Posted: March 16th, 2015

company analysis

company analysis

Order Description

Analysis of the options: This will include a complete list of options, as well as the
benefits and costs of every option including financial projections.

we choose the company named Eastern Fence. you only need to write the alternative 2: Expanding the service area of Eastern Fence Erectors
you should write around the following viewpoints:
Pro: Significantly reduced sunk costs, no exit costs

Con: Higher labour costs due to travel time, increased bid price on job (higher margin with no differentiation)

and also need included these points:
Variables: Capital investment, human capital investment, risk, ease of implementation.

SFP Final Report

Background and Intro 1-2 pages
Newfoundland and Labrador is situated in the easternmost region of Atlantic Canada. The region comprises of the island of Newfoundland and mainland Labrador. The sum land zone of the region is 156, 500 square miles (approximately 405, 212 square kilometers). In 2013, the population of Newfoundland and Labrador was approximately 526, 702 and 92% of the total population resided on the island of Newfoundland. Newfoundland and Labrador is the greatest linguistically regular province in Canada. Majority of the residents of the province are native Canadian English speakers, 40% of which live in St. John’s, the capital city of the province and the 20th largest metropolis in Canada. St. John’s also houses the government of the region and the uppermost law court in the dominion, the Newfoundland and Labrador Court of Appeal.

Strategic Decision to be made and related issues 1-2 pages
How to expand operations, which geographic location will be most efficient logistically based on travel times to work sites. How to manage the new office. What level of development? Should they operate year round? Hire local employees or transfer employees from another unit?

Situation Analysis (including internal/external) 12-14 Pages
External Analysis
The province has experienced a troubled economy for many years despite the fact that the weather and geography of the region favor economic growth and development (McMurtry, 2014). Most residents of the province relied on the fishery industry as the main source of livelihood. As a result, the collapse of the cod fishery industry in the 1990s resulted in massive unemployment, further worsening the already bad economic situation of the region. Since the turn of the fresh periods, the economy of the province is slowly stabilizing and this can be attributed to a major energy and resources boom. The rate of unemployment has reduced and there are signs of population growth (McMurtry, 2014). The province, for the first time in history, now also boasts a surplus of production. Services industry such as health care provision, financial and banking services, and public administration contribute the largest share to the gross domestic product of the province. Other sectors that contribute significantly to the GDP include mining, tourism, fishing, construction, manufacturing, and agriculture amongst others.

PESTDG Analysis
Over the years, the province’s construction industry has grown to become a major funder to the economy of Newfoundland and Labrador. According to economic surveys in the region, the boom in the construction industry in the region reached an all-time peak in 2013 and 2014 (Berardi, 2011). The boom is expected to continue throughout 2015 and the coming years. The boom has provided the residents of the area with numerous employment opportunities leading to better standards of living for the residents of the area.  Despite the growth in the industry, the monthly edition of Employment and Social Development Canada on September 2014 announced increases in unemployment to 13.5% in the province of Newfoundland and Labrador. The number of individuals working in the construction industry is approximately 22,000 and the number may increase or decrease by approximately 1,500 (representing 7.3% of the employed) individuals per month.

Political Factors
The regime of the state of Newfoundland and Labrador create vital legislation that influences a great degree of the performance of the construction industry. The most important piece of legislation in Newfoundland and Labrador touching on construction is the mechanics’ Lien Act.  The act is critical because it creates a secured interest in the land or property to be constructed or improved. The Occupational Health and Safety Act provides guidelines and best performs to warrant the maintenance of the environment (Johnston, 2009). The employment law in Newfoundland and Labrador requires that employees work seven days a week and be granted a 24 hour time off thereafter. This and other employment regulations are contained in the Labor Standards Act. The construction sector, like most of the sectors of the economy, is greatly influenced by government legislation.

Economic Factors
In 2013, the construction sector propelled the growth of the province’s economy by 6%. The contribution to economic growth by the same sector in 2014 was 3.4%, down by 2.6% (Johnston, 2011). From January and March 2014, consumer inflation averaged 2.0%, a positive indicator for a growing economy. Pricing is subject to change over time and depend on the prevailing market conditions. The interest rates in the province of Newfoundland and Labrador at prime rate remain at 3%. In this concern, the charge of capital is favorably low, allowing for the expansion of construction companies. The low interest rates also allow new construction firms to enter the market thereby creating new employment opportunities and generation of income for individuals and the government. By 2017, it is projected that major construction would wind down; bringing employment rates back to normal.

