AbstractToolsCorp. benefits from relatively high gross margins a.docx

Abstract
ToolsCorp. benefits from relatively high gross margins as the
kind of products that the company sells such as machines allow
for premium pricing to compensate for the high operating costs
involved. However, these high operating costs incurred in the
production processes are a major weakness for ToolsCorp. This
is besides the large cost outlays involved that form a barrier to
entry for new firms and into new markets. On the other hand,
the development of technology poises the company for business
success. This is due to the emergence and provision of 3D
modelling services through which potential customers can
customize products to reflect their unique fabrication needs
thereby furthering demand while also enhancing premium
pricing on these services. At the same time, internet technology
is also a threat to the company as it increases competition and
has the tendency of exerting a downward pressure on prices
(Schmidt, 2009).
In line with its objective of breaking into the global market
space, the company should venture into China. This is because
China has a thriving economy and an expanding middle-class
capable of generating sufficient demand for the company’s
products. However, in compliance with government regulations,
ToolsCorp. shall have to acquire a suitable subsidiary company
in China in which it will own not less than 80% of the stake.
This is also to help the company acclimatize with the Chinese
business environment (Wiedmann, Hennigs & Siebels, 2007).
ToolsCorp. shall first enter the Chinese market by
manufacturing and selling microwaves, lawn mowers and power
tools. However, in the long-term, the company shall have to
diversify its revenue streams by also making and selling ranges
and lawn furniture.
It is however important to realize the extent in which the
Chinese culture and architecture is deeply embedded in the way
of life of the locals. Therefore, the company shall have to

integrate itself into the Chinese culture by for example ensuring
that at least 98% of the workforce in the Chinese subsidiary are
locals. Incorporating Chinese designs into the company’s
products such as lawn furniture will ensure that the product
offering reflects Chinese culture and architecture. Furthermore,
initiating local Corporate Social Responsibility (CSR) activities
within China will help the company embrace the local’s way of
life and therefore ensure the business success of company
(Schmidt, 2009).
Q1: SWOT Analysis
Strengths
· Demand for some machine tools to support construction works
generally does not change during times of economic duress
· Gross margins are moderately high
· Limited competition due to huge capital outlay for initial
investments
· Diversity in product offering to potential customers
· Competent management team
· Customer-friendly team
· Good Customer Support
Weaknesses
· High Operating costs
· Revenue fluctuations due to changes in the economic cycle
· High barriers of entry due to huge capital outlay required
· Weak marketing team
· Low geographic presence
Opportunities
· Providing 3D modelling services to customers that have
unique fabrication needs
· Online ordering and purchase system
· Increasing Demand for Housing
· Acquiring other stores to leverage on synergies
· Expanding into newer markets globally

Threats
· Industry slowdown due to difficult economic times
· Technology e.g. Internet
· Changing Market Preferences
· Easily Replicable business model
· Stagnant Urban Demand
Strengths:
The first strength for the company is stemmed on the stability of
the nature of demand for some of its products. Specifically, the
customers’ demand for some categories of machine tools that
are used in the construction industry remains fairly stable even
in times of economic duress. These machines include power
tools, lawn mowers and rangers, whose demand does not change
much when the economy is generally experiencing bad times.
This promises that the company’s products shall always be in
demand with the company relatively positive sales results as
compared to other companies. Second, the nature of sales
transacted by the company earn a high level of gross margins.
This implies the products the company sells are priced
relatively high enough so that the company enjoys good profit
margins. This is a key strength for the company as it is able to
earn high revenues from its transactions which then increase the
value of the company for its shareholders (Ross, Westerfield, &
Jordan, 2017).
Third, the nature of the industry in which ToolsCorp. operates
in is characterized by a limited level of competition. This low
level of competition is generally attributed to the enormous cost
outlays that starting a machine company requires. In general, a
modest machine company would require a minimum of $250,000
just to get basic operations running. This is a strength because
the level of competition is reduced thereby saving the company

