Cervus Equipment Corporation Case Study: Harvesting a New Future

Case Report

CERVUS EQUIPMENT CORPORATION: HARVESTING
A NEW FUTURE
Summary
Cervus Equipment Corporation was founded at the time that no central organization which managed the farm equipment dealerships from original equipment manufacturer such as Jone Deer. As a wholesale trade company, Cervus had achieved big accomplishments during the past ten years by acquiring and operating agriculture, commercial and industrial equipment dealerships in Canada. Since the company has made a successful achievement, it began to enter the international market in 2009. After Cervus Equipment has been met a bottleneck in New Zealand, the company found that it was difficult to operating the worldwide dealerships; At the same time, Cervus faced with two major competitors---Rocky Mountain Equipment and Titan Machinery, who hold the same growth strategy as Cervus did; all of these posed a great threat to the company. In order to triple the current run rate to the $2.5 billion revenue’s goal by 2020, the leader of Cervus need to come up with a new long-term development strategy which can both reach the company’s mission and diverse demand of different customers around the world.
Industry: Wholesale trade industry
Strategy: Differentiation strategy
External Analysis
PESTEL Analysis
Political: Canada Wheat Board regulations, Bio-fuel gasoline regulation,
Economical: low interest rate, aggressive growth in oil and gas industry, global agricultural machinery growth, construction investment growth
Social: low interest rate lead tendency of loan habits, younger farmer with business mindset, population growth around the world results more needs of food, death of the small farmer request farming consolidating,
Technological: scale and advanced farming technology, high efficiency of farming equipment,
Ecological: Bio-fuel gasoline use
Legal: Canada Wheat Board regulations
In total, all the external factors provide good operating environment to the wholesale trade industry. So Cervus Equipment should catch the massive opportunities such as global agricultural machinery growth and Canada Wheat Board regulations to reach the domestic and global development.
Five Forces Analysis
1. Barrier of Entry (high)
Large amount of capital requirements for dealership purchasing; Pursuing large economies of scale; Request absolute cost advantage; For the earlier year of business, do not request high product differentiation; High demand of distribution channels; Close relationship with manufacturer supplier; High effect from government and legal barriers; Medium to high retaliation by incumbents; Suck cost is low because you do not need production you just sell the product
2. Industry Rivalry (medium)
High competitor concentration; Low to medium diversity of competitors; Low product differentiation from competitor; Medium to high excess capacity and exit barriers
3. Threat of substitute (low)
We think the substitute of the dealership is the manufactures direct sales. However, the case does not mention information about manufacture direct sales. To some extent, we believe the threat of substitute is relatively low due to the fact that most equipment manufactures satisfy with handing over their dealerships.
4. Supplier power (medium)
Suppliers’ bargain power of product price is low because dealers request large amount orders; Switching cost for dealers is low to medium because they are easily finding another manufacture; Equipment manufactures can also create their own sales network and reject the dealers, but creating new sales network will cost too much.
5. Buyer power (low)
Small size and low concentration of byers; Switching cost is medium to high because switching dealer might increase the product transformation cost, and result the inefficient after sales services; To some extent, customers have high demand for the product. For example, the efficiency of farming request high effective equipment, so, the farmers have to buy equipment to increase their productivity.
To sum up, in this type of wholesale trade industry, only the barrier of entry is high and all other factors are low or medium. As a result, this is an attractive industry.
Internal Analysis
VRINE Analysis
Principles over policy: Under this policy Cervus Equipment has already achieved big success; only the company use this policy because Cervus Equipment design it form itself; to some extent, it is very hard for other company to mimic; in short-term, it’s hard to find other policy to replace it. In long-term, this policy will help the company get more reputation from customer.
Cervus Leadership University: It is valuable because Cervus Equipment create it to develop the leadership management. It is rare because no other company have the same program. In short-term, it is hard to copy because it will cost lot of money and time. Even though the company does not get benefit immediately, this program will bring huge success ahead.
Relationship with OEMs: The relationship with OEMs is very critical, which relate to the huge success of the company. No matter Cervus Equipment develop domestically or internationally, the relationship will become a strong strength in a competitive business world.
Brand reputation: This is a huge intangible assets for the company, and hard to imitate by others. To some extent, it is hard to find substitutes of the brand reputation. In long-run, brand reputation will help the company open business around the world.
Customer- centric model: Customer-centric model helps the company to gain good reputation from public. It is rare when comparing with other companies. To some extent, it is hard to copy and replace because creating this model will cost a lot. In the future, it will help the company maintain the customers’ loyalty and attract more potential consumers.