Social Factors
Increases in population in the province, facilitated by a stabilizing economy and political stability have led to increased demand for housing and social amenities including all weather roads across the province. The unemployment rates remain slightly above 10%, which means a majority of residents in Newfoundland and Labrador have a stable source of income and require adequate and convenient housing. The demand for housing currently surpasses the supply and has caused home prices to skyrocket. Rental prices average two to three thousand Canadian dollars a month. Mortgage rates average $400,000. The boom in the construction sector is projected to continue as the government is undertaking massive construction projects including the construction of roads and houses for social housing plans.

Technological Factors
Globally, technological advancements occur at an unprecedented rate. New technologies are now being utilized in the construction sector making it not merely affordable, but also suitable and reliable. Cost-effective and environmentally friendly construction technologies make it easy for construction firms to meet the minimum construction standards set by the government (Audrey, 2013). The time required to finish a major project has also been used by the utilization of new technologies such as R & D systems, prefabricated segments and heavy-duty and reliable construction machinery. The new technologies are capital rather than labor intensive and require specialized skills to utilize. The construction projects are, however, in massive scale and this allows for the creation of significant employment opportunities. The new technologies come in handy at a time when the construction industry is enjoying a boom.

Demographic Factors
Men, ladies and kids have diverse wants and financial abilities. Ethnicity also affects the demand for and housing. More than 50% of all the residents of Newfoundland and Labrador are Canadian. The construction style for most homes and social amenities follow English and Canadian construction designs. The increase in the number of families also puts high demand on family units. This explains why major projects concentrate on the construction of family units for the middle class to upper class Canadian, which embodies a huge fraction of the total inhabitants. Immigrants from the United Kingdom, United States, India, Germany, China, Egypt and South Africa form a significant portion of the population (McMurtry, 2014). Some studies suggest that the population of the province is decreasing owing to the dropping birth rates and great outward migrations. Although policy makers have a role to play in demographic changes, it is difficult for them to exert direct control on demographic change and structure.

Regulatory Factors
Before engaging in any construction activities, an individual or organization has to be licensed. He or she, or the organization has to meet all the legal requirements for the establishment of a construction firm. The aim of these principles is to certify that the consumers are sufficiently protected from unscrupulous contractors (Kenourgios, & Dimitriou, 2014). The regulations also ensure that the governed earns its revenue to facilitate the introduction of new projects that benefits the residents of the province. The government conducts regular searches to ensure that the construction companies remain true and obedient to the terms of their licensing.

Conclusion
The construction sector in Newfoundland and Labrador is one of the most lucrative in the region. The sector has aided in the creation of employment opportunities and has allowed the government to earn revenues through taxation. The boom in the sector illustrates that it is possible for a region to rise from a dilapidated economy to a vibrant one within a few years.

Five Forces Analysis

Threat of New Entrants
Fence and guardrail construction requires a large capital investment in specialized equipment for proper installation. In order to complete the installation for either product there is a requirement to auger holes for strength and stability. Incumbents in the industry have created two major barriers to entry. The primary barrier is a redesign of the auger equipment to operate with a hydraulic rock breaking component. The typical auger operates in a circular motion with a pointed bit to stir the ground; the rock breaker or “hammer truck” uses force pressure similar to that of a jackhammer to break through rock. Given the geological makeup of Nova Scotia this machine has greatly improved productivity; however it is a difficult item to purchase or lease and carries a very high capital investment. The second major barrier is the standard specifications for major tendered projects. The two most notable policy changes are i) a quality standard for materials to be used in production (Canadian General Standards Board) and ii) installation specifications requiring the use of specific equipment. This has prevented new entrants from gaining the expertise to become profitable on such projects while being able to bid the job competitively.

Threat of Substitutes
Fencing and guard rail are both difficult products to substitute as they are already the least expensive material serving the clients need of barrier protection. Eastern Fence offers chain link, wood, PVC and galvalume ornamental fencing. One of the very few substitute products in the market is a sound barrier highway product seen commonly throughout Ontario. The material cost being approximately 10 times the cost of regular guard rail prevents this from becoming a concern in the maritime market. The key element to the product is the installation method which makes it possible for Eastern Fence to diversify its product line when the market demands it.

Bargaining Power of Suppliers
The bargaining power of suppliers is in general very weak. Eastern Fence has grown to a size in which it can benefit from economies of scale. Suppliers looking to penetrate the Atlantic Canadian market must have their products sponsored by a local installer. In this regard, due to the significant size advantage of Eastern Fence over all the major competition, it is difficult for suppliers to move large volume without local support. Owners tendering projects generally work closely with the company servicing the contract; as a result suppliers must maintain good working relationships which often include product discounting. There are also exclusive partnership agreements in which Eastern Fence is the only retailer of the suppliers’ product, thereby reducing the bargaining power of suppliers.