a lot of dollars that it could have otherwise spent in marketing
costs. Fourth, the company has a diversified portfolio of product
offerings that it avails to its target market. The company
manufactures and sells power tools, lawn mowers, lawn
furniture, microwaves and ranges. This means that should there
be a lull in the demand for power tools, this shall be offset by a
relatively high level of demand for other consumer durables
such as microwaves. Therefore, by diversification, the company
enjoys a steady income and hence a key strength for the
company (Ross, Westerfield, & Jordan, 2017).
Fifth, the company has strong management team. This is an
important strength for the company as the management offers
good corporate governance. This steers the company to achieve
effectiveness and efficiency in its operations. Besides, the other
strength is that the company has a customer-friendly team that
ensures that customer complaints and queries are handled and
responded to in a timely manner. The company also prides itself
for having a good customer support which adds to strengths of
the company. Customers enjoy free deliveries of the equipment
they buy from our stores for an address within five-miles radius
of any of our stores in the U.S and Canada.
Weaknesses
A key weakness for ToolsCorp. entails the high operating costs
that it incurs. These huge production costs covering fuel, raw
materials, consumables and labor, both skilled and unskilled,
bear negative effects in terms of limiting the profit potential of
the company despite the huge gross margins it enjoys. In
addition, normal economic cycles about recession and boom
affect the revenues of the company. Revenue fluctuations occur
despite the stability of demand of some of the company’s
products. These fluctuations pose planning difficulties for the
firm (Kathy, 2008).
Third, there are huge cost outlays involved in setting up
operations for a company like ToolsCorp. This therefore creates
a barrier of entry for ToolsCorp. in its attempt to break into the
global market. The other key weakness is that the company has

a weak marketing team in place. As a result, the company does
not enjoy a significant strong brand name. This will therefore
pose enormous challenges for the company in trying to get its
brand known in the global marketplace as the company is not
well-known internationally. The fifth weakness of the company
is that it is presently located in U.S and Canada and therefore a
low global geographic presence. This limits the market share for
ToolsCorp. It also underscores the need for global expansion so
as to increase its market share by venturing into new overseas
markets (Kathy, 2008).
Opportunities
A major opportunity for the company is that with the
development of technology, it shall become possible for the
company to provide 3D modelling services to customers. These
services when applied to certain categories of power tools will
allow the company to satisfy the needs of its customers who
have unique fabrication needs. These services also allow the
company to enjoy higher revenues as the gross margins on these
services are higher. Also, with most companies adopting an
online strategy, via which customers can place orders online via
the companies’ websites, ToolsCorp. should also consider
adopting an online ordering and purchase system. Allowing
customers to order for any of the equipment online on the
company’s website will allow the company to reach more
potential customers. Thirdly, with the growing population, there
shall continue to be an increase in the demand for housing. This
means that the demand for equipment such as lawn mowers,
lawn furniture and power tools shall continue to increase or in
the very least remain stable (Kamauff, 2009).
Fourth, if ToolsCorp. considers acquiring another company in
the global market place, then the company shall be able to
benefit by leveraging on the synergies created. Acquiring a
company may access ToolsCorp. to a large network of stores
through which ToolsCorp. Can display and sell its products.
Therefore, expanding globally avails new markets into which
the company can tap into. Hence, the bottom line position of

