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Strong Tie Ltd

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Submitted By lilzoe509
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Esparaud Louidort
Strong Tie Ltd case #1 finance 10/2/2013
Strong Tie Ltd financial and strategic issues 1. Introduction Strong Tie Ltd. is a Canadian family-owned company that specializes in manufacturing of standardized and customized structural connectors located in Winnipeg, Manitoba. It is run by the son of the founder together with his three daughters. Unlike its competitors, the company keeps its production in China, which is possible partly due to high level of automation of the production of standardized details. The production of customized details is labour-intensive, but high costs are supposedly being offset by high premium the customers are ready to pay. Or are they? While Universal Connector – the main competitor who currently holds 30% market share and is growing – showed in the last financial year 10% net profit margin, 17% ROA and 28% ROE, as compared to Strong Tie Ltd., who, in fact, broke even in 2008 with reported net profit amounting to just $7,000, which, given the necessity to pay $500,000 a year dividends to the owner’s sister, is equivalent to a loss. There is no doubt that the company is going through the hard times at the moment. Financial crisis means that people are likely to build fewer houses, so the whole market is in stagnation, while the competitors – Universal Connector and several smaller companies – are gradually taking away the once-70% market share from Strong Tie Ltd. Despite superior perceived quality and possibility to charge higher prices, the company fails to show profits as expensive Canadian labour ‘eats’ the whole margin, while the market conditions make it difficult to implement JIT practices. The purpose of this paper is to conduct detailed analysis of the problems the company is facing and to offer the solutions. 2. Problem identification Strong Tie Ltd. is now the only company in the market who

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