Crown Cork & Seal Central Issues There

Crown Cork & Seal Central Issues There are a few key central issues at Crown Cork and Seal. The company is facing a leadership transition between the company's founder and his disciple. This could cause a considerable disruption in the power of the leadership at the organization. Another key issue facing the company is how to respond to shifting industry dynamics. A major change in the industry of late is that firms in the industry are moving towards vertical integration.

Reynolds is a producer of metal and now a can manufacturer. Kiewit appears to be some form of vertical integration although Continental's can business might be for sale. Pechiney now owns American National, increasing that company's reach across the industry. These changing dynamics will affect the tone and style of competition in this otherwise mature industry. The industry is also growing, in particular the aluminum can industry, and this may result in further shifts to industry dynamics.

It is important for Avery to set strategy for the firm for the coming decade. Among the decisions that need to be made quickly, Crown must decide if it wants to bid for Continental's canning business. Mergers in the business are challenging, but the acquisition of Continental would give Crown the economies of scale it needs. American is unlikely to buy because of antitrust issues and its integration of National. European competitors may only be interested in the European operations, but acquiring the U.S.

business would make them major competitors to Crown immediately, capable of securing excellent prices from the global aluminum producers. Situation Analysis Externally, the metal container industry is relatively strong. The industry is dominated by five firms, and each of these firms has experienced some structural change recently. Possible trends developing in the competitive environment include vertical integration and global consolidation. Crown has a 7% market share and with that is tied for the #3 spot, well behind the top two players.

The industry is subject to high price sensitivity, as the cans are largely commoditized. There can be differences in the composition of cans, but any technological change is easy for the competitors to replicate. Switching costs appear to be low, and firms within the industry have addressed this issue by signing major customers to guaranteed volume deals at set prices in order to lure customers.

Some major customers, like soda bottlers are using their substantial buying power to drive down prices for cans, and this is squeezing margins for firms in the metal container industry. While demand overall from customers is increasing, there are some other factors that are challenging in the industry. Can makers typically locate close to their major customers to lower freight charges, which the can maker normally covers. At times, this necessity bumps up against the cost of can making equipment, which runs upwards for $40 million for a new installation.

An additional issue for Crown is that with just 7% market share, it does not have the buying power that the two largest firms have. There are only three major suppliers of inputs, one of which (Reynolds) is a direct competitor. This means that a firm the size of Crown probably has to deal with Alcoa or Alcan. The inability of Crown to have the same leverage as its largest competitors puts it at a disadvantage both in terms of buying power and in terms of density of plant locations.

Each of these issues results in Crown having slimmer margins than competitors if it wants to offer the same price points. Crown survives, however, based on its core strength as a low cost producer. This strategy was undertaken by Connelly and has become part of the corporate culture. The company also feels that it has a high quality product and can respond quickly to customer needs.

The company compelled the company to be responsive to customer needs in lieu of being innovative in order to deliver a compelling offering to the customer. It is recommended that Avery bid on Continental's U.S., Canadian and Latin American businesses. He would be wise to leave the European businesses for the European companies, and maybe the Latin business as well.

Increasing Crown's size is essential to its long-term survival, given the benefits offered by economies of scale both in terms of bargaining power with suppliers and bargaining power with buyers. For the long-term survival of the company, given the threat of global consolidation and of vertical integration, Crown needs to expand dramatically and acquiring Continental is the best way to make that happen. Additionally, this move would put Avery's.