other members that because of the decline
in market growth and increasing competition, particularly in British Columbia, she and Lucas Feck were
investigating numerous potential corporate acquisitions for Fraser River including a car dealership, a
precision tool manufacturing operation, a hotel and a corrugated steel manufacturing operation. To date, no
"deal" had been consummated.
In September, 1992, Wickham-Jones hired Clayton Dunwood as Fraser River's vice president for
administration. Dunwood assumed complete responsibility for the accounting and financial affairs of the
company. In particular, Wickham-Jones felt that Dunwood would help her with her investigations of future
corporate acquisitions. However, Lucas Feck, the company's marketing vice president was especially
disappointed with Fraser River's efforts in this area. He commented on Fraser River's need for new
companies:
"Since 1989 I have been pushing other senior managers to find new areas for investment and growth. Fraser
River's bread and butter products have become commodity items. The industry is easy to enter. We have to
have other businesses to support the overheads which have built up in the company. When I look at our
markets here in British Columbia, I don't see anywhere to go ... and it looks like its going to be an uphill battle
to crack the Eastern market. That's why I firmly believe that we should be planning our growth more - with
say, 20 percent coming from new acquisitions. We haven't had a new company here in some time. It's very
frustrating when you consider the number of firms that we've looked at. Of course, you get people like
Joanna Young and that lawyer, O'Reilly. Whenever we bring a good acquisition to the Board, they're always
harping on how there are better deals around. Yet, they can't suggest any themselves."
Through 1992, Wickham-Jones also pursued another venture. Through various publications, she
was aware of the need for the type of products produced by Fraser River in other parts of the world,
particularly in the lesser-developed countries (LDC's) in Asia. This represented an opportunity for Fraser
River with its accumulated expertise in plastic products. Wickham-Jones especially looked for a partner to
provide the acumen and international contacts which Fraser River lacked. Preliminary discussions were held
with one such partner - a Canadian manufacturer of logging and sawmill equipment with sales offices in a
number of foreign countries and a record of joint venture projects with nationals of those countries (mainly to
FRP Case - 5
set up logging/sawmill operations). The proposed agreement was for the two companies to form a joint
venture limited partnership supplying capital, equipment and expertise for new ventures in the manufacture of
plastic products. Hopefully, Canadian based resin suppliers could be brought into the deal. Conscious of the
reactions multinationals received when they "invaded the LDC's", the joint venture company was to keep a
low profile in its international undertakings.
By December, Wickham-Jones reported that she had identified several countries in Asia as possible
sites for a first undertaking. The pursuit of the joint venture's arrangements was, for the most part, being
conducted by Wickham-Jones alone. She was, many felt, personally committed to the project and was
devoting more and more of her time to it. Wickham-Jones commented:
"Sure, I'm committed. I really believe we can turn Fraser River into a world wide organization and provide a
useful service to other countries at the same time. "And, yes, this project is taking up a lot of my time. But
that's because we don't know anything about operating on an international level. Once I know what's
involved, I'll probably hire another vice president and put him in charge of our international operations. In
addition, the universities are full of young aggressive people who can be brought on board to help "fill the
gaps" created in Fraser River...We should also be able to buy talent either from the market or other
organizations..."
(Although there was no official organization chart prepared, organization charts for the various
companies controlled by Fraser River and for corporate headquarters are presented in Exhibits 2 and 3
respectively.)
The Situation in Early 1993
In January 1993, Wickham-Jones received drafts of Fraser River's financial statements for the 1992
fiscal year. Overall, growth in company sales was sluggish resulting from sharper competition - in particular,
from some of the smaller local plastic manufacturing plants. They had contributed to the considerable
market erosion experienced by Fraser River, especially in British Columbia. The company's share in Alberta,
on the other hand, had remained strong. Profits had slipped a bit due to interest payments.
Unfortunately, Simcoe Plastics had not made much progress. To improve the situation, a qualified
and experienced plastics engineer had been hired in late 1992 to take over the plant. The Board considered
making Simcoe more independent, by hiring a general manager, but that action had been deferred for the
moment.
Beaver Plastics was also in trouble. The British Columbia market for extruded pipe was saturated
and extremely competitive. At present, there were few growth prospects available until the international and
eastern projects began to "take-off". Yet, the eastern market had become a sore spot. Acceptance of Fraser
River's products had not been as favourable as initially thought. Wickham-Jones forecast, however, that
within two years, the Manitoba plant should be self- supporting.
