Case Type: market entry/new market.
Consulting Firm: Arthur D. Little first round job interview.
Industry Coverage: chemical industry.
Case Interview Question #00251: The client Flint Group is a European maker of printing inks and supplier to the printing and packaging industry. Well known for high quality and good technical support, the company currently sells only in the European market with 2/3 of sales in Germany. 
The company has noticed that prices for high quality printing inks are higher in North America and is considering expanding into this market. Their questions to you, an external consultant hired by the CEO to advise him on this matter are: Why are prices so high in North America ? Will this trend continue so that the company can earn a profitable margin in the new market? If the company decides to enter the N.A. market, how should it go about doing so?
Additional Information: (provided to you if asked)
1. Customers: The client Flint Group currently sells to 10,000+ printing shops; larger shops are more demanding in terms of technical service, etc.
2. Competitors (in North America): Two national competitors Xerox and HP provide more limited service; many regional competitors provide better service; all are U.S. based. Note: the use of a 2×2 matrix with Customers and Competitors is effective here.
3. Costs:
- Labor: 10% (higher in U.S.).
- Transportation: 5% (10% if shipping to N.A.).
- Raw materials (mostly commodities): 45% (higher in U.S. due to exchange rates, but all companies in N.A. get their materials from the U.S.).
4. Product: There are several quality levels of printing ink. The client sells high quality ink in four base colors that are used by magazines, etc. There is no difference in product quality requirements between Europe and N.A. The client provides technical support for 1-2 days to new users of its products and ongoing support for specific needs.
5. Promotion: Direct sales and relationships are key, the candidate may suggest potential partnerships or target add-on acquisitions.
6. Placement: Distribution is done through a logistics company in Europe.
Possible Solution:
Lukalaw I love your analysis. There’s one more reason why the prices might be higher in N.A. So we mentioned it could be the competitive landscape or cost structure but it can also be a mismatch between supply and demand.
the solution makes no sense to me – mostly because exchange rates do not affect cost in anything but nominal sense – but the whole structure here is off (in my opinion). Here is what i think would be a better way to approach.
Stage one: i would like to understand the client’s business a bit better – what is the ink market, is our client active only in one segment of it and whether i am being asked to refer to only that one specific segment – let us assume that yes. i would want to ask why is the company seeking to expand, does it have excess capacity? shrinking markets, or excess capital, or is this pure business opportunity.
Stage two – Open the case – Higher prices can be the result of either market structure or cost specific structure. Firstly i would like to explore the structure of the market:
A, who are they competition – two companies- how does that compare to Europe, if less then i might propose a Hypothesis that the higher prices are due to a lack of competition – and would ask for the profitability within the market, if the number are higher then in Germany\Europe i would affirm my hypothesis and continue if comparable\smaller than Europe i would like to examine the Cost aspect of the business.
B. Segment the cost – by value chain – Cost by unit for – Materials, manufacture, sales, customer service and see how they are comparable to Germany. For domestic production\ Manufacture in the U,S – Lets say i see that raw materials are much higher in REAL terms (that might be due to regulation or customs barriers), my hypothesis did not work out this is not a marker structure problem but a cost problem.
At this stage i would point out that this might not be as an attractive offer as it first seemed, and unless the company has a cost advantage it should revisit the idea. Should however the company seek to expand for any of the reasons detailed other then business opportunity or i am being asked to do so i would continue the analysis.