the company is improved (Kamauff, 2009).
Threats
A major external threat pertains industry slowdown due to
difficult economic times. Industry slowdown during recession
for example would mean that the demand for most of the
company’s products is low. This shall in turn result in mass
layoffs and underutilization of resources such as capital, factory
facilities and labor. Another threat is technology such as the
internet. Through the internet, a potential customer may search
for similar products offered by the company’s competitors and
make the cheapest purchase. With this in mind, ToolsCorp. as
well as its competitors may be forced to drive down its prices
and hence reduce the gross margins enjoyed by the company
(Kacen & Lee, 2002). Changing market preferences is also
another threat.
The unpredictability of changing customer preferences and its
dynamics may therefore render some power tools and products
sold by ToolsCorp. obsolete. Therefore, the company shall need
to invest on market research to understand the trends in the
market place, the consumer’s needs and ultimately design
products that meet these needs. Another threat for the company
is that its business model is easily replicable. This may
introduce new competition for ToolsCorp. Finally, there is a
fairly stagnant level of urban demand. The demand for
microwaves and lawn furniture does is in generally not set to
increase exponentially going into the future. This means that
diversifying its product offering even further may be the
ultimate way for the company to continuously increase its
bottom line position (Ross, Westerfield, & Jordan, 2017).
Q.2: Business Plan Outline
The goal of ToolsCorp. is to enhance the value of the company
to its stakeholders. This shall be achieved through a multiplicity
of factors. First, global expansion shall be very strategic in
securing new markets for the company’s products. This shall
provide a global reach in all business areas of ToolsCorp. As a
result, the company shall be in a position to benefit from

increased revenues, increased market shares, bottom line,
growth rate and shareholder return. All initiatives of the
company are ultimately tied into increasing the value of the
company to its shareholders, customers as well as employees
(Kroeber, 2017).
In light of these, the company should consider venturing into
the Chinese market. China is the second largest economy in the
world and is therefore a beacon of opportunity for an expanding
company like ToolsCorp. However, as the company is not
known in China, the entry strategies shall entail first
acclimatizing to the Chinese market. ToolsCorp. shall acquire a
sales subsidiary in China (Kroeber, 2017).
The acquired company in China shall be as a result of a rigorous
search to determine the most suitable match for ToolsCorp.’s
interests in China. The initial stages shall then be spent on
ramping up ToolCorp’s exposure in China. The company shall
be specifically seeking to grow its sales of home appliances
such as power tools and microwaves in China. This is part of
the larger corporate strategy of the company to grow its revenue
to over USD 14 billion over the next 6 years. This would
represent a 33.5% increase from the current sales revenue level
registered by the company from its U.S and Canada stores
(Hoyer & Macinnis, 2008).
ToolsCorp. shall plan to invest a sum total of $1.2 billion in its
China expansion plans. Out of this, approximately $800 million
shall be spent on acquiring a subsidiary. $100 million shall be
spent on making capital expenditures while the remaining $300
million shall be spent on product research and development.
This is to ensure that our products reflect the needs of our
Chinese consumers and that we continuously continue to
improve our products to gain a competitive advantage over our
competitors (Harmon & Margolis, 2005).
Our R&D investment in China shall also incorporate our plan of
offering 3D modelling services to our customers as well an
online ordering and purchase system, all of which shall also be
rolled out to affect our U.S and Canada operations as well. This

means that our Chinese customers shall immediately be able to
design their power tools to meet their unique fabrication needs.
In addition, they shall be able to order for any of our products
via our company’s website and have them delivered at their
address at a cost proportioned to the customer’s distance (Cant,
Strydom & Jooste, 2009). With these enhanced customer-
support features available to our Chinese customers, we expect
to hit our sales target of $4 billion in the Chinese market by the
fourth year of operation.
Q. 3: Mission Statement
ToolsCorp Corporation is a manufacturer that designs, builds
and distributes a wide range of innovative household furniture
and portable machines to be used by regular households in the
U.S and globally to perform everyday activities. Through our
skilled and dedicated employees, we safely and effectively
exceed customer expectations with quality-proven machine
solutions such as power tools, lawn mowers, lawn furniture,
microwaves, and ranges. We provide first-class quality and
innovative machine tools and furniture that respond to our
customers’ needs and we endeavor to continuously improve on
our designs and innovations to reflect the changing needs of our
customers. We value commitment, skills, attitude and effort of
our employees which are all important for the success of the
company. We believe that by maintaining a healthy business
relationship with our customers, suppliers and employees, the
company shall experience growth and guarantees our future
prosperity and success. We intend to continuously transcend
our customers’ expectations in quality, delivery and cost
through continuous improvement and customer interaction. We
endeavor to build on our history of product excellence and
technology innovation to provide the highest-quality and most
reliable products and services to our world-wide customers of
home furniture and home machine tools.
Q. 4: Key Operating Principles
ToolsCorp Corporation is engaged in providing home furniture

