Gerrit Motors is an original equipment manufacturer (OEM) that produces auto parts and equipment for large automobile manufacturing companies. Gerrit has been in this business for the past 15 years.

Brake pads

Initially, Gerrit had only one manufacturing site, which was in Birmingham, UK. The company originally started with the production of brake pads. These brake pads were produced using a standardized process and low-technology machinery. Gerrit Motors had several competitors and all of them used similar processes and low-technology machinery. Gerrit had an overall market share in the UK of about 4 per cent. Historically, about half the sales of brake pads had been domestic sales and the other half had been overseas sales. The overseas market was mostly concentrated in South-east Asia. Gerrit always believed in maintaining good relations with its customers to develop a wide-ranging and loyal customer base. The selling prices were the same in all markets and were determined in pounds. Recently, the chemical used in the manufacture of Gerrit’s brake pads has been found to cause respiratory problems, and various health bodies have campaigned for its use to be banned. Gerrit’s brake pads business has been severely affected by this development.

Biometric vehicle access systems
The impact on Gerrit’s brake pads forced the company to review its business strategy two years ago. After several high-level internal discussions, the company decided to use its existing facilities to produce biometric vehicle access systems. The biometric vehicle access system is a relatively new auto component, and its profit margin is high. Gerrit is banking on its existing clientele in the automobile industry to push sales for its biometric systems. The manufacture of this new component required heavy investment in new machinery. Gerrit required large-scale investment to make the production of large volumes viable. Since it was not feasible for the company to raise further equity, it financed the new investment through borrowing and exhausted its debt capacity. Gerrit sells its biometric systems in the domestic market as well as in the South-east Asian market. Gerrit’s revenue has increased at a rate of 40 per cent in each of the last two years. A crucial component of its biometric systems is imported from a manufacturer in Korea as no other supplier can match the Korean manufacturer’s pricing. The Korean manufacturer recently raised the prices for this component, citing significant increases in production costs.

Industry background

In the biometric vehicle access market, Gerrit competes against both small and large competitors. Since biometric vehicle access is a new product and has a high profit margin, there are many new entrants in the industry. The market for this component has witnessed a growth of 60 per cent per annum in recent years.

Required
1. Using the given information, evaluate the factors leading to the business environment uncertainties faced by Gerrit in the manufacture of biometric vehicle access systems.
2. You are the strategic consultant of Gerrit and have been asked to write a memorandum to the board assessing the following issues in determining the future strategy of the company:
• Competitor analysis
• Pricing policy