In the meantime, two specific issues had arisen and required action. Fraser River's potential partner
in the international joint venture reported that its office in Indonesia had conducted preliminary inquiries with
both government officials and local businesspeople and substantial interest had been expressed. A request
had been made for Fraser River to send an investigative team to Indonesia. Wickham-Jones felt that should
she delay too long on the matter, her "partner" might begin to doubt Fraser River's good faith or abilities to
proceed.
In addition, Wickham-Jones had heard of another plastics company which was for sale and which, if
acquired, might serve to strengthen and broaden Fraser River's product line. The company involved was
called Plasti-Weave and was located in Kelowna, British Columbia - approximately 80 kilometres away from
the Chilliwack facility. Plasti-Weave was a very small operation with sales of less then one million dollars in
FRP Case - 6
1992. See Exhibit 4. It had developed a significant and potentially patentable process to "weave" plastic
strips into sheets. These sheets had great strength and were used as substitutes for jute in carpet backing,
furniture manufacture, etc. In 1992, Plasti-Weave required a major expansion. A new plant and warehouse
would have to be built in Kelowna at an approximate cost of $750,000. The owner of Plasti-Weave, Clifford
Bell, who was also the inventor of the manufacturing process, did not want to commit himself to this level of
debt at the age of 62, or to be responsible for managing the company. Two heart attacks in the past year
resulted in his decision to sell, if the price was right, and on the condition that he be retained as a consultant
to the company for at least ten years.
Wickham-Jones was enthusiastic about the potential acquisition. However she was unsure what the
board's reaction would be in light of the one million dollar asking price. She was confident, nevertheless, that
the board would approve the deal - if she pushed for it.
LOOKING TO THE FUTURE
Oliver Farthingham - Chairman of the Board
Oliver Farthingham began his own business on graduation from high school. He had interests in an
automotive body repair business and a partnership in a Canadian distributorship for narrow-aisle fork-lift
trucks. As Chairman of the Board, Farthingham's day-to-day involvement with Fraser River was limited but
this did not stop him from what he liked to do best - promote the Fraser River name. In fact he was regarded
as one of the most outspoken people in the company. Farthingham commented on Fraser River and its
operations:
"As chairman, I'm a "positive thinker." I'm sure not a worrier...I'm a doer and a real strategist. I also think that
I have an ability to persuade people and inspire confidence. Although my job and title around here has
changed, I still have the reputation for being a "high price" zealot. Fraser River's prices have generally been
the highest in the industry. Sometimes our shareholders question me on this point. I always tell them that
we're not in business to make plastic products - but rather to make profits. People respect me for that. The
world is full of pessimists and timid people. That's not my style. I'm quite innovative and have a knack for
foresight. Look at our acquisitions. For instance, there's our plant in Prince Rupert. It made us look strong in
our clients' and competitors' eyes. Sure it's not as strong today due to the competition but that's because the
guy we have running the show there has lost his aggressiveness. As for the purchase of Simcoe, I don't buy
the stories about our failure in developing new products there. The problem is that we've just been fooling
around and haven't devoted our full efforts to these experimental projects.
Plastics, unfortunately, is a cyclic industry controlled by the economy, crude oil supplies and costs. This
means, therefore, that we have to look for new products and new companies. We should especially be
considering more exciting ventures like sports bars, cappuccino kiosks or even roller blade clubs. They're
the rage in the U.S. right now. Market demand is phenomenal - 200% annually. Competition is low. We can
get in on the ground floor. And we can buy the managerial talent we need to run them for us. They are
opportunities that won't wait for us. The pessimists, however, say that we don't have the resources to handle
these deals. Well, Fraser River has been in this position in the past and we've survived. Look at how we
originally got started.
To be an entrepreneur takes guts! I'm a risk taker and I know when the odds are in our favour. We can't
afford to burden ourselves with negative thoughts. I feel I have a personal obligation to all of our
shareholders to keep our reputation and profits the most attractive in the industry. After all, we still have the
same number of shareholders we started out with. To keep them, we have to show them that their
investment is better left in the company and to reward them with bigger dividends. We also have to provide
them with some vehicle for eventually cashing out. So, I guess this means we'll have to consider going
public. I think it would enhance our image greatly too."