and machine tools that make work easier and that meet the
needs of regular households not only in the U.S alone, but also
in other counties globally. With more expansion plans in place
so as to secure a larger market share in the global market, it
becomes necessary to adopt production management practices
that enhance effectiveness and efficiency within the company.
These practices also form part of the corporate culture at
ToolsCorp as it seeks to consolidate and expand its local market
share as well as markets across international borders. Efforts
towards this end shall therefore entail the key operating
principles that are applied and adopted by the company in its
operations (Wysocki, 2011). The key objectives of these key
operating principles are consistent with the mission statement of
the company and aim to continuously increase the value of its
products to its customers as well as maximize the value of the
firm to its different stakeholders (Kamauff, 2009).
The Key Operating Principles of the company include;
1. Quality products to our customers; the company shall at all
times ensure that the product it offers to its customers are of the
highest attainable quality standards. This means introducing
quality checks at every step in the production and supply chain
to ensure that processes and products are reliable and
sustainable (Schmidt, 2009).
2. Empower our employees; as employees are key resources for
the company, the company shall always undertake measures that
promote a creative environment for the development of
rewarding and fulfilling careers for our employees (Schmidt,
2009).
3. Enhance community development; the company shall
endeavor to contribute towards community development through
sustaining and advancing the manufacturing culture as well as
providing employment opportunities to locals in the areas we
operate (Kamauff, 2009).
4. Focus and enhance on customer satisfaction at all times; our
customers are our main drivers for growth and success,
therefore the company is committed towards ensuring that its

various products satisfy the needs of customers. The company
shall commit substantial resources towards product research and
development in addition to conducting continuous customer
surveys to assess the changing needs of our customers. As a
result, our products shall be regularly improved to reflect the
changing needs of our customers (Wysocki, 2011).
5. Enhance productions and operations efficiency; efficiency
within the company shall be enhanced through undertaking
efforts that lead to a leaner, flexible and scalable company.
Consequently, we shall endeavor to minimize production wastes
and costs while at the same time offering our customers the
lowest attainable prices for our products (Wysocki, 2011).
6. Suppliers’ and vendors’ involvement; the company endeavors
to ensure value in all that we do through also empowering our
suppliers and vendors on a strategic basis. Brining our suppliers
and vendors on board enables them to be familiar with the
production processes and standards adopted by the company.
This also familiarizes with the specifications required for the
components outsourced from the company’s vendors. In
addition, involving the suppliers enables them to reduce
production delivery lead times and ensure that our products
reach our target market at the right time and as needed
(Schmidt, 2009).
Q.5: Preliminary Market Analysis
As mentioned in earlier sections of this report, the China market
presents a beacon of opportunity for the company to grow its
sales and market share for the various products in its product
offering. To start with, China offers great potential by the fact
that it is the second largest economy in the world after the
United States. This means that on average, potential customers
in China have relatively high average incomes and so they are
capable of affording our products. In addition, an expanding
middle class in China is spinning the wheels of economic
growth by sustaining increasing demand for fast moving
consumer goods as well as consumer-durables. As ToolsCorp.

specializes in the manufacture and sell of various consumer
durables, China is set to offer great demand for the company’s
products (Kroeber, 2017).
China is also marked with unique government regulations that
are aimed to protect its thriving manufacturing industry.
China’s government regulations limit foreign manufacturing
companies from setting up their fully-owned manufacturing
bases in the country. The government requires that no foreign
company can set up its operations being 100% foreign owned.
Instead, each foreign company seeking to venture into the China
market must do so as a joint venture with a Chinese company.
In previous years, China mandated that both the foreign
company and the Chinese company would each own 50% of
their joint venture (Kroeber, 2017).
This was a protectionist move by the Chinese government to
protect its local industries, promote the Chine industry and
enhance employment for the local Chinese. However, with
globalization, China relaxed this requirement to only require
that the stake of a Chinese company in a new venture by a
foreign company in China be not less than 20%. Effectively,
this means that the Chinese environment faces heavy
government regulation (Kroeber, 2017). Hence, ToolsCorp.
shall have to venture into China by acquiring a majority stake in
a local Chinese company engaged in the same business industry
as ToolsCorp.
Despite a heavily regulated environment, China remains to be a
manufacturing hub for many foreign companies. This is because
of the relatively lower operating costs to run manufacturing
facilities in China. China offers cheap labor that offers labor
cost advantages for the company. This will particularly be
beneficial for the production of products such as power tools,
lawn mowers and microwaves that require heavy indulgence of
both skilled and unskilled labor to handle assembly and
machining operation respectively as part of the production
process. China also values its cultures and it is a deeply
ritualistic society (Kroeber, 2017). This therefore means

