Question

PowerAir Inc., a subsidiary of a successful multinational manufacturing firm, supplies a key component in the assembly of residential air conditioning units. At this current stage, there are only five suppliers of this particular component, with these suppliers accounting for close to 80 percent of worldwide industry sales. On the retail side of the equation, well-known residential air conditioning units like Carrier and Trane retain a strong foothold in terms of retail sales. However, some newer Asian manufacturers have signaled an interest in more aggressively pursuing the lucrative international market. PowerAir Inc. is presently considering a $300 million dollar investment in a new plant, which will create a component that is much quieter, more efficient, and is likely to satisfy future regulatory standards. While the core technology for the new component is very old, PowerAir’s engineering and design skills have allowed them to retain their low cost advantage, even though the component will represent a significant improvement over products currently provided by its competition.

Question 1 Assume that you are a consultant and have been asked by the management at PowerAir Inc. whether it should be a first mover with the new component technology. PowerAir is leaning toward being a first mover (ie. moving ahead with the investment). As the consultant, PowerAir has asked you to provide at least three reasons or benefits as to why PowerAir should make the investment, thus being a first mover with the new technology? Explain your reasoning in full (bullet point answers are not acceptable).

Answer 1

The new component part though based on old core technology but design and engineering has differentiated it from the existing component in the sense that it is much quieter , efficient and compliant to the regulations.

The company should make the the first move since performance wise the component is an improvement over the existing available in market.It has the low cost advantage with it.PowerAir will definitely have edge over its other competitors as the buyer side is limited to only two which have a strong foothold.The new component will also enhance value for the retail sellers Carrier and Trane since they can leverage this new feature in the retail marker among consumers and hence sales are bound to rise.

Another aspect that POwerAir can rely for making the move is that new Asian buyers are entering the market and are very aggressively approaching to capture the retail market.For such new Buyers too this new component will be a lucrative affair and for PowerAir a new market.

PowerAir with this new component propel its business way ahead of its competition.

In summary - an expanding market , differentiated product , low cost are all drivers for the organization to go for the investment