crown cork and seal company case study 1977

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Crown cork & seal company, inc..

Crown Cork & Seal Company, Inc. is one of the world's leading packaging manufacturers, making one out of every five beverage cans used in the world and one out of every three food cans used in North America and Europe. In addition to making metal food and beverage cans, Crown Cork also produces other metal packaging, including aerosol cans, specialty packaging, can ends, and closures and crowns. The company also makes plastic containers for beverages, food, household and industrial products, personal care products, cosmetics and fragrances, and medical and pharmaceutical products; composite packaging, such as that used for frozen juice concentrate; and can making equipment. With 223 plants located in 49 countries, Crown Cork derives about 60 percent of its revenues from outside the United States, with almost three-fourths of non-U.S. revenues derived in Europe. The company's position as a global packaging powerhouse was largely gained through an aggressive program of acquisition launched in 1989, which increased net sales from $1.9 billion to $8.3 billion by the late 1990s.

Early History: From Crowns to Cans

The company traces its origins to 1892 when William Painter invented the 'crown cork,' a metal crown used to package soft drinks and beer in bottles. Painter soon started the Crown Cork & Seal Company of Baltimore. He quickly expanded the company overseas and by the time of his death in 1906 the company had manufacturing operations in Germany, France, the United Kingdom, Japan, and Brazil. After recovering from the disruptions of World War I, Crown Cork survived the Prohibition era by shifting its production from beer to soft drinks.

In 1927 the company was incorporated in New York City as Crown Cork & Seal Company, Inc. following its merger with New Process Cork Company Inc. and New York Improved Patents Corporation. The following year the company formed the Crown Cork International Corporation as a holding company for subsidiaries engaged in bottle crown and other cork business outside the United States. Crown Cork's early entry into the foreign market gave Crown Cork an advantage over its competitors in the container and closure fields.

Crown Cork did not even venture into the can making business until 1936 when it purchased the Acme Can Company and began building its first large can plant in Philadelphia under the name Crown Can. While the middle of the Great Depression would seem to be the worst possible time to enter a capital-intensive industry, Crown's can operation was successful right from the start. Processed canning was quickly taking the place of home canning as the preferred way to preserve and store perishable goods. For this reason the container industry--for most of the 20th century--remained immune to the economic cycles that plagued most other types of businesses, industrial or otherwise.

Late 1950s: Connelly and the Turnaround

Crown Cork & Seal was an enigma within the container business because it had achieved financial results that contradicted industry logic. Profit margins in can manufacturing had been small and shrinking for decades, and can makers like American and Continental had been relying on diversification and economies of scale to create profits. Crown Cork & Seal, on the other hand, had neither expanded into noncontainer fields nor sought to augment its own can making program by purchasing other small can operations. Yet it managed to maintain an earnings growth rate of 20 percent a year. How did it do this?

The answer can be traced back to 1957, when John F. Connelly, an Irishman and son of a Philadelphia blacksmith, became its president. At that time Crown Cork lacked strong leadership and was dangerously close to bankruptcy. It suffered a first-quarter loss of over $600,000, and Bankers Trust was calling in a $2.5 million loan, with an additional $4.5 million due by the end of the year.

Connelly took dramatic measures. He halted can production altogether and filled the company's remaining orders with a large stockpile of unpurchased cans that had been allowed to accumulate. The customers did not object, and the money saved by selling old inventory instead of producing new cans brought Crown Cork close to solvency. In addition, unprofitable and unpromising product lines, such as ice cube trays, were immediately discontinued.

Connelly also reduced overhead costs, particularly those incurred by redundant labor. In one 20-month span the payroll was cut by 25 percent, with pink slips issued to managers and unskilled workers alike. The moves were drastic but necessary. By the end of 1957 the company was making both cans and profits. The following year Crown Cork moved its corporate headquarters to Philadelphia.

Once the initial bankruptcy crisis had passed, Connelly directed Crown Cork & Seal with renewed energy into two areas within which Crown had traditionally held an advantage: aerosol cans and foreign container markets. In the years immediately preceding Connelly's tenure, the company, while not neglecting these markets, had not pursued them with the vigor they warranted.

Crown Cork & Seal had pioneered the aerosol can in 1946 and Connelly was shrewd enough to recognize its potential. Hair spray, bathroom cleaning supplies, insecticides, and many other household products would come to be staples for the American consumer and would be marketed in aerosol dispensers.

In 1963, for example, Crown installed two aerosol can product lines in its Toronto factory, thinking that it would take the market five years to absorb the output. Within a year, however, another plant was required to handle the orders. A decade later, the same situation was repeated in Mexico. Only in the late 1970s and 1980s, when the negative environmental impact of aerosol cans became widely known (it was discovered that aerosol containers expel fluorocarbons which destroy the earth's fragile ozone layer), did Crown begin to reexamine this sector of its business. The company was among the first to develop an aerosol can that did not propel fluorocarbons into the atmosphere.

Connelly invested considerable capital to reclaim Crown's preeminence overseas in closures and cans. Between 1955 and 1960 the company received what were called 'pioneer rights' from many foreign governments seeking to build up their industrial sectors. These 'rights' gave Crown first chance at any new can or closure business being introduced into these developing nations. This kind of leverage permitted the company to make large profits while using industrial equipment that was, by U.S. standards, obsolete. Moreover, the pioneer rights allowed Crown to pay no taxes for up to ten years.

Crown's international operations were managed and staffed only by nationals of each country, with no Americans on Crown's payroll outside the United States. Connelly sent the foreign plants outdated but still-functioning equipment and let them begin. Crown profited from its disposal of antiquated machinery and created a far-ranging network of semiautonomous subsidiaries in the process.