ToolsCorp. subsidiary in China shall need to be integrated with
the local culture.
ToolsCorp. needs to be seen to appreciate and embrace the
Chinese culture. This is a move to endear the company and its
products to its potential customers. The company needs to be
perceived as a local player by acclimatizing and adapting to the
local environment. This is a strategic defense against whatever
possible rivalry ToolsCorp. may face from its competitors in
China. As a necessary measure towards this end, ToolsCorp.’s
subsidiary in China shall need to hire local Chinese.
Approximately 98% of the workforce shall have to be Chinese
so as to gain trust with the local employees. Besides, the
company shall have to initiate employee ownership programs
such as welfare project and promoting ToolsCorp. as a company
that embraces Chinese cultural practices (Kroeber, 2017).
Q.6: Strategic Objective Proposals
One-Year Strategic Objective: Acquire a subsidiary company
and begin production in China
The Chinese business environment is heavily regulated by her
government and so it is not possible for a foreign company to
set up a base in China in which it owns 100% of the stake.
Regulations require that a foreign company venturing into China
does so by incorporating a local Chinese company in the
venture. As such, ToolsCorp shall have to seek a suitable
acquire company so as to start manufacturing and production in
China. While this is in part satisfying the regulatory
requirements, it is also the best strategic move for ToolsCorp.
in its first year of operations in the global market and in China
to be more specific in terms of acclimatizing itself with the
Chinese business environment (Armstrong, 2006).
For ToolsCorp to acquire a local Chinese company that offers
the best strategic fit in line with ToolsCorp. business’ model,
the services of investment bankers shall have to be solicited.
The investment bank will help conduct a search for a suitable
target company in China that ToolsCorp. will need to acquire.
The investment bank will also undertake valuation of the

acquisition and facilitate the acquisition process in the target
company in which ToolsCorp. is to maintain a majority stake of
not less than 80%. Once a suitable target company has been
acquired, it shall effectively become a subsidiary company of
ToolsCorp. after which the integration process shall commence.
This integration is meant to allow for a restructuring of the
organizational structure within the subsidiary and therefore set
the stage for productions to kick off. The lead products to be
launched in China shall include power tools, lawn mowers and
microwaves. Production shall be undertaken in line with the set
production quotas (Pandley, 2010).
5-Year Strategic Objective: Increase sales revenue by meeting
sales quotas
The initial years shall be spent on ramping up exposure within
the Chinese market. Therefore, over the next 5 years,
ToolsCorp’s subsidiary in China shall focus on increasing its
sales revenue. This shall be served by striving to meet the set
sales quotas. This goal is also closely tied with increasing and
maintain profitability of the Chinese subsidiary. Ensuring a
sustainably high profitability level necessitates that the
management takes measures to balance the operating expenses
incurred against the revenues generated (Ha, Jnada & Muthaly,
2010).
Also, meeting the sales goals will be greatly bolstered by great
marketing efforts. This in turn is dependent on having a strong
marketing department within the Chinese subsidiary. A great
marketing department shall be responsible for generating
demand for and selling the company’s products in China.
Therefore, the management of the subsidiary company should
ensure that an effective management team is in place so as to
support its objectives of increasing sales revenue and meeting
its sales quotas (Ha, Jnada & Muthaly, 2010).
10-year Strategic Objective: Diversify and Grow Revenue
Streams
In the long run, ToolsCorp’s. subsidiary in China shall be
seeking to assert itself as low-cost manufacturer that offers its