Bargaining Power of Buyers
The bargaining power of buyers is stronger than that of suppliers. Eastern Fence often works as a subcontractor for a particular trade of a general contractor’s larger project. As a result, pricing with high margins can be difficult. A general contractor can threaten to work with a different company, to outsource materials and attempt to complete the work with in-house staff or can even express interest in hiring companies from outside the geographic region. Approximately 70% of Eastern Fence contracts are through general contractors, creating a dependence on buyers for contracts, and effectively to keep market share and scale of economies operating smoothly. A decline in work from just one general contractor can cause an increase in price from suppliers in following years and have a twofold effect of reducing margin by increasing cost and decreasing sales price.

Industry Rivalry
Industry rivalry is relatively low in this particular market segment. Eastern Fence is the largest incumbent with only two major competitors: Maritime Fence and MacDonald Fencing. There have been waves of new entrants in the last 30 years that have lacked the capital to acquire any sustainable amount of market share. Those seen to be well-managed and poised for competition have been halted with either a merger or acquisition from one of the incumbents. There is more demand for work than there is capacity at either of the larger fencing companies, causing a 100% market share to be impossible. This helps to reduce competition even more as there is enough room in the market for multiple firms to flourish simultaneously.

Value Chain Analysis
Eastern Fence Ltd is a construction company with over one hundred years of experience in the fencing industry. Instead of focusing on a single field, Eastern fence provides their customers with residential, commercial, agricultural and sport and recreation products. As the oldest fence manufacturing an installation company in Canada; Eastern Fence Ltd has differentiated itself with a unique value chain.

Inbound logistics
Eastern Fence detects the cheaper suppliers in Canada and takes control of the raw materials that they need, ensuring the importance of quality standards in the products they manufacture such as chain link fence and building strategic partnerships with suppliers.

Operations
Eastern Fence has expanded its operations to better service the entire Atlantic region with head offices in Moncton and New Brunswick. The Nova Scotia division is named Eastern Fence Erectors which has two offices located in the Burnside Industrial Park in Halifax and Sydney respectively. Eastern Fence also operates one division in Charlottetown, Prince Edward Island.

Outbound logistics
In this process, Eastern Fence Ltd is selling all their products by themselves without any intermediaries. The company is devoted to offer rapid, secure and in-time movements of plant and timeliness movements of employees from and to plants.

Marketing and Sales
The investment in marketing and sales is not quite a lot. However, along the historical performance, the company is renowned for its professional installations and has developed a solid reputation for both services and quality. The sales staffs are prepared to evaluate customers’ site requirements, help design project and deal with any questions could happen.

Services
One of the main objectives of Eastern Fence Ltd is to provide the customers with superior levels of services. Eastern Fence offers assortments of services. Besides the installation, they are able to provide design and budgetary services for funding application or project approval as well.

Infrastructure
Eastern Fence Erectors is wholly owned by New Brunswick Fence Co. The standardization of accounting and legal practices reduces operational redundancies at the head office. The head office is strategically located on the same site as the New Brunswick installation base. This allows for upper level management to maintain strong relationships throughout all levels of the organization.

Human Resources
There are a lot of training programs available for employees. Eastern Fence considers employees as one of their most important resources. All employees attend a mandatory re-hire orientation, even those who have not been laid off during the winter months. There are extensive written procedures in place to ensure that every employee is treated fairly. Employees are also encouraged to participate in monthly safety meetings that are open to any member of staff; this helps to bring about all safety issues from every corner of operations to upper management in a very timely manner.

Technological Development
In recent years that has been a change in the views of the use of technology. Standard industry accounting systems, such as Textura, allow for simple and transparent transactions between organizations using a simple online system. Online project tendering has also been put to use, and has reduced labour demand on simple tasks such as delivering tenders, allowing management to become more productive.

Procurement
Eastern Fence uses high quality raw materials and the most reliable transportation for inbound deliveries. They also choose the best located sources in order to minimize damage through transporting process.

VRIO Analysis
Valuable
Eastern Fence is able to use their sophisticated digging equipment to perform work very efficiently. This can be invaluable on short timelines where general contractors are behind schedule. The equipment also reduces site remediation costs as it is a concentrated process on a very small work area.

