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 2.

PowerAir Inc. have also asked that you develop an argument as to why PowerAir should hold back and be a second mover with the new technology (ie. not to proceed with the investment, waiting to see if other competitors in the marketplace develop this new technology). Again, provide at least three reasons to PowerAir, arguing that it might be better to wait. Explain your reasoning in full.

Answer 1

In this question he main purposes of a Heating, Ventilation and Air-Conditioning (HVAC) system are to help maintain good indoor air quality through adequate ventilation with filtration and provide thermal comfort. HVAC systems are among the largest energy consumers in schools. The choice and design of the HVAC system can also affect many other high performance goals, including water consumption (water cooled air conditioning equipment) and acoustics. 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. lt 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 POwer Air 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