BAKER ADHESIVES In early June of 2006, Doug Baker met with his sales manager Alissa Moreno to discuss the results of a recent foray into international markets. This was new territory for Baker Adhesives, a small company manufacturing specialty adhesives. Until a recent sale to Novo, a Brazilian toy manufacturer, all of Baker Adhesives’ sales had been to companies not far from its Newark, New Jersey, manufacturing facility. However, as U.S. manufacturing continued to migrate overseas, Baker would be under intense pressure to find new markets, which would inevitably lead to international sales. Doug Baker was looking forward to this meeting. The recent sale to Novo, while modest in ...view middle of the document...
Translated into dollars, therefore, the new order would not be as profitable as the original order had initially appeared. In fact, it would not even be as profitable as the original order had turned out to be due to a rise in some of Baker Adhesives’ costs!
This case was prepared by Associate Professor Marc Lipson. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright © 2007 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to firstname.lastname@example.org. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
The market for adhesives was dominated by a few large firms who provided the vast bulk of adhesives in the United States and in global markets. The adhesive giants had international manufacturing and sourcing capabilities. Margins on most adhesives were quite slim since competition was fierce. In response, successful firms had developed ever more efficient production systems which, to a great degree, relied on economies of scale. The focus on scale economies had left a number of specialty markets open for small and technically savvy firms. The key to success in the specialty market was not the efficient manufacture of large quantities, but figuring out how to feasibly and economically produce relatively small batches with distinct properties. In this market a good chemist and a flexible production system were key drivers of success. Baker Adhesives had both. The business was started by Doug Baker’s father, a brilliant chemist who left a big company to focus on the more interesting, if less marketable, products that eventually became the staple of Baker Adhesives’ product line. While Baker’s father had retired some years ago, he had attracted a number of capable new employees and the company was still an acknowledged leader in the specialty markets. The production facilities, though old, were readily adaptable and had been well maintained. Until just a few years ago, Baker Adhesives had done well financially. While growth in sales had never been a strong point, margins were generally high and sales levels steady. The company had never employed long-term debt and still did not do so. The firm had a line of credit from a local bank, which had always provided sufficient funds to cover short-term needs. Baker Adhesives currently owed about $180,000 on the credit line. Baker had an excellent relationship with its bank, which had been the company’s bank from the beginning. Novo Orders The original order from Novo was for an adhesive Novo was using in the production of a new line of toys for its Brazilian market. The toys needed to be...