FRP Case - 7
Elinore Wickham-Jones - President
Elinore Wickham-Jones had accomplished two of the major objectives in her life - she was financially
well-off and she had built a company "from the ground up." Wickham-Jones used most of her personal
savings to invest in the formation of Fraser River. As vice-president of Fraser River, she was known for her
analytical brilliance. When she became president, she committed herself to making the company grow into a
national plastic manufacturing concern.
"From 1985 to 1991, we managed to grow in spite of ourselves and our mistakes. To our credit, though, we
moved quickly, we were flexible, and did not get bogged down in bureaucracy or paperwork. Today, not all of
our operations are as strong as we'd like, but there is still potential in them. Take Beaver Plastics for
instance. It was a natural combination with Fraser River. Sure, things are slow right now, but once we
establish ourselves out east or in other new territories, we will do alright. Simcoe Plastics is another case in
point - and there, our plant manager was not as good as we thought he was. We've learned a lot from our R
& D work at Simcoe - even though it cost us $200,000.
I'd like to see Fraser River grow on an even-keel basis through acquisitions and international expansion. Of
course, we're only interested in profitable and growing ventures. But we can't afford to be in it just for the
money. We need to maintain our profits so that we can fund other projects as opportunities present
themselves. That's why I'm particularly keen on both our Plasti-weave acquisition proposal and the joint
venture. Right now, we're heavily committed to what are essentially simple plastic products in just one
market, Canada. Consequently, we have to reduce the associated risks. We haven't begun to exploit the
American market opened to us through the Canada-U.S. Free Trade Agreement and with a North American
Free Trade Agreement soon to be complete, markets in Central and South America are becoming available.
Unfortunately, these new programmes always seem to bring us back to the issue of financing. So, we need
more capital and that probably means an equity issue. The question, however, becomes one of when and
how?"
Herbert Rudd - Senior Vice President
Herbert Rudd completed his schooling up to Grade 10 but left because his parents could no longer
afford to have him going to school instead of working on the farm. Like most farmers, Rudd became an
expert in home repairs. When he left home, he worked for a small home contractor until he decided to start
his own construction business. As Senior Vice-President, his primary responsibility had been to represent
the company at industry and trade fairs and exhibits both in Canada and abroad. Rudd commented:
"Oliver and I are the real entrepreneurs in this company. So, we make decisions primarily on gut-feel. But I
do think I have good business sense and that's what I use to guide me in my judgements. Looking back, I
feel our biggest mistake has been the operation of large plants such as we have in Chilliwack and Calgary.
Right now, small competitors have lower overhead and transportation costs and a more competitive price...
The joint venture project is a fantastic concept with unlimited potential for our company. I can't give any firm
projections but something tells me that this is the right road to go on. Look at Mexico. There are more
people earning over $50,000 per year than there are living in Canada. I expect a western hemisphere free
trade agreement by the year 2000. Some people are worried about staffing international ventures. Heck,
there's a lot of talent in this company that's just not being used. After all, a boy doesn't become a man until
he has a man's job to do... Looking at the products we manufacture, though. I can't honestly say if they're
better than everybody else's. I know they do the same job. But, looking at them, there's nothing to
distinguish them from your ordinary loaf of bread. I also think that we have a problem communicating to our
customers. Our salesmen could do a better job finding out what our customers want and what new products
we should be producing. Another major concern of mine is that we're just a limited product company and
there's too much risk in it. That's why I'm in favour of diversification. And I really don't care what sort of
companies we acquire. We can always hire someone to run them for us."
FRP Case - 8
Lucas Feck - Vice-President (Marketing)
Lucas Feck received his B. Comm. from a large American University. Upon graduation he joined a
multi-national chemical company which operated a subsidiary in Canada. Within four years, he became its
general manager. After the subsidiary was purchased by another multi-national conglomerate, Feck became
disenchanted and resigned to start his own small business. Despite his own company's success, Feck
became bored and sold his interest in that business to go back to university and get his MBA. After
graduating, he contacted several large executive placement firms looking for a position in a small to medium
sized growth business. This led to his being hired as marketing vice-president for Fraser River Plastics. By
far, Feck was the most avid promoter of expanding the company by means of acquisitions. Because of the
number of acquisition investigations in which he had been actively involved - but which had failed to result in
a concrete purchase - Feck now believed that one of the reasons for this lay in the company's present
structure. Feck commented on the most critical problems facing the company:
"Our neck is really in the noose today because of the competition we're up against, especially in British
Columbia. So I'm pretty strong on the idea of acquisitions. They're the key to our future. Personally, I
believe we could run or manage any type of company - hotels, food processing, even steel corrugation
plants. Others don't. Take this Plasti-Weave acquisition. It's a natural combination with our business -
plastics. But, better still, it represents a real chance for Fraser River to latch onto a proprietary item. It
involves a new technology. We can get the jump on the industry and at the same time start moving out of
our "commodity product" line. As for the joint venture idea, I think we have some real problems because
we've never considered: (a) who's going to be moving from Fraser River to staff the project, and (b) who
we're going to find to fill the gaps created in Fraser River. I've been pushing Elinore on this point, but he
keeps saying, "not to worry."