From above, all the factors are competitive advantages of Cervus Equipment. The company should dominate those advantages and keep developing them in order to getting more success in the further competition.
Financial analysis
Agricultural industry: There is a forecast of the agricultural machinery market according to Market Line Analyst, it is forecasted that the compound annual growth rate (CAGR) would be 10.7% per year. Europe, Asia-Pacific and America play key role in this growing, respectively growth 12.1%, 12.1% and 8.7%. Besides, according to predict, world population would increase 23% by 2025. It is obvious that there is huge demanding for food at that time.
Commercial and industrial equipment: Refer to the Alberta Construction Industry alone would be expected account for 29% in 2012 in terms of Canadian construction expenditure. Also, from 2011 to 2013, Alberta’s GDP growth rate is higher than Canada’s. Moreover, there are different growth rate of the residential construction and non-residential construction in Alberta. From 2009 to 2012, the annual growth rate of non-residential construction is 11.05%, while that is 19.4% in residential construction. Besides, not only Alberta has increasingly demand in industry equipment, but Asia also has increasingly demand with 21% annual growth rate in India and China represent majority of global construction equipment.
Company performance: according to the Cervus equipment revenue breakdown, in 2011, the agriculture account for 73.2%, while the commercial and industrial only account for 26.8%. In 2012, although is relatively decrease in agriculture segment when comparing with 2011, that is 65.4%, agriculture segment is still the majority source of income. At that year, 34.6% revenue came from commercial and industrial. Comparing the data between 2011 and 2012, there is slightly decrease in agriculture segment, but the commercial and industrial revenue had increase.
Goal and forecast: the goal of the company is that by 2020, their revenue up to $2.5 million. So the company’s revenue annually growth rate should be 16.55%. The good point of the company is that the revenue growth rate in 2012 is 31.21%, and from 2003 to 2011 is 34.2%. All of these factors pointed out that in the next five to eight years, the growth rate would exceed 5% annually.

Criteria:
1. Maintain strong financial performance
2. Develop internal management along with competitive advantage
3. Focus on international differentiation
4. Reinforce relationships with OEMS and other partnerships.
5. Satisfy needs of customers.
Alternatives:
①Increasing competitive advantages for present business, while preparing diversification strategy as the long-term plan focusing the international markets.
1) Fulfill the changing trends of current markets, include increasing demands of larger combines, farming technologies and consultation service; developing inventory utilization and management regarding to the agricultural industry.
2) According to the construction industry, to input more resources and projects in Alberta is the major objective, since it has occupied a larger percentage of Canadian construction market.
3) Aiming at the different situation between global markets, restructure the training objective and management of Cervus Leadership University for the sake of achieving proper managers and leaders international investments to derive positive outcomes for the future plan.
Pros:
(1) Moving properly, associated with the changing business and buyers’ needs to reinforce sales.
(2) Obtaining more retains by focusing investment in niche market, ie, Alberta.
(3) Reserving and enhancing the human resources and suppliers or partnerships.
Cons:
(1) More costs for improving technology development and acquire high level dealerships within the competitive locations.
(2) Taking more time to reschedule training program to appointment follow the goal.

② Not only enhance the operation and management for the current business, but also plan to invest in global market immediately.
1) Similar as alternative ① step 1 and step 2.
2) Regarding to invest in the global markets, the farming business within Asia- Pacific & Europe will provide more opportunities due to their greater expected growth rates. Meanwhile, make plans to stick into Chinese and Indian construction markets since they are forecasted as the major international commercial and industrial equipment consumption with great constructional demands. On the other hand, carefully measure business focusing on Brazil market, which can be anticipated a quite positive long-term investment yield accompanying this world-largest growing economy.
Pros:
(1) May achieve a higher competitive business position in those new growing global markets, after investing international straight away.
(2) Could seek potential opportunities within new markets.
Cons:
(1) May have few short-term yields, from investing in birth booming global markets.
(2) Facing more risks from political barriers, legal limitations and government intervention.
(3) Culture confliction from consuming differences and management strategies, ie, decentralization and centralization.
Recommendations
According to financial analysis we will choose option/ alternative 1 as the company strategy. It is evident from the financial calculation the company need to grow revenue at 16.5% annually to achieve a target of 2.5 billion by 2020. Currently revenue growth rate of the organization is 31.2% annually in 2012 and it is 34.2% from 2003 -2011. This positions the organization toward achieving its goals for 2020 but if the organization will try to overstretch themselves and look into more global options, they might lose control and moreover they are currently in shortage of leaders who are in the training process. Organization have a huge lucrative opportunity to capture agriculture, construction and industrial Alberta market which is currently the easiest avenue for them because they do not need to adjust themselves to the cultural differences and in understanding customer needs and countries business dynamics. Therefore Alternative 1 is most suitable for Cervus Equipment.