1960s Through 1980s: Conservative Management

In the early 1960s, the can industry was losing more and more ground to the nonreturnable bottle. It appeared that cans would never be able to capture the lion's share of the beverage container market. For this reason American Can and Continental began experimenting with large-scale diversification into noncontainer fields. Crown Cork, however, did not follow the example; in fact, Connelly went against the prevailing wisdom and entrenched Crown Cork still further into the consumer product can business, spending $121 million on a capital improvement program initiated in 1962.

In 1963, just as the can making industry was experiencing its first recession in decades, the pulltab poptop was introduced. In the words of one can maker at the time, the new and seemingly simple innovation made opening a can 'as easy as pulling the ring off a grenade, and a lot safer.' The new pulltab opener revolutionized the industry while helping to dramatically increase canned beverage consumption. At the same time, Americans began drinking more beer and soft drinks than ever before, and the can industry experienced a seven-year period of unprecedented growth. Crown Cork, an early entrant in the pulltab can market, performed even better than American Can and Continental, and its year-to-year profits increased by double digit percentages.

In the early 1970s the beverage can market leveled out, with many of the major brewers and soft drink producers developing facilities to manufacture their own cans. A number of can companies, particularly American and Continental, did not adjust well to the diminishing growth in beverage can demand. They were overextended and operating at a greater capacity than necessary. Crown Cork, which did not rely as heavily on can customers like Schlitz and Pepsi, was not as severely affected when beverage companies began manufacturing their own cans. Furthermore, Crown's foreign enterprises, which were accounting for close to 40 percent of total sales, were expanding rapidly. They more than compensated for any domestic decrease in revenues. Crown also became involved in the printing aspect of the industry by acquiring the R. Hoe & Company metal decorating firm in 1970. With this addition to its operation, Crown had the equipment necessary for imprinting color lithography upon its cans and bottle caps. By 1974 Crown had a consolidated net profit of over $39 million--double that of its 1967 results. By 1977 net sales had reached $1 billion.

The first widespread production of two-piece aluminum cans began in the mid-1970s. Aluminum was relatively expensive, but simpler to manufacture, lighter for the consumer, and recyclable. Connelly, however, once again went against industry trends. Just as he had refused to participate in the diversification trend years before, he steered Crown Cork clear of the aluminum two-piece can. He decided instead to concentrate on the old-style three-piece steel can that had been the mainstay of the industry for years. Many industry analysts regarded this strategy as particularly risky since the Food and Drug Administration had indicated that it might outlaw the three-piece can because the lead used to solder the three seams of the can was considered a health hazard. To circumvent this problem Crown began welding rather than soldering its cans.

Connelly was against switching from steel to aluminum for two reasons. First, by relying on the steel can the company was relieved of the high research and development costs necessary for changing to aluminum can manufacturing. Second, Connelly realized that there were only a handful of corporations selling aluminum in bulk. This meant that the can makers would be paying a premium price for their raw materials. Crown, by using steel, could play the various steel producers off one another and drive the price of its materials down. The strategy worked, and Crown's company was making profits while his larger and more progressive competitors spent hundreds of millions of dollars on retooling for aluminum cans.

Connelly, it seemed, made very few mistakes. In all of his years as president, the company never suffered a quarterly loss and was virtually debt-free. During the 1980s, when competitors were spending and buying themselves into debt, Crown sat conservatively waiting. By the end of the 1980s the company was ready to position itself as a major player in the industry, taking advantage of weak economies and buying competitors' assets at low prices.

1990s: Acquiring Its Way to the Top

The man that lead Crown's amazing growth in the 1990s was not Connelly, but his protégé, William J. Avery. Avery joined Crown in 1959 as a management trainee and then worked in manufacturing and marketing. Connelly watched Avery's potential grow and groomed him to take over the company. One day, Connelly, who was described as an 'ultraconservative, tight-lipped, and tightfisted boss,' called Avery into his office and told him to stop being intimidated. Said Avery in a 1993 article in Financial World, 'He told me, `Bill, I am very disappointed in you. You have to set your sights higher. You have to think of taking my job.' In 1989, after a period of diminishing health, Connelly died and Avery took over the company.

Avery remarked in Financial World, "When I became president in 1989, I had to light a fire and get the company going again. The company's growth had slowed down in the 1980s. John Connelly's health was not good, the company had no debt and we were very vulnerable to a takeover." Avery began acquiring companies at a rapid pace. In fact, in five years he purchased 20 businesses with combined sales in the billions. Under Avery, Crown's revenues doubled to $3.8 billion in 1993 and reached almost $4.5 billion in 1994.

Avery approached newer markets in developing countries cautiously through joint ventures. The acquisition of Continental Can's U.S., Canadian, and overseas plants where done in three deals from 1990 to 1991. It cost Crown $791 million, but gave it several foreign joint ventures and put the company in Korea, Saudi Arabia, Hong Kong, Venezuela, and China, where many of its U.S. competitors were not. This purchase brought in $2 billion in new sales, almost doubling Crown's size. Along with this purchase came Continental's technical center located outside of Chicago. Under Connelly, spending for research and development was almost nonexistent. But by the late 1980s, Crown's customers wanted more than just lower prices; they also wanted new products such as lighter weight, custom-designed cans and specific metal coatings. Continental's research center gave Crown the ability to develop new cans to meet their specific needs.

In October 1992, Crown paid $519 million for CONSTAR International, Inc., a leading maker of plastic containers for beverages, food, household items, and chemicals. In April 1993, Crown acquired the Cleveland-based Van Dorn Company, a $314 million maker of metal, plastic, and composite containers for a variety of industries. The total merger was valued at $175 million and enabled Crown to improve its economies of scale, as well as add to its technological and marketing expertise.

