SAN A/S,1 a company incorporated in Denmark, manufactures electric heating products for the industrial market. The company was founded in 1950 and was involved in a limited way in the production of heating elements. Its primary activity originally consisted of acting as a trading company handling products for other manufacturers. This relationship has gradually shifted and the company now generates the greatest part of its sales volume from its own production, handling only a few products of other manufacturers that complement its own production. Production, sales, and profitability have grown steadily, and by the early 1970s the company had a dominating share of the Danish market for its products.

Growth has been achieved mainly by an increase in export sales. The company’s recent export expansion is the result of increasing involvement in larger-scale projects.
Production of small products is set to be unchanged in the coming years, and the company has not been very active in seeking to export these small products due to intense competition in overseas markets.

Company objectives

The company’s stated primary function is the coverage of industrial needs for electric heating products in Denmark and abroad. The company seeks to compete primarily on the basis of its know-how, product development, and service.
Expansion is sought through export, as the Danish market no longer offers expansion possibilities. The company aims to increase its sales by at least 15% per year, and this expansion is not to occur through competition with mass-producers.

The company’s products, resources, and organization

SAN A/S develops and produces custom-made load resistors and electric heating systems, and standard heating elements and cables. The company describes this as a narrow, deep, and consistent product mix. Heating systems are designed to customer specifications and include heaters for water, fluid, chemical, plastic, and oil heating;
industrial ovens; air duct heaters; unit and battery heaters;
defrosting elements; space heating systems; and tunnel ovens. The know-how acquired through the development of heating systems to customer specifications enables the company to develop new standard heating elements and cables that have a technological lead over similar products. The products are consistent in that they have similar production requirements, distribution channels, and, with the exception of load resistors, the same market. The company is economically sound, and its steady expansion has not caused profit or financing problems.

The company now operates at its full production capacity and is in the process of expanding its production facilities. In spite of this capacity expansion, the company anticipates that its continuing sales growth will result in a continued full utilization of capacity. This high capacity utilization has led to delivery delays in the past, and the company has now decided that delivery time for its standard products must not exceed six weeks.

SAN A/S is a Danish company that is 100% privately owned, with its own production facilities located near Copenhagen. At present there are 70 employees, of whom eight are civil engineers and 12 are technicians. Product development is typically organized in project groups. The company sells directly to customers in Denmark, and both directly and through import agents overseas.

Market

The company’s customers are mainly industrial processors.
Heat processes have almost countless applications.
The petrochemical industry and industries with a drying process are of particular importance in SAN’s market.
The company concentrates solely on electric heating processes.
These can be divided into those in which heating requirements can be covered by standard and mass-produced products, and those in which requirements demand the development of tailor-made products or systems.
The market for standard and mass-produced heating elements and cables is well developed; there are established producers in all industrialized countries and competition is intense. The buyer is seeking a product that can fulfill specifications that can be met by many suppliers. The market demands high quality, quick delivery, good parts availability, and a competitive price. The buying decision is typically made by an engineer seeking to reduce operating costs. Competition in the market for special products and systems is less intense, as there are fewer suppliers. Here the buyer is seeking a supplier whose know-how will help to develop a product or system that can fulfill new specifications – for example, higher heating temperatures, better heat-to-energy ratios, resistance to corrosion – that are not available with existing products. The buyer still demands high quality and good back-up (parts availability and service) but is not seeking quick ‘off-the-shelf’ delivery. Price is also of less importance, as the product or system is required to pay for itself through either reduced operating costs or increased productivity.
Again the buying decision is typically made by an engineer. Direct contact between the buyer and the supplier is important in the buying process, as the product development is a new task for both parties.

Export markets

SAN is a niche marketing company and has had a typical export history. As the home market became saturated, the company started exploiting the possibilities in geographically and culturally close markets through import agents.
Exports started with the Scandinavian countries and have since expanded by agents to most of western Europe (except Germany and the United Kingdom), Poland, Greece, and North America. At the present time the company has no international investments in the form of sales or production companies or joint ventures. As export now accounts for a rapidly increasing share of sales, management is becoming increasingly interested in being able to control its international marketing efforts. The company’s expansion strategy, therefore, is to establish sales companies wherever economically possible, and agents are seen as a second-best solution.
The growing share of sales accounted for by project-
export has also led to a changing emphasis in marketing strategy. While import agents have fulfilled a useful role in establishing SAN’s export of products, their use in project-export is much more limited, as direct information exchanges between the supplier and the buyer are very important. For the company this means that increased expansion will lead to increased direct involvement in foreign markets. In some foreign markets there is a dual-distribution system in which SAN is responsible for projects and special products and agents are responsible for small and standard products.

Expansion to Australia

As part of its long-term expansion strategy, SAN is considering entering markets in other parts of the world. One such market is Australia, where SAN has had no export experience. Due to the company’s present expansion in Scandinavia and western Europe, it has limited resources to devote to the Australian market. The company is somewhat cautious and not anxious to expand too quickly. In the short term, therefore, if the company were to enter the Australian market its goals would be twofold:

(a) to establish the company’s reputation in Australia, with a view to more intensive market development at a later stage when resources permit and

(b) to obtain a quick return on its investment in order to avoid delays in its expansion in other markets as a result of a financial overextension in Australia.

Management has authorized a comprehensive market study with the following objectives:

(a) analyze the Australian market and determine the sales potential for the company’s products;

(b) evaluate the different marketing strategies and policies that might be used; and

(c) choose the strategy and policies that harmonize best with the company’s expansion strategy and current resource availability.

Questions

1. Explain how secondary information can be used to meet the objectives of the market study.

2. What kind(s) of data and sources of such data would be useful?

3. Should SAN A/S enter the Australian market? Defend your answer.