Implementation
In the light of the suggested recommendation we have already given for the Cervus equipment corporation. The organization should pursue growth strategy but in a very aggressive manner which can result into a disaster in a short run. Cervus revenue is currently growing at a reasonable rate and they have good opportunity to invest in Alberta, furthermore the industry strong growth is continued projection of 5% annually over the period of five to eight years. Opportunities in global market are lucrative but should be handled carefully. The following Task should be performed for successful implementation of this plan as mentioned below:-
Step1:- Cervus should finely tune there centralization process and integrate all dealerships units through IT system (8 months)
Step 2:- Cervus should develop leaders through CLU and train dealership operators for understand farmer needs and providing them with consultation and built sales management team and competencies for construction and industrial sector. (10 months)
Step3:-Company should try to penetrate and capture Alberta construction and industrial market. (8months)
Step4:-Company should Analyze different country risk report and market potential report to choose better investment avenue and then train its managers will global mindset and specially train for those regions or countries where they are planning to enter e.g. Brazil, India, and china (11months)
Step5:-Enter new global markets on test and trial basis (1 year)
Step6:-After initial successful operations in different countries then Cervus should start penetrating the market aggressively (1year)
In the first step organization should centralize its processes properly and different dealership function units so once the organization start pursuing aggressive growth strategy they have more control in terms of management and information. This way company will have better knowledge about used equipment in stock, new inventory and financial performance of each unit. Since the process was already initiated therefore it should further take organization no more than 10 months in completing integrating dealership units and re aligning the processes in accordance to centralization policy which can drive growth upwards in controlled manner. In next step the organization should decrease the gap of leadership deficit by hiring new university graduates and train them, training currently employed manager for becoming potential leaders at dealership units. Dealership operator should also be trained to provide consultation to the farmers on achieving target of yield production on current acreage, this way Cervus will be equipping there human resources with the capabilities to meet challenges of the future. Organization should also be developing sales management and market penetration competencies in construction and industrial department so they can capture higher market share in lucrative Alberta market and launch themselves in international market with high demand in this sector e.g. china and India. Cervus should be able to implement this training phase in step 2 with 10 month time period. The time period 10 month is appropriate because they already have the infrastructure (CLU) to train human resource in accordance to the needs. In step 3 after sales management competencies are developed then organization should pursue aggressive market penetration strategy for Alberta in construction and industrial equipment. This step is ongoing phase and it should start showing some results in a period of 8 months. Alberta market can be easily tapped by the Cervus and it is best investment growth avenues for the Cervus because of its high growth potential and Canadian business market dynamics are the same which will not complicate things for the organization. After a period of 2.16 years when Cervus has better control over its dealership units, integrated processes and penetrated Alberta market then they should start using those revenue generated from the Alberta market to start developing its team for global operations. In Step 4 Cervus should investigate and analyze different country risk analysis report to arrive at better decision making for a better investment avenue. After choosing the investment country e.g. India, organization should develop a good insight into countries industry dynamics, culture etc. After development of good understanding, then Cervus should train the manager accordingly with a global mindset. This step can be completed in time period of 11 months. In step5 Cervus should open its initial operations in India with partnership/alliance with local Indian equipment dealership operator, this will help the organization in overcoming startup difficulties therefore making the initial market penetration process much smoother and better understanding of the equipment industry because of the local country partner. This initial test a trial phase should continue for a year for developing a brand name and establishing Cervus foot hold in the local market. In step 5 Cervus should start penetrating the market by acquiring equipment dealership operators in high potential markets. This will accelerate organization growth further and help them in achieving goal of 2.5 billion revenue target.
Contingency Plan
Cervus should be able to achieve 2.5 billion revenue target by 2020 because organization needs to grow at 16.5% revenue per annum to achieve the goal, while they are already growing at 31.2%. The only fear which over shadows its achievement is aggressive growth strategy which can result into creating complication and fall back for the organization.
In case the organization is not able to successfully implement step 4, test and trial phase in a different country market. Then they should pull themselves out of that market and concentrate on the Australian market which is very similar to the Canadian agriculture market and Cervus already has some experience in the Australian market so they can capitalize on this ability and penetrate the market further. More over Cervus can also enter into USA market which is very similar market to the Canadian market therefore they will have higher chances of succeeding in it.