Other ventures during this time included an agreement in China with Shanghai Crown Maling Packaging Co. Ltd. to manufacture aluminum beverage cans and a joint venture with a Vietnamese company to produce two-piece aluminum beverage cans. In 1994 Crown Cork ranked as the world's second largest aluminum can maker with the expansion of its Aluplata facility near Buenos Aires, which included the addition of a second can line capable of producing 1,600 cans a minute, for a total of more than 800 million cans a year. In 1995 Crown announced that it was building a new $21.3 million corporate headquarters in Philadelphia; it moved into the new quarters in 1997.

In May 1995 Crown Cork announced that it would acquire France's CarnaudMetalbox S.A. One of the largest packaging companies in Europe and the number one maker of metal and plastic packaging on that continent, Carnaud was formed in 1989 from the merger of Groupe Carnaud S.A. of France and MB Group PLC of the United Kingdom. The deal, which was valued at $5.2 billion in stock and debt, was not completed until February 1996 thanks to an in~depth antitrust investigation launched by European Union authorities. The antitrust officials finally approved the takeover after the companies agreed to divest several aerosol can operations in Europe; the facilities were subsequently sold in September 1996 to U.S. Can Corporation for $52.8 million. Meantime, Crown sold its U.S.-based paint~ and oblong-can operations to BWAY Corporation.

The completion of the Carnaud purchase vaulted Crown Cork into the top position in the global packaging market. The combined operations seemed to fit nearly perfectly, with Crown a major player in the United States, Carnaud a major player in Europe, and both companies with small but growing presences in Asia. The deal also provided Crown with a foothold in the specialty packaging area of cosmetics and perfume packaging, such as lipstick cases, mascara applicators, compacts, and fragrance pumps; this sector was a desirable one because of its higher profit margins. The acquisition also proved a boon for Crown Cork shareholders as the company resumed payment of a cash dividend in March 1996, the first such payment since August 1956; under Connelly, the company had adopted a policy of using cash to repurchase common shares instead of issuing cash dividends.

Crown Cork anticipated being able to wrest about $100 million in annual savings by eliminating jobs and closing plants in the aftermath of the Carnaud acquisition. In 1996 the company shuttered 40 plants and regional administrative offices, reorganized an additional 52 plants, and reduced the combined workforce by 6,500. Further restructurings followed during the next three years, including the closure of 13 additional factories and a further elimination of 2,900 jobs during 1998. Crown also sold its Crown-Simplimatic business, which was involved in manufacturing various packaging machinery, to a management-led group in 1997.

Even with these attempts to increase efficiency and divest noncore operations, Crown Cork saw its profits fall in the late 1990s, at the same time that revenues were flat. There were multiple reasons for the setback. Aluminum producers cut output and raised prices starting in 1994. The strength of the U.S. dollar reduced the value of overseas sales--which made up 60 percent of Crown's overall sales in the late 1990s--following conversion to the U.S. dollar. Crown also faced a formidable new rival starting in May 1997 when Pechiney S.A. and Schmalbach-Lubeca AG spun off their can making operations into a new venture called Impress Metal Packaging Holdings. Impress soon slashed can prices, forcing Crown to follow suit. The question Crown Cork Seal faced as it entered the 21st century was whether or not its performance in the late 1990s represented only a temporary setback. The company appeared to be counting on another round of industry consolidation leading to fewer competitors and to a condition wherein Crown could raise prices and realize the profits it had anticipated when it had absorbed Carnaud.