I think our biggest problem around here, however, has to be that senior management is perpetually caught up
110% with day-to-day tasks. I don't think that we'll ever find any new growth or good acquisitions as long as
we don't free up some of our time. Elinore Wickham-Jones has a problem divorcing herself from finance and
administration. She's also been spending a lot of her time these days on the joint venture project...That's her
style though. Oliver Farthingham's style, however, is to `represent' the company. He shouldn't be doing that
as Chairman of the company. He should be setting goals. After all, isn't the Board responsible for the overall
direction of the company. So what if "management" wants to do one thing. The Board can just overturn it. I
do know this...I only get my kicks from challenges. Day-to-day work is a necessity, of course, but it's not
challenging to me. I'm not interested in managing a division. I just want senior management responsibility
and exciting work. Otherwise, I get bored."
Gunther Heinzman - Vice-President (Production)
Heinzman was in charge of the company's six plants located in Chilliwack, Vancouver (Beaver),
Prince Rupert, Calgary, Winnipeg and Kamloops (Simcoe). Each plant had its own production manager
reporting directly to Heinzman. A native of Germany, Heinzman emigrated to Canada with his parents. His
first job was in a small manufacturing concern, working on the production line. Since then, he has spent
most of his life in production. Heinzman discussed the company:
"I learned this business from the ground up. Every free moment I had during the day and at night was spent
reading every trade journal I could get my hands on. But, I guess you could say that even today, I'm kept
pretty busy just keeping my end under control. I've never been a frivolous person. I suppose it comes from
my German background. That's why I have always run a tight ship. If Elinore ever told me to cut costs, I
wouldn't know where to start because I think we're at maximum efficiency. And I've tried to instill this
objective into each one of my plant managers. I've trained every one of them, except the Simcoe manager,
and I'm very proud of them. Naturally, I'm a little more liberal today but I like to do things as cheap as
possible. Sometimes, Elinore has to say to me: `Don't hold the penny so close to your eye Gunther, that you
can't see the dollar behind it.
FRP Case - 9
When I look at our acquisitions, there are some real lessons to be learned. I don't regret our purchase of the
Prince Rupert plant because it has always supported itself. The manager there runs the company as if it was
his own. After all, it used to be his own. Simcoe, however, should be a warning to future acquisitions. And,
as for this Plasti-Weave deal, I won't say anything about it because I don't know anything about it. And that's
because I haven't been involved in the discussions.
I'm not opposed to acquisitions but I'm naturally afraid of things that I don't know too much about. Elinore, of
course, is more enthusiastic about acquisitions. Me, I'm a little more nervous about them only because I'm
not sure how much more work I could handle.
As for this joint venture project, Elinore is again playing her cards close to the vest and I don't think it's such a
good idea. It's a big responsibility for her to be carrying alone. Besides, I'm a nationalist. Canada has been
good to me and to this company. I think we could spend our dollars much wiser here."
APPENDIX A
The Plastics Processing Industry in 1993
Although the history of plastics and plastic products goes back over one hundred years, the industry
was still generally regarded in North America as young and growing. In fact, it has only been since the
second world war that plastics began to achieve their status as a major primary or substitute manufacturing
material.
In 1993, there were over 1,400 firms engaged in plastic processing in Canada with most of the
companies located in Ontario and Quebec. Of these Canadian firms, the majority had sales of less than two
million dollars. The bulk of company shipments constituted proprietary products. The remainder were either
produced on a custom basis or as "captive operations" for a larger manufacturing entity. This breakdown,
however, is difficult to confirm precisely due to the variety of business practices in which any one
manufacturing concern engaged.