Rare
Tow-behind and two-man augers are relatively simple to acquire and to use, however the auger truck used by Eastern Fence Erectors is not. This very powerful auger truck can dig as many as 200 holes per day depending on the digging conditions compared to an average of 20 per day using smaller equipment.  The cost of this equipment combined with a limited number of suppliers in North America make it a highly sought after piece of equipment. Often general contractors will work with Eastern Fence specifically to have access to such equipment.

Imitable
The fencing and road building industry has seen many fly-by-night companies attempting to imitate the general practices performed by incumbents. It is apparent that to achieve a level of production with limited resources for the lowest price is very difficult to imitate. It is not uncommon for new entrants to take on projects at a loss in an effort to build relationships. It is very difficult to imitate growth when one is not making a margin on their work.

Organization
The firm has an extensive list of employees that have been with the organization for 25+years in both the installation and project management fields. The extensive experience allows for Eastern Fence to problem solve with relative ease. This experience also lends a hand to building trusting relationships in the industry and being kept current on industry trends. By continuing to remain unleveraged and current with the industry Eastern Fence is poised to take opportunities faster than the competition.

Organizational Strategy
Eastern Fence is a Canadian fencing company, which is based in Moncton, New Brunswick. It is focused on the manufacturing as well as installation of fences for residential, sports, commercial, and agricultural purposes (Eastern Fence, 2009). A predominant approach the company uses in creating value, which lies at the core of its organizational strategy, is through making its installation and manufacturing processes as professional as possible. It is evident that the fences installed by Eastern Fence serve a wide range of purposes and can be tailored to meet diverse needs, as one would understand from the four groups mentioned earlier.
In this light, the company makes it possible for value to be delivered to a diverse assortment of clients, delivering a customized product to every client. For instance, in the provision of residential fences, a customer would have a wide range of categories to choose from, including wooden fences, ornamental, and chain ones. At the same time, the company invests in its employees in further enhancing professionalism and quality in service delivery as they play a critical role in the overall corporate strategy, which also improves value.

It is important to mention that the Canadian fencing industry is becoming increasingly competitive. Of importance to note are two of the main competitors, Soldan Fence and Metals Ltd, which is one of the fastest growing competitors that need to be considered a key competitor as well as Phoenix Fence. These two are also looking to tap into the same niche that Eastern Fence is operating within (Phoenix Fence, 2012), which should be a primary concern for the management of Eastern Fence. This analysis, therefore, finds it necessary to examine the measures that the company has put in place internally in an effort to deal with this competition. This analysis has established that Eastern Fence is not only the oldest fencing company in Eastern Canada, but also the largest. In this regard, it is agreeable that the company continues to utilize its capacity and financial resources to neutralize the threat of competition over time as it continues to realize available opportunities, by which it creates value. As such, diversification and customization have become primary approaches that the company is using to deliver value, which are fundamental aspects of the overall organizational strategy.

The company’s financial capacity and strategic approach to elevated professionalism and internal manufacturing can be said to one of its greatest strategic assets, as part of the Canadian industry, especially in the eastern region. As a result, this strategy is difficult for many competitors to compete with, considering that many competitors lack the financial strength Eastern Fence has. Finally, the company is organized well enough to utilize the resources available, again, considering its value creation (diversification and customization) strategy. Having understood the most critical dimensions of the company’s organizational strategy, one would add that, while the external environment may be a challenge, the company has remained one of the best performing organizations in eastern Canada. This is evident because the company remains the leading fencing organization in the region (Eastern Fence, 2009), in spite of the increasing competition. Owing to this strategic approach, the company has developed to level of centralizing its operations on a 10-acre piece of land at the Moncton Industrial Park, where the accounting department sits centrally. As an additional aspect of the strategy, the company localized the management of departments, where different managers and employees can provide specialized service, which is also a major advancement, thanks to the organizational strategy adopted.

Performance Analysis

Profit:                         $ 3,650,000 (10% of revenue)

Current Liabilities:     $ 1,642,500 (4.5% of revenue)

Current Assets:           $ 21,000,000

Revenue:                     $ 36,500,000

Current Ratio: The current ratio measures the extent to which the claims of short-term creditors are covered by assets that can be quickly converted into cash. Most companies should have a ratio of at least 1, because failure to meet these commitments can lead to bankruptcy. The ratio is defined as follows:

Current Ratio= Current asset/ Current liabilities

Current Ratio= 21,000,000/1,642,500

Current Ratio= 12.785

The higher the current ratio the more capable the company is of paying off its obligations this ratio of 12.78 is extremely healthy reflective of the positive ability of the company to turn its products into cash. This ratio is one used to quickly measure the liquidity of a company. In accounting, the term liquidity is defined as the ability of a company to meet its financial obligations as they come due. When interpreting Eastern Fencing ratio you can see that for every dollar in current liabilities the company has over 12 dollars in current assets. A current ratio that is more than 1 to 1 is considered good. Eastern Fencing is in a sound financial position.