Principal Subsidiaries: Crown Cork Seal Company (PA) Inc.; Pennsylvania Crown Consultants, Inc.; Nationwide Recyclers; CONSTAR, Inc.; AH Packaging Co.; CONSTAR INTERNATIONAL INC; CarnaudMetalbox Enterprises, Inc.; CarnaudMetalbox Investments (USA), Inc.; CarnaudMetalbox Holdings (USA), Inc.; Risdon - AMS (USA), Inc.; Zeller Plastik, Inc.; Crown Cork Seal Holdings, Inc.; Crown Cork Seal Technologies Corporation; Crown Cork Seal Company (USA), Inc.; Crown Financial Management, Inc.; Crown Overseas Investments Corporation; Crown Beverage Packaging, Inc.; Crown Cork de Puerto Rico, Inc.; Central States Can Company of Puerto Rico, Inc.; Aluplata S.A. (Argentina); Crown Cork de Argentina S.A.; Crown Cork Seal (Barbados) Foreign Sales Corporation; Crown Cork Company (Belgium) N.V.; Crown Cork Holding Company (Belgium); Speciality Packaging Belgie NV (Belgium); Crown Brasil Holding Ltd. (Brazil); Crown Cork Embalagens S.A. (Brazil); Crown Cork do Nordeste Ltd. (Brazil); Crown Cork Tampas Plasticos, S.A. (Brazil); Crown Cork Seal Canada Inc.; Risdon - AMS (Canada) Inc.; Crown Cork de Chile, S.A.I.; Beijing CarnaudMetalbox Co., Ltd.; Beijing Crown Can Co., Ltd. (China); CarnaudMetalbox Huapeng (Wuxi) Closures Co., Ltd. (China); Foshan Crown Can Company, Limited (China); Foshan Crown Easy-Opening Ends Co., Ltd. (China); Huizhou Crown Can Co., Ltd. (China); Shanghai Crown Packaging Co., Ltd. (China); Jiangmen Zeller Plastik, Ltd. (China); Crown Litometal S.A. (Colombia); Crown Colombiana, S.A. (Colombia); Crown Pakkaus OY (Finland); Astra Plastique (France); Risdon S.A. (France); CarnaudMetalbox S.A. (France); CarnaudMetalbox Group Services (France); CMB Plastique SNC (France); Crown Cork et Seal Finance S.A. (France); Crown Cork Company (France) S.A.; Crown Developpement SNC (France); Crown Financial Corporation France S.A.; Polyflex S.A. (France); Societe Bourguignonne D'Applications Plastiques (France); Societe de Participations Entrangers CarnaudMetalbox (France); Societe de Participations CarnaudMetalbox (France); Societe Francasie De Developpement De La Boite Boisson (France); Z.P. France; CarnaudMetalbox Deutschland GmbH (Germany); CarnaudMetalbox Nahrungsmitteldosen GmbH (Germany); CarnaudMetalbox Plastik Holding GmbH (Germany); Crown Bender (Germany) GmbH; Wehrstedt GmbH (Germany); Zeller Plastik GmbH (Germany); Zuchner Gruss Metallverpackungen GmbH (Germany); Zuchner Metallverpackugen GmbH (Germany); Zuchner Verpackugen GmbH Co (Germany); Zuchner Verschlusse GmbH (Germany); Hellas Can Packaging Manufacturers (Greece); CarnaudMetalbox Magyarorszag (Hungary); CONSTAR International Plastics KFT (Hungary); CarnaudMetalbox Italia SRL (Italy); CMB Italcaps SRL (Italy); Crown Cork Company (Italy) S.P.A.; FABA Sud Spa (Italy); Risdon SRL (Italy); Superbox Aerosols SRL (Italy); Superbox Contenitori per Bevande SRL (Italy); Zeller Plastik Italia SPA (Italy); CarnaudMetalbox Kenya Limited; Societe Malgache D'Emgallages Metalliques (Madagascar); CarnaudMetalbox Bevcan SDN BHD (Malaysia); Crown Cork de Mexico, S.A.; Envases Generales Crown, S.A. DE C.V. (Mexico); Carnaud Maroc (Morocco); CMB Plastique Maroc (Morocco); CarnaudMetalbox NV (Netherlands); CMB Closures Benelux BV (Netherlands); CMB Promotional Packaging (Netherlands) BV; CONSTAR International Holland (Plastics) B.V. (Netherlands); Crown Cork Company (Holland) B.V. (Netherlands); Crown Cork Mijdrecht B.V. (Netherlands); Crown Cork Netherlands Holding B.V.; Speciality Packaging Nederland BV (Netherlands); CarnaudMetalbox Nigeria PLC; Zeller Plastik Philippines, Inc.; CarnaudMetalbox Gopak Sp. zo. o. (Poland); CarnaudMetalbox Tworzyna Sztuczne SP Z.O.D. (Poland); CarnaudMetalbox de Portugal; Crown Cork Seal de Portugal Embalagens S.A.; CarnaudMetalbox (Asia-Pacific) Holdings PTE Ltd. (Singapore); CarnaudMetalbox Asia Limited (Singapore); CarnaudMetalbox Packaging PTE Limited (Singapore); CarnaudMetalbox Slovakia Spol. S.R.O.; Crown Cork Company, S.A. (Pty) Ltd. (South Africa); Crown Investment Holdings (Pty) Ltd. (South Africa); Crown Cork Company Iberica (Spain) SL; Envases CarnaudMetalbox S.A. (Spain); Envases Metalicos Manlleu S.A. (Spain); Envases Metalner S.A. (Spain); Envases Murcianos S.A. (Spain); Ormis Embalajes Espana S.A. (Spain); Risdon Productos de Metal LTDA (Spain); Crown Obrist AG (Switzerland); CarnaudMetalbox Tanzania Limited; CarnaudMetalbox (Thailand) PLC; CarnaudMetalbox Bevcan Limited (Thailand); Crown Cork Seal (Thailand) Co., Ltd.; ZPJK (Thailand) Co., Ltd.; CarnaudMetalbox Ambalaj Sanayi (Turkey); CONSTAR Ambalaj Sanayi Ve Ticaret A.S. (Turkey); Emirates Can Company, Ltd. (Dubai, UAE) (United Arab Emirates); CarnaudMetalbox Bevcan PLC (U.K.); CarnaudMetalbox Closures PLC (U.K.); CarnaudMetalbox Engineering PLC (U.K.); CarnaudMetalbox Group UK Limited; CarnaudMetalbox Overseas Limited (U.K.); CarnaudMetalbox PLC (U.K.); CMB Bottles and Closures (U.K.); CONSTAR International U.K., Ltd.; Crown Cork Seal Finance PLC (U.K.); Crown UK Holdings Ltd.; Speciality Packaging (UK) PLC; The Crown Cork Company Limited (U.K.); United Closures Plastic PLC (U.K.); Zeller Plastik UK Limited; CarnaudMetalbox (Saigon) Limited (Vietnam); Vietnam Crown Vinalimex Packaging, Ltd.; CarnaudMetalbox (Zimbabwe) Ltd.; Crown Cork Company 1958 PVT Ltd. (Zimbabwe).

Principal Competitors: Alcoa Inc.; BWAY Corporation; Ball Corporation; Berlin Packaging; Century Aluminum Company; Continental Can Company, Inc.; Impress Metal Packaging Holdings; Kerr Group Inc.; Owens-Illinois, Inc.; Pechiney S.A.; Rexam PLC; Reynolds Metals Company; Schmalbach-Lubeca AG; Sealright Co., Inc.; Silgan Holdings Inc.; Tetra Laval International S.A.; Toyo Seikan Kaisha, Ltd.; U.S. Can Corporation; VIAG AG.