In terms of the future, world shipments in the plastic processing industry were estimated to be
moderately "favourable" given the tentative signals of economic recovery. The factors contributing to this
projection were: an anticipated moderate level of economic growth; a continuing substitution of traditional
materials with plastics; and the emergent growth in the manufacturing sector. Costs depended largely on the
type of process used. For instance, "reinforced" plastic products such as boats or storage tanks were
relatively labour intensive while "extrusion" products (e.g., pipes, films, etc.) were relatively capital intensive.
In comparison with other global industries such as petrochemicals, the plastics industry was still
considered a labour intensive area since the capital investment per production related employee ranged
between Cdn. $5,000-$42,000 while in petrochemicals it was about Cdn. $200,000.
It was anticipated that Canadian plastic manufacturing capacity would be sufficient to meet Canadian
demands. In addition, Canadian resin prices, which at one time exceeded world prices by 10%, were seen
as becoming more competitive with U.S. and other international prices given the recent Canada-U.S. Free
Trade Agreement. The prospect, in 1993, of a potential Canada-U.S.-Mexico free trade agreement was
expected to result in significant downward pressure on world prices and consolidation of the North American
industry participants through mergers and bankruptcies.
FRP Case - 10
EXHIBIT 1
Fraser River Plastics Ltd.
Consolidated Statement of Operations (Audited, December 31, 1992)
with comparative figures for 1991, 1990, 1989, 1988
(in thousands of dollars)
ASSETS
1992 1991 1990 1989 1988
Cash 25 30 5 565 110
Term deposits & marketable securities - 583 2 - 690
Accounts receivable 2,453 1,155 1,215 423 540
Inventories 3,827 2,625 1,923 2,163 357
Deposits 13 25 140 2 3
Total Current Assets 6,318 4,428 3,285 3,153 1,700
Property, plant & equipment, at
cost less accumulated depreciation 4,453 2,935 2,743 1,940 1,468
Other assets 17 28 7 15 60
Excess of cost of subsidiaries over
the net book value of acquired
assets, at cost less amortization 105 145 185 105 130
Total Assets 10,893 7,536 6,220 5,213 3,358
LIABILITIES AND SHAREHOLDERS' EQUITY
1992 1991 1990 1989 1988
Current Liabilities:
Bank overdraft & loan 2,348 863 515 - -
Accounts payable & accrued charges 892 1,042 338 1,063 145
Income & other taxes payable 618 738 962 1,065 260
Royalty payable - - 70 90 400
Total Current Liabilities 3,858 2,643 1,885 2,198 805
Deferred revenue 28 33 33 - -
Long term debt 3,150 1,120 1,282 715 875
7,036 3,796 3,200 2,913 1,680
Shareholders' Equity:
Preferred shares - - - - 253
Common shares 205 205 205 32 32
Contributed surplus 70 70 70 70 70
Retained earnings 3,582 3,465 2,745 2,198 1,323
Total Shareholders' Equity 3,857 3,740 3,020 2,300 1,678
Total Liabilities & Shareholders'
Equity 10,893 7,536 6,220 5,213 3,358
FRP Case - 11
EXHIBIT 1 (Continued)
Fraser River Plastics Ltd.
Consolidated Statement of Operations (Audited, December 31, 1992)
(in thousands of dollars)
1992 1991 1990 1989 1988
Net Sales 16,445 15,750 10,903 7,835 5,403
Cost of sales 11,228 10,765 7,178 3,990 3,455
Gross Profit 5,217 4,985 3,725 3,845 1,948
Selling, general & administrative
expenses 3,605 2,750 1,898 838 655
Royalty expense 332 332 332 625 338
3,937 3,082 2,230 1,463 993
1,280 1,903 1,495 2,382 955
Interest & other income 128 135 40 163 80
1,408 2,038 1,535 2,545 1,035
Interest, long term debt 493 138 92 70 77
Amortization of excess cost
of subsidiaries over net
book value of acquired assets 40 40 35 27 -
533 178 127 97 77
Earnings Before Income Taxes 875 1,860 1,408 2,448 958
Income taxes 480 825 610 1,208 453
Net Earnings 395 1,035 798 1,240 505
Earnings Per Common Share .08 .20 .15 .24 .10
Dividends paid 278 315 251 365

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