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Part (b)
Potential strategies
A number of potential strategies for the future of WAMC have been identified by Kenneth Murphy and each of these will now be evaluated.
Sale of distribution outlets
The sale of the 10 distribution outlets could raise a much-needed $15 million for WAMC. This might be
reinvested, perhaps in much-needed product and market development. However, these distribution outlets are an operational asset of the company, and have, presumably, eliminated the need to pay rent and been of benefit to customers. A detailed cost/benefit analysis should be carried out before any decision to sell is made. Selling the distribution outlets, although increasing cash immediately available, may have an undesirable long-term effect on the business that has not been foreseen.
Also, such a sale must also be considered in the light of the potential merger with AM. The marketing
infrastructure represented by the distribution outlets may combine well with the research and development activities of AM.
Sub-contracting of tractor manufacturing
It is quite clear that the axing of the manufacture of tractor units in 1995 has been an important contributory cause of the company's current problems. However, the proposed move back into this market by subcontracting manufacture but selling under the WAMC brand name needs careful consideration.
One of WAMC's major assets is its brand name and reputation as a long-standing manufacturer of farming equipment. If bought-in tractor units are to be marketed under the WAMC brand, the company must be certain that they are of sufficient quality and reliability. The relationship with the sub-contractor will therefore have to be close and trusting. Constant co-operation will be required on quality and also on other such matters as production scheduling, design changes and improvements.
A problem that WAMC might face with sub-contracting is the reaction of its own workforce. In recent years there have been almost 2,000 redundancies. Many redundant employees had worked for the company for their entire working lives. This caused major resentment and resistance at the time. If the company now returns to the tractor market but by sub-contracting rather than manufacturing, further resentment and resultant productivity problems may occur within the workforce.
Although it is clear that WAMC does need to return to this market, the possible merger with AM might be a much more satisfactory method of doing so, rather than sub-contracting and all of the problems associated with that.
Diversification
A further option is diversification in order to provide increased work for the factories. The area being
suggested is equipment for the road building and repair industry. Despite the fact that this is likely to be a
growth area, it is necessary to ask whether WAMC has the expertise to enter into this area of manufacture,which would not appear to be particularly related to its current products.
It is possible that this could become a profitable area of diversification for WAMC but it is certainly a risky
venture. Both the technology and the public sector market are new to WAMC and the market itself could be volatile if there is a change in government plans. We have no information about competition in the market but it is likely to be well established, since the market has been in existence for a very long time; furthermore, the low-tech nature of the proposed products means there is no technological barrier to entry.
Although it is possible that this may be a new and profitable area for WAMC, there are also many risks and it may, in fact, serve merely to divert WAMC's attention and resources away from its core business, making the current situation worse rather than better.
Provision of finance to customers
It is no doubt correct that WAMC is losing business as it is not able to offer potential customers adequate credit facilities. However, it is questionable whether providing such facilities directly to customers is the best method. The plan is for WAMC to raise loans on its own account and then lend direct to customers. WAMC's gearing and interest costs are relatively low, but the company has no experience in this finance provision role: it is not a bank and should not expect to do well in such a very different business.
WAMC would do better to provide finance to its customers by acting as the agent of an established finance house.
Conclusion
The only one of these four strategies with any real merit is the possibility of the sale of the distribution
outlets. This would provide the company with funds to be used in other areas. However, as well as any
deleterious effect this may have on current sales, it would also mean losing an asset that could be an
effective bargaining chip if the merger with AM were to go ahead.
The sub-contract manufacture of tractor units and the provision of finance to customers are both attempts to deal with perceived customer requirements. However, business strategy is about the profitable satisfaction of customer demand. It could be argued that both of these strategies are more likely to increase the company's losses than to enhance profitability.
Diversification could certainly form the basis of improved future profitability but it is also a high risk. WAMC should seek a strategy that involves less risk and exploits its existing competences.