Source: International Directory of Company Histories , Vol. 32. St. James Press, 2000.

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Crown Cork & Seal Co. Inc.

Subjects Covered Business policy Corporate strategy Industry structure Packaging Social responsibility Technological change

by Richard G. Hamermesh, Karen Gordon, John P. Reed

Source: Harvard Business School

21 pages. Publication Date: Aug 01, 1977. Prod. #: 378024-PDF-ENG

Crown Cork & Seal Co., Inc. Harvard Case Study Solution and HBR and HBS Case Analysis

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Crown Cork and Seal Company: Summary of Case and Key Questions

Essay by ringo0730   •  November 3, 2013  •  Essay  •  2,540 Words (11 Pages)  •  3,247 Views

Essay Preview: Crown Cork and Seal Company: Summary of Case and Key Questions

Company Background Information and Historical ContextBy 1977 The Crown Cork and Seal Company was the fourth largest producer of metalcans and crowns. Under the leadership of John Connelly, the company had transformedfrom near-bankruptcy in 1957 to becoming a formidable force in the domestic andinternational metal container market. By 1976 Crown had revenues of $910 million, $343million of which came from international markets - making them the largest international producer. They derived 65% of total sales from tin-plated cans and 29% from crowns; theremainder of their business came from bottling and canning machinery. In terms of product categories, cans were categorized as follows: Food cans, beverage cans, pet foodsand general packaged cans. The biggest growth category was beverage cans whichcomprised of soft drinks and beer. At the time of the case, Crown was considered to beextremely successful - their return on sales was twice that of their three largestcompetitors, and they enjoyed the highest profit growth over the last 10 years.Industry Characteristics and Value ChainCustomers: 80% output came from food and beverage companies who maintained atleast two suppliers and had significant power of them.Competition: Crown's current market share was 8.3%. Their three biggestcompetitors were American Can (16.6%), Continental Can (18.4%) and National Can:(8.7%). There also faced significant threats from customers backward-integrating intothe supply chain (e.g. Campbell soup started making their own cans) and fromaluminum producers like Alcoa grabbing market share.Suppliers: Big U.S steel companies and new entrants who supplied aluminum, fiber-foil and plastics.Crown's StrategyPhilosophy: Relentless focus on core strengths: product lines were based on metalforming and fabrication competencies with a single-minded focus on tin cans andcrowns. Since R&D was not their strength, they decided to be the "second" player,learning from other firm's mistakes and successes.

Culture: Customer-centric culture. Plants were spread out to be close to customers - this reduced transportation costs and allowed the company to react to customer needsquickly. Furthermore, each plant served multiple customers.Scope: Lots of emphasis was placed on international expansion, to tap into marketswhere packaged foods were being rapidly adopted.Operations: Plant sizes were small allowing them to be nimble and flexible.Key Industry TrendsThe threat of self-manufacturing from customers.Threat of new packaging materials - in particular aluminum started to become acompetitive alternative to steel cans for a variety of reasons (reduced transportationcosts due to lighter weight, safety, environmental impact, etc.). Also, competition began emerging from fiber foil and plastics.Packaging Revolution -- With companies differentiating on packing, two problemsemerged: 1 aluminum and plastics became better contenders for variability in packagingdesignCustomers started investing large amounts of R&D dollars in packaging making itharder for the smaller suppliers to compete.Future IssuesOzone scare that aerosols cause permanent damage to the ozone layer.Regulation around non-returnable cans -resulting in increased popularity of aluminum (aluminum had a larger network + higher recycle value).Strategic Questions:How would you characterize this industry? How attractive or unattractive is thisindustry?What do you think are the active ingredients that contributed to Crown's success?What do you think are the biggest threats to Crown going forward? Do you think Crown should invest in aluminum?Do you think Crown can continue to grow by pursuing the same strategy?If you don't think so, what should Crown do to win in this industry?

The changes taking place in the metal container industry at the time of the Crown, Cork and Seal case using Porter's 5 forces can be described as follows:Current PlayersThere was a high concentration of market share held by five companies in the metal canindustry. Collectively, the five companies held 61% of the market, with the remaining39% shared by approximately 100 firms. With the five firms holding a large marketshare, the competitive environment becomes more like a monopoly and therefore lesscompetitive. The rivalry among the five firms seems to have intensified due to thefollowing observed industry characteristics:1.The little growth potential for metal cans in the 1990s and the analysts'expectations of plastics as the "growth segment for containers."2.Since they all produced mostly two-piece cans and catered to the metal beveragecontainers market, there appears to be a low product differentiation among the five firms.3.The asset specificity of the industry creates a high exit barrier where theequipment is highly specialized that the firms may have a difficult time selling to buyersfrom other industries.4.Major customers producing their cans in-house that accounted for approximately25% of the total can output in 1989.Barriers to entryOne of the barriers to entry in the metal can industry at this time is the monopoly held bythe top five firms. It would difficult for a small start-up firm to have any real significantimpact on obtaining market share unless they come in on a large scale or if they have proprietary know-how. Another barrier would be asset specificity as mentioned innumber 3 above.Suppliers