customers great quality and value for money in the various
products in its product offering. Having grown its brand name
in China over the years, ToolsCorp’s shall need to diversify its
revenue streams and offer more products to its Chinese
customers. This means expanding its product offering in China
from only power tools, lawn mowers and microwaves to also
include lawn furniture and ranges. This diversification will help
the company mitigate against the risk involved in just offering a
few products. Product diversification will therefore ensure that
the company has several sources of revenue while at the same
time extending new products and choices to its potential
customers within China (Ross, Westerfield, & Jordan, 2017).
As part of product and revenue diversifications, ToolsCorp.
shall have to greatly consider integrating Chinese designs into
some of its products such as lawn furniture. Adapting Chinese
designs into the lawn furniture that the company manufactures
and sells in China shall be beneficial in generating demand for
these products. This is premised by the fact that the Chinese
value their culture which is also significantly depicted in its
local architecture. Therefore, incorporating Chinese architecture
and culture into the designs of lawn furniture will be extremely
useful in generating demand for these furniture among local
Chinese. Furthermore, incorporating Chinese designs into the
product offering shall be achieved through providing 3D
modelling services through which Chinese customers can
customize our products to best suit their needs. However, hiring
Chinese designers to design the lawn furniture and other
products so as to reflect Chinese culture and architecture will
prove to be more effective towards this end (Hollenbeck,
Gerhart & Wright, 2015).
Q.7: Additional Information
Adapting to the local culture of the Chinese market is a
fundamental aspect of the business success of ToolsCorp.’s
subsidiary in China. The company shall need to be seen as a
local company by the locals so as to keep at bay any form of
rivalry that distinguishing the company as a foreign company

may attract from its competitors in China. Integrating into the
Chinese market may therefore require a lot of the Corporate
Social Responsibility (CSR) activities of the company. As part
of its CSR activities in China, ToolsCorp. may need to
undertake an aggressive campaign to support local activities.
These includes donating equipment to hospitals during times of
crisis, launching schools, offering scholarships to poor students
and sponsoring some local cultural festivals. These activities
will create a strong sense of localism and therefore spur
consumption and uptake of the company’s product offerings
amongst its Chinese customers. In the end, these activities will
push ToolsCorp. to a commanding position in China across all
its product lines (Kroeber, 2017).
References
Armstrong, K. (2006). A Handbook of Human Resource
Management Practice. Kogan Page Publishers.
Cant, M.C., Strydom, J.W. & Jooste, C.J. (2009). Marketing
Management. Juta Publications
Ha, H., Janda. S. and Muthaly, S., (2010). “Development of
brand equity: evaluation of four alternative models”, Service
Industries Journal, 30(6), pp. 911-928
Harmon, P., & Margolis, N. (2005). Accounting Essentials (4th
Ed.). Wiley.

Hollenbeck, J., Gerhart, B., and Wright, P. (2015).
Fundamentals of Human Resource Management. John Wiley &
Sons.
Hoyer, W.D. & Macinnis, D.J. (2008). Consumer Behavior (5TH
Ed.). Cengage Learning.
Kacen. J. J. and Lee. J. A., (2002). The influence of culture on
consumer impulsive buying behavior. Journal of consumer
psychology, 12(2), pp. 163-174.
Kamauff, J. (2009). Manager’s Guide to Operations
Management. McGraw Hill Professional.
Kathy, S. (2008). Information Technology Project Management,
(5th Ed.). Cengage Learning.
Kroeber, A. (2017). China’s Economy: What Everyone Needs to
Know (1ST Ed.). McGraw Hill.
Pandley, I, M. (2010). Financial Management (10th Ed.).
Jangpua: Vikas Publishing House.
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2017).
Essentials of corporate finance (9th ed.). New York, NY:
McGraw-Hill Irwin.

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