RAYOVAC CORP. Adapted from Barney JB & Hesterly WS 2015. Strategic Management an
ID: 355792 • Letter: R
Question
RAYOVAC CORP.
Adapted from Barney JB & Hesterly WS 2015. Strategic Management and Competitive Advantage. Hoboken NJ: Pearson.
Founded in 1906, Rayovac had become, over the course of the twentieth century, one of the best-known battery producers in the U.S. However in 1996, with its market share steadily eroding due to fierce competition from Duracell, Energizer, and Panasonic, it was purchased by the private equity firm Thomas H. Lee and Partners (THL). Over the next decade the firm embarked upon an ambitious acquisitions program which saw it grow from a $400 million annual revenue business in 1996 to an over $2.8 billion annual revenue business by 2005.
In 2003, the global battery market was worth about $24 billion in sales with the U.S. accounting for about one third of global consumption. About 73% of Rayovac’s revenues came from North America. Though the U.S. market was growing at an annual rate of 7.4%, fierce competition in the U.S. led to considerable price discounting and required significant advertising and promotional expenditures. Rayovac, as the number three player in market share behind Duracell (a division of Gillette) and Energizer, competed as a value brand rather than as a premium brand. It sold a high-quality product but at prices 10-15% below its main competitors. With the proliferation of personal electronic devices, Rayovac expected strong growth to continue, especially in emerging markets around the world as income grew there.
Q1: Do a SWOT analysis for Rayovac.
Q2: In light of your SWOT analysis, which of the following strategies might best allow Rayovac to capitalize upon its strengths and opportunities and neutralize its weaknesses and threats?
-Vertical integration
-Vertical de-integration (outsourcing)
-Offensive or defensive strategy
-International diversification
-Product/market diversification
ACQUISITION PROGRAM
Acquisition of Varta AG (Germany)
In 2002, Rayovac acquired the consumer battery business of Varta AG of Germany. Varta was the leading European-based manufacturer of general batteries and 86% of its revenues were generated in Europe. Some overlap in Latin America permitted combined operations which solidified Rayovac’s market lead outside of Brazil. Too, the complementary geographic distribution of the firms’ production facilities and distribution channels was expected to yield greater access to global sourcing and generate cost savings of $30-40 million per year.
Acquisition of Microlite (Latin America)
In 2004 Rayovac acquired Microlite SA, the largest producer of consumer batteries in Brazil and owner of the Rayovac brand name in Brazil. It immediately realized a 50% market share in Latin America’s largest consumer market. Rayovac replaced Microlite’s management team with Rayovac veterans who reduced costs, increased efficiency, improved product packaging, and raised prices 16%. The Microlite business was also undercapitalized and losing money. It was considered by lenders to be a high risk and, consequently, paid very high interest rates. Rayovac immediately recapitalized the business, replacing high interest-rate loans with lower interest rate Rayovac-backed debentures. As a result of the acquisition, Rayovac expected to increase total Latin America revenues by approximately 50% in 2005.
Acquisition of 85% of Ningbo Baowang (China)
Located in Ninghai, China, Ningbo Baowang was a major exporter of private label branded batteries. The company also sold its Baowang brand throughout China. Rayovac acquired the Chinese firm in 2004, hoping both to increase its presence in the rapidly growing Asian market and to add a low cost manufacturing subsidiary from which it could export Rayovac and Varta brand batteries to global markets. Rayovac replaced Ningbo’s management with its own to implement Rayovac process controls and management policies more efficiently. It also installed new manufacturing equipment that would allow it to produce over one billion Rayovac branded batteries a year beginning in 2005.
Q3: Explain how this acquisition program helps Rayovac to capitalize upon its strengths and opportunities and neutralize its weaknesses and threats.
Q4: In which of the following international strategies is Rayovac engaging with the acquisition of Varta AG, Microlite SA, and Ningbo Baowang? Why?
-Multi-domestic?
-Global?
-Transnational?
Explanation / Answer
1. SWOT Analysis
STRENGTHS
WEAKNESS
OPPORTUNITIES
THREATS
2. By analysing the SWOT , the following strategies can help to utilize the strengths and opportunities while minimising the threats and weaknesses.
- International Diversification
- Product/Market diversification
By expanding into other emerging markets, especially in countries of Asia, Rayovac can minimize the effects of the fierce competition in the US. They can utilize their brand name and legacy to capitalize in the new markets. Also, by diversifying their product range by the introduction of new products, they will be able to sustain in the market and produce higher revenues. Moreover, the advertisement and promotional costs can be significantly lower in the emerging markets when compared to the US.
3. In these acquisitions, Rayovac is utilizing the strong business knowledge of its management team to emerge as a global brand by increasing their presence and profitability across the globe. The opportunity ahead of Ryovac was to expand into new markets. It has achieved this by the acquisitions in nations across Europe, Asia and South America. By performing these acquisitions, Rayovac has also managed to achieve new means of achieving growth and revenues.
Also, they found low cost manufacturing ability due to the acquistions in China. This cost advantage can be utilised by exporting from low cost manufacturing center to other centers globally.
4. In all the 3 acquisitions, Rayovac has followed a global strategy wherein they had replaced the management of the acquired companies by Rayovac's own management. This is to ensure that all the subsidiaries and acquisitions of Rayovac follow the principles and strategies of the parent company Rayovac. This ensures that the brand carries a same image across the globe and its products are manufactured and marketed in a similar way across the nations.
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