The suppliers in the metal can industry are considered powerful since it is dominated by basically 3 aluminum companies and are a highly concentrated industry in itself.Although steel is another raw material used, its usage had declined over the years asaluminum was lighter, were of better quality, less effect on product taste, has "superior lithography qualities" and less costly to recycle. Also, the suppliers do not have tocompete with other products for sale to the metal can industry. The aluminum and steelcompanies serve as a check and balance for each other. The suppliers also pose a threatof entering into metal can manufacturing, such as Reynolds Metals, which make them a powerful supplier. BuyersThe buyers in the metal can industry could be considered to be powerful as they areconcentrated on the beverage and food/general packaging industries and the metal cans purchased are basically a standard or undifferentiated product. Because 45% of the totalcost of a packaged beverage is the can itself, the beverage companies maintainrelationships with more than one supplier in the metal can industry.SubstitutesThe possible substitutes for the aluminum beverage cans are plastic packaging containers,glass bottles and steel cans. The prices of the aluminum beverage can be controlled bythe prices of the

Case Flash Forward: Crown Cork & Seal in 1989 (2011)

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Each Case Flash Forward provides educators and students with a brief update of key changes at a particular company covered in a related case study. It is a compilation of publicly-available content…

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Crown Cork & Seal in 1989

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A Chronicle of Current Events

For human rights & freedom of expression in the ussr, the podrabinek case, dec 1977 to feb 1978 (48.7).

<<No 48 : 14 March 1978>>

On 1 December 1977, the brothers Alexander and Kirill PODRABINEK (CCE 47) and their father Pinkhos Abramovich PODRABINEK were summoned for a chat by Yu.S. Belov, chief of a department at the Moscow City and Regional KGB. Alexander refused to appear.

“On behalf of the Committee for State Security ” (Belov told Kirill and his father Pinkhos Podrabinek)

“I suggest that you and your families leave the Soviet Union and go abroad via Israel within 20 days. There is enough material against you, Kirill Pinkhosovich, to institute criminal proceedings. You, Pinkhos Abramovich, are also known to us for your anti-social activities. An act of humanity is being offered to you both. I advise you to make use of it.”

Alexander (b. 1953) and Kirill Podrabinek (b. 1952)

The same evening Alexander Podrabinek was arrested on the street and taken to the KGB. Belov presented him, too, with an ultimatum: all three must leave the country, otherwise criminal proceedings would be instituted against both brothers.

Belov let it be understood that the absence of an invitation and difficulties with money would not be obstacles. Belov stressed that they could only leave all together.

HOSTAGE-TAKING

Many painful disputes have sprung up around the moral problems arising from KGB’s ultimatums and blackmail. The Chronicle cannot present the arguments but at least it can accurately convey the stance of participants in such events by reproducing all their statements in sufficient detail.

On 6 December 1977, there was a press conference at Andrei Sakharov ’s flat. Pinkhos PODRABINEK read out a “Statement for the Belgrade Conference [note 1] and the Press”:

“A distinctive feature of this case is the KGB’s use of the hostage system. Not one of us can determine his own fate independently, and a decision about the fate of three people has been placed by the KGB on Alexander Podrabinek alone, in whose departure the authorities are most of all interested. “We categorically refuse to accept such conditions and insist on our right to make our choices independently…”

Then Alexander PODRABINEK read out his “Reply” to the KGB’s proposal:

“I would like to draw the attention of the world public to my brother’s painful position and to the dirty tactics of the KGB — tactics of intimidation and terror. The whole world condemns the hijacking of aeroplanes and the taking of passengers as hostages, yet the KGB is using the very same method with regard to my brother, a method commonly used by terrorists. In the situation that has arisen the most painful thing for me is my brother’s fate. “At the KGB they insistently advised me to take advantage of this ‘humane act of the Soviet government’, as they expressed it. I regard this proposal as unconcealed blackmail by the KGB. “They have given me four days to reflect. On 5 December I have to give my reply. A reply that means a great deal to me. “This is my reply.

“I do not wish to go to prison. I value even the semblance of freedom which I possess now. I know that I would be able to live freely in the West and at last receive a real education. I know that there I would not have four agents at my heels, threatening to beat me up or push me under a train.

“Over there, I know, they will not put me in a concentration camp or a psychiatric hospital for attempting to defend people who are denied their rights and oppressed. Over there, I know, one breathes easily. While here one does so with difficulty, and they stop your mouth and stifle you if you speak too loudly. I know that our country is unhappy and doomed to suffering.

“And that is why I am staying.

“I do not want to go to prison, but neither do I fear a camp. I value my own freedom as I value my brother’s, but I am not bargaining for it. I will not give in to any blackmail.

“A clear conscience is dearer to me than material well-being. I was born in Russia. This is my country, and I must remain here, however hard it may be and however easy in the West. As far as I am able, I will go on defending those whose rights are being so brazenly trampled on in our country.

“That is my reply. I am staying.”

After this Alexander Podrabinek added that he would agree to leave the country only if Kirill were to ask him to do so.

On 7 December 1977, Kirill PODRABINEK made a statement:

KGB Blackmail

1. The KGB is using the hostage-taking method. They are basically blackmailing my brother Alexander, while I am the hostage. 2. The very formulation of the question: ‘leave or we will put you in prison’, is contrary to the law. If a man has committed a crime he must be prosecuted. However, in this case the KGB does not want to stage a new political trial but prefers to dispatch us abroad. The KGB has employed a well-calculated device — to exploit the insolubility of a situation with a hostage. All this blackmail is patently a consequence of the public stand taken by our family … “If any one of the three of us is arrested and any charge whatsoever brought against him, it can only be viewed as an act of revenge by the KGB and not as a requirement of justice.”

