CASE STUDY 1: IDENTIFICATION OF TARGET MARKETS FOR POSSIBLE NEW ENTRY

A leading Fortune 500 manufacturer of a variety of industrial, commercial, and consumer products decided to investigate markets outside of its core product offerings in order to identify potential new industrial markets to enter. It is widely recognized that the industrial markets tend to be mature, utilize old technology with long lifecycles, and are slow to accept new technological innovations. Large companies are finding it increasingly difficult to maintain organic growth, further promoting an atmosphere of mergers and acquisitions. Many key markets have witnessed intense consolidation resulting in the majority (50 to 80 percent) of the market revenues being controlled by the top five to 10 market participants. As consolidation continues to occur, many of the industry competitors are looking for new markets to enter and, in a few cases, looking for segments within the markets that are growing at double-digits. Whether their efforts are to investigate adjacent markets that require their existing product lines, markets that use complimentary products that accommodate horizontal integration, or completely new markets, it becomes increasingly difficult for companies to easily identify and adequately track potential new markets.

MARKET CHALLENGES

The Fortune 500 company wanted to identify world markets outside of its current market focus that best correspond with its future growth objectives. The identification of suitable markets with superior potential represents a crucial first step because it will be the basis for future research into the viability of the company to enter those markets.

CONSULTING APPROACH

Frost & Sullivan conducted the work in two phases over a four-month period:

• The Phase One research consisted of an extensive screening of Frost & Sullivan’s vast database of research, reviewing more than 700 markets across five geographic regions in accordance with key criteria provided by the company. The key filters for this phase included market size, market growth rate, technology level, and fragmentation. The markets were placed into three categories: “Accepted,” “Rejected,” and “Marginal,” thus providing the company with a hierarchal listing of markets that could be revisited for future analysis. The markets were narrowed to 30 prospective industries for further evaluation by the company. After internal deliberations, the company presented more than a dozen markets for further investigation in Phase Two.
• The Phase Two research entailed a more detailed investigation of the target markets and the key companies participating in them. The key criteria used in the investigation included market size, annualized growth over the next five years, growth cyclicality, growth over the cycle, market concentration, profit margins, CapEx, R&D expenditures, synergy with the company, level of technology, and others based on the specific needs of the company. Industry scorecards were used to filter the markets to the top five potential markets. A detailed evaluation of the market participants in these industries was then conducted, presenting the company with viable partnering and acquisition targets to assist in rapid market entry.

IMPACT

Frost & Sullivan’s findings and recommendations were vital to the company’s five-year strategic planning. It not only provided immediate markets for the company to enter, with sound partnering and acquisition candidates, it also provided a repeatable system for future evaluations and provided timetables for other markets to consider over the next five to 10 years.

CASE STUDY 2: IDENTIFICATION OF TARGET MARKETS FOR POTENTIAL EXPANSION IN INDUSTRY VERTICALS FOR A LEADING ASIAN-HEADQUARTERED MOTORS AND GEARS MANUFACTURER

An Asian-headquartered manufacturer of industrial motors and gears realized that, given mandated growth goals over the next 10 years, it would need to investigate markets outside of its core geographic and industry vertical bases. It is widely recognized that industrial markets, such as motors and gears, tend to be mature, utilize old technology with long life cycles, and can be slow to adopt cutting-edge technology. Given these factors, large companies can find it challenging to maintain organic growth and are increasingly involved in efforts to increase their footprints geographically, by product, and by target industry. Whether it is to investigate adjacent markets for existing products, find markets that utilize complementary products that accommodate horizontal integration, or discover completely new markets, it becomes increasingly difficult for companies to easily identify and adequately track potential new markets.

MARKET CHALLENGES

The motors and gears leader needed to identify potential markets in North America and Europe for its core products in new industry vertical markets. In addition to identifying numerous potential target segments in both these areas, it also wanted in-depth strategic analyses of several top potential segments to:

• Help it prioritize specific resource allocations over the next two, three, five, and 10 years
• Target achieving minimum growth goals in those segments

CONSULTING APPROACH

Frost & Sullivan conducted this research in several phases over approximately 10 months. The general process flow included:

Phase One—This phase consisted of screening 10 product segments in multiple key end-user categories for motors and gears, along with specific applications categories for motors. The initial screening was based on key factors in each of the cross-segments, including market sizing, market growth rates, average industry profit margins, barriers to entry, and pricing power, among others. From this initial evaluation, several further levels of sifting occurred, with ratings criteria becoming more specific. The purpose was to arrive at the top 10 most desirable product/industry segments.

After this multi-level qualification process, approximately seven segments were selected for the feasibility of launching products into these markets. Data evolved from this research included:

• Market sizing and growth forecasts
• Research and development design trends and issues
• Manufacturing analysis
• Sales and marketing analysis
• Logistics analysis
• Distribution channel analysis
• Pricing and margin analysis
• Services analysis
• SWOT analysis of key competitors in motors and gears
• SWOT analysis of client company vs. competitive offerings
• Analysis of imports and their affects on pricing and the competitive landscape

Phase 2—In addition to the above research, Frost & Sullivan conducted extensive end-user interviews in the key vertical segments to ascertain factors critical to strategic evaluation, including:

• Major purchasing criteria for motors and gears
• Purchasing style/process
• Willingness to accept new suppliers and the process new suppliers must follow for acceptance
• Customer needs and GAP analysis

Phase 3—This phase, worked in conjunction with the others, was a Growth Workshop in which Frost & Sullivan interacted deeply with key client team members to understand thoroughly the client’s capabilities, SWOT, internal culture, current global footprint, corporate and divisional goals, and expectations and needs. This level of discovery allowed Frost & Sullivan to craft specific strategies that would be feasible for the client organization to undertake.

IMPACT

Frost & Sullivan’s approach through this process was to be highly iterative and interactive with the client team, with both teams providing brainstorming and feedback that helped develop a robust methodology and framework for delivering the data. Frost & Sullivan’s data and strategic thinking were vital to this company’s growth objectives over a 10-year trajectory. This engagement provided the potentially most profitable markets to address immediately, with key elements of marketing, messaging, sales force footprint, manufacturing strategies, research and development strategies, distribution channel and logistics strategies, and specific customer needs, requirements, and openness to change/advances in technology. In addition, it also provided key elements for consideration for tier two industry opportunities in a timeframe greater than five years out.