Debt-to-Assets Ratio: The debt-to-assets ratio is the most direct measure of the extent to which borrowed funds have been used to finance a company’s investments. It is defined as follows:

Debt to Asset Ratio = Debt/Asset

Debt to Asset Ratio = 1,642,500/21,000,000

Debt to Asset Ratio = .0782 or 7.82%

Debt ratio ranges from 0.00 to 1.00. Lower value of debt ratio is favorable and a higher value indicates that higher portion of company’s assets are claimed by its creditors which means higher risk in operation since the business would find it difficult to obtain loans for new projects. With a Debt to asset ratio of only 7.82% Eastern Fencing demonstrates that it has a low degree of leverage and a high degree of financial flexibility. One shortcoming of the total debt to total assets ratio is that it does not provide any indication of asset quality, since it lumps all tangible and intangible assets together. This calculation was made with the financial data that was available.

Return on Assets (ROA): This ratio measures the profit earned on the employment of assets. It measures efficiency of the business in using its assets to generate net income. It is a profitability ratio. It is defined as follows:

Return on total assets = Profit/Asset

Return on total assets = 3,650,000/21,000,000

Return on total assets = .1738 or 17.38%

The profit percentage of assets varies by industry, but in general, the higher the ROA the better. For this reason it is often more effective to compare a company’s ROA to that of other companies in the same industry or against its own ROA figures from previous periods. Falling ROA is almost always a problem. Without a historical trend analysis of ROTA it is difficult to draw a firm conclusion as to the overall efficiency the company is demonstrating. Considering the data given this company is performing strongly and seems to be indicative of a company that is does not require intensive capital to operate. Return on assets indicates the number of cents earned on each dollar of assets. Thus higher values of return on assets show that business is more profitable.

The company appears to be operating efficiently and is demonstrating that it is a financially secure company. The Return on Total Assets ratio leads one to believe that the company has a high reliance on suppliers for its product mix. This reliance is being managed effectively however the company should ensure that its supply chain is stable over the long term.

Analysis of the options 12-14 Pages
Variables: Capital investment, human capital investment, risk, ease of implementation.

Alternative 1: Status Quo
Pro: No cost, has no potential for loss of overall profit.

Con: Fails to add value to firm.

Alternative 2: Expanding the service area of Eastern Fence Erectors
Pro: Significantly reduced sunk costs, no exit costs

Con: Higher labour costs due to travel time, increased bid price on job (higher margin with no differentiation)

Alternative 3: Acquiring local company
Pro: Market position is established, knowledge and learning curve reduced due to experience of local management. (local supplier relationships vs. economies of scale)

Con: Large capital cost, limited information, cultural integration (organizational fit)

Alternative 4: Setting up a subsidiary in Newfoundland
Pro: Higher local responsiveness, ability to gain market share quicker (pressures of local responsiveness vs pressures of cost)

Con: Lack of specific management experience in the case of external employment, lack of availability in internal management. (training costs)

Recommendations and implementation plan 4-6 Pages (Brandon)

References

Andrew, M., K. (2012). Overview of Newfoundland and Labrador aboriginal cultures. Acta Archaeologica, 83(1), 168-170. doi:10.1111/j.1600-0390.2012.00647.x

Audrey, D., T. (2013). Human occupation of Newfoundland and Labrador. Acta Archaeologica, 83(1), 168-168. doi:10.1111/j.1600-0390.2012.00646.x

Berardi, U. (2011). Sustainability Assessment in the Construction Sector: Rating Systems and Rated Buildings. Sust. Dev., 20(6), 411-424. doi:10.1002/sd.532

Johnston, A. (2009). Which Sectors Drive Regional Economic Development? Changes in Employment in Knowledge-based and Consumption-based Sectors and Regional Economic Performance. Local Economy, 24(2), 125-139. doi:10.1080/02690940902717113

Kenourgios, D., & Dimitriou, D. (2014). Contagion effects of the global financial crisis in us and European real economy sectors. Panoeconomicus, 61(3), 275-288. doi:10.2298/pan1403275k

McMurtry, J. (2014). The Political Economy of Procurement. Canadian Public Policy, 40(s1), S26-S38. doi:10.3138/cpp.2013-012

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