On 12 December 1977, Kirill Podrabinek informed Belov that he had decided to leave. Belov replied that Kirill could hand in his emigration documents, and on the same day Kirill did so. On 14 December Kirill Podrabinek made an addition to his previous statement:

“On 12 December, I telephoned investigator Belov at the KGB. Permission to go abroad has been granted; there was no mention of my only being able to leave only with my brother. Does this mean that the KGB has given up its hostage-taking and will really allow me to leave? In the very near future this will become clear … In view of all the circumstances, and fearing for my life” (see CCE 47) “I have taken the decision to leave.” *

KIRILL PODRABINEK (b. 1952)

On 27 December 1977, the police in Elektrostal (Moscow Region) brought charges against Kirill Podrabinek under Article 215 (RSFSR Criminal Code: “Illegal possession of arms, ammunition” etc). Kirill refused to sign the record of this charge. Investigator Radygin obtained his written undertaking not to leave town but said he would not need Kirill before the middle of January and, if need be, he could go to Moscow.

When Kirill Podrabinek came out of the Elektrostal police station he was met at the door by KGB Investigator Belov, who had arrived from Moscow. The condition of Kirill’s departure remained unchanged, Belov said, and gave him three days in which to persuade his brother to agree to leave.

From that day onwards, KGB employees began trailing Kirill Podrabinek . (His brother Alexander had been under a similar “escort” since 10 October 1977, see below). The same day 22 Muscovites issued a statement:

“Wishing to force Alexander Podrabinek to leave the country, the KGB is openly blackmailing him with his brother’s fate. A method of hostage-taking used thus far only by irresponsible criminal-terrorists is in the present case being adopted as a weapon by the official representatives of a powerful State. This blackmail clearly demonstrates the value of the charges brought against Kirill Podrabinek. “We call upon our fellow countrymen and world public opinion to protest against the use of hostage-taking, unprecedented in the practice of civilized states. We call upon our fellow countrymen and world public opinion to follow attentively the fate of the Podrabinek family.”

On 28 December Kirill Podrabinek made a statement:

State Terrorism

“… The KGB has resorted to hostage-taking. My brother Alexander has made a statement for the press saying that he does not wish to leave, but he will leave if I so demand. “Under no circumstances will I make this demand of Alexander. In the first place, that would mean becoming a blind instrument of blackmail in the hands of the KGB, exploiting a situation created by them for my own sake. In the second place, it is impossible for me to even ask, let alone demand such a thing. “However, I have resolved to pursue my chosen line of action and try to obtain permission to leave.”

On the evening of 29 December 1977, Kirill Podrabinek was arrested.

On the day of his arrest, he declared a hunger strike. After a few days he was transferred from Elektrostal to Moscow, to the MVD’s detention centre on Matrosskaya Tishina Street.

The first response to Kirill’s arrest was “The Christmas ‘Feat’ of the KGB”, a short article by Victor Nekipelov [note 2]:

“… The arrest of Kirill Podrabinek is an act of deliberate, demonstrative revenge. The authorities know full well that they are thereby dealing the severest blow to both Alexander Podrabinek – Take that for not accepting our offer! – and to his father — While you didn’t steer your sons to a compromise!”

On 1 January 1978, Yevgeny Nikolayev (see “In the Psychiatric Hospitals”, CCE 48.12 ) sent a letter to the RSFSR Procurator’s Office, protesting against the arrest of Kirill Podrabinek.

On 4 January 1978, Alexander and Pinkhos Podrabinek asked Belov for a meeting with Kirill.

Belov refused but promised to pass Kirill a note from them, “if there are no objections on the part of the investigator”. In the note Alexander and his father asked Kirill: “Do you agree to leave if there is no need to ask Alexander to do the same?”

On the same day, at 11.30 pm, Belov came to Elektrostal to see Pinkhos Podrabinek . He informed him that the investigator “had not allowed” the note to be passed to Kirill. If Alexander handed in his application to emigrate within three days, however, all three could leave the USSR. Otherwise, Alexander  would also be arrested. Belov suggested that P.A. Podrabinek go at once to Moscow and persuade Alexander to change his mind: he even gave Pinkhos Abramovich a lift back to Moscow in his car.

On 5 January 1978, Alexander Podrabinek appealed in an open letter to Amnesty International, calling on the organisation to speak out in Kirill’s defence.

On 9 January Alexander Podrabinek telephoned Belov at the KGB. When Belov asked if he intended to leave, Alexander replied that he could only decide this matter together with his brother.

On 15 January 1978, the Christian Committee for the Defence of Believers’ Rights in the USSR called upon “world public opinion” to speak out in defence of Kirill Podrabinek and condemn the policy of hostage-taking.

At the beginning of February 1978, the Podrabineks were summoned to Elektrostal for interrogation in connection with Kirill’s case.

Pinkhos Podrabinek replied to questions about Kirill but refused to sign a record of the interrogation. Alexander declined to answer questions, stating that the case was inspired by the KGB and was being conducted with violations of norms laid down in the Code of Criminal Procedure.

ALEXANDER PODRABINEK (b. 1953)

From 10 October 1977, Alexander Podrabinek was under constant KGB surveillance. Round the clock he was pursued by two cars carrying seven or eight employees of the security services.

Whenever he was inside a building the cars stood in front of the doorway. Whenever he walked along the street or travelled in public transport there were always several agents at his side. They threatened Alexander’s acquaintances and took photographs of them. Sometimes they interfered more actively with the life of their charge: on Sunday 18 December the escort prohibited Alexander from going skiing with friends in the Orekhovo-Borisovo district [Moscow Region]. Podrabinek wrote about this incident to [KGB chairman] Andropov:

“… Since 10 October of this year I have been under the continuous and unconcealed observation of our glorious Chekists. Defending the State’s security, I understand, it is essential for the KGB to search my home, call me as a witness in the case of Yury Orlov, suggest that I leave the USSR, blackmail me, make an attempt on my brother’s life, and do much else to ensure that I do not, accidentally, undermine the foundations of the Soviet political and social system. All this I understand. “I am not even particularly annoyed when one of the eight officers who perpetually watch over me swears he will break my legs or push me under a train. I understand the full difficulty of this highly complex, responsible and dangerous work and do not get angry with these heroic young people who, performing their civic duty, freeze on cold December nights outside the entrance to my house or squeeze after me onto a city bus in the rush-hour. I am enraptured by their daring, their persistence and their indifference to the cold … “Citizen Andropov! On behalf of myself and six of my friends I beg you: Provide your employees with skis and toboggans and, please, teach them how to use them, if they do not know. Then I shall be able to enjoy my on Sundays and the KGB will be able to work normally and not violate the Soviet Constitution. This can only enhance the reputation of our valiant organs and promote their physical development.”

From January 1978, the constant “escort” was replaced from time to time by ‘ordinary’ shadowing.

The security services are trying by any means to prevent Alexander Podrabinek from continuing his activities on the Working Commission (to Investigate the Use of Psychiatry for Political Purposes). In particular, they are hampering him from meeting, in the flats of his Moscow friends, people who have been subjected to “psychiatric persecution” and their relatives. Podrabinek and his friend Dmitry Leontyev , in whose flat he was living, were fined for violating the city residence regulations. Podrabinek was forbidden to continue residing at the flat.

Alexander Podrabinek was warned that he was liable to be charged with “parasitism”. In February 1978, having given his shadow the slip, he managed to get a job as a medical orderly (he is a qualified paramedic).

The pre-trial investigation of Kirill Podrabinek ’s case was completed in February 1978.

=======================

[1] Representatives of all 35 member-States of the Conference on Security and Cooperation in Europe (CSCE) assembed in the Yugoslav capital Belgrade to discuss the implementation of the 1975 Helsinki Accords five years on.

[2] Victor Nekipelov

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Crown, Cork & Seal in 1989 Harvard Case Solution & Analysis

Home >> Harvard Case Study Analysis Solutions >> Crown, Cork & Seal in 1989

Crown, Cork & Seal in 1989 Case Study Solution

The historic financial data of the Crown, Cork and Seal determines that the company consistently performing well in the metal container industry. The net sales are growing annually with the average growth rate of 6%, which indicates that the performance of the company is better than its competitor.

The increasing sales trend in the era from 1956-1979 provided the company the opportunity to enhance its profitability through adapting better operating efficiencies in order to reduce operating costs. The industry growth is very much attractive for the existing market players as they can grow their businesses. However, the company has low return on sales and return on asset due to to the higher operational costs facing by the company.

At the growth stage of the company, the company has to face the higher fixed cost, which will reduce with time as the level of sales volume would increase, due to which the per unit cost will decrease. In addition to this, the cost of goods sold ratio against the sales indicates the stability, which determines that the company has weak negotiation level with its supplier and value chain players.

The company could reduce its cost of sale through inclusion of better terms in procurement contracts or deals. Moreover, the ratio of sales and admin expense to the revenue shows a declining trend which is positive for the company as the lower operating expenses will enhance the profitability.

Furthermore, the sudden increase in interest expense in the years from 1977 to 1979 although did not heavily affect the return for the shareholders due to the reduction in operating expenses. In 1956, the current ratio of the company was very high, which indicates that the company intended to face less exposure to the risk and retain sufficient cash flows for the short term commitment however, the situation will change dramatically with time as the current ratio reduce to 1.57 in 1988, which is quite reasonable level because at this level, the company made heavy investments in long term assets which generated future cash flows.

Lastly, the lower debt to equity and debt to capital ratio indicates that the financial strength of the company is very strong and in the future, the company can raise additional finances from lenders or investors in the case of adverse situations. However, in 1956, the debt level of the company was significant and the financial risk was also very high, but the continuous heavy repayment of debt to the company reduced the debt levels. The reduction in debt level would increase the cost of capital of the firm as the equity finance is an expensive source of finance as compare to debt.

Industry Structure:

The metal industry is dependent on small number of players, which dominate the market substantially. The large companies have strong financial as well as non-financial reserves available. Financial reserves indicate that the companies have big capital investment in the longer term assets, which enables them to produce at the lower operating costs. On the other hand, non-financial reserves include the customer confidence and loyalty over their brands, and that they are reluctant to switch their buying from one to another.

The Can market is very competitive due to the commoditization of the cans, which has resulted in lower cost of product, but at the same time the competitor reduced their prices to attractive major orders, which resulted in more profitability. The can producers generate small sales volume based on the guaranteed prices, which enhances their exposure towards the material prices fluctuation such as aluminum prices.

The can producers could reduce their material risk fluctuation through appropriate hedging techniques. The enhancement in production capacity would lead the competitors to produce their cans in lower operating cost, and in addition they can take initiatives to sell their products in large quantity with discounts. The pricing scenario in the industry provides the takeaway to the company, which determines that the company has to formulate better pricing strategy in order to maintain and attract new customers.

Crown, Cork & Seal in 1989 Harvard Case Solution & Analysis

Porter Five Forces:

Bargaining Power of Customers:

The Crown, Cork and Seal company faces higher bargaining power of customers as the number of customer are very few and the company’s revenue depends on smaller number of customers. The customers demand for higher competitive prices, which have to be provided by the company in order to retain the customer, and in case the company refuses to do so, the customers will switch to another can producer. The buyers of the company are concerned regarding the quality of the product in a situation where the quality level reduces; the buyers will reduce the order size in the future, which would reduce the future revenue of the company............

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