Case Study: Compsis at a Crossroads
The market plays a significant role in determining whether a business survives or not. Where there is sufficient market, businesses thrive so long as they offer quality products. Compsis offers high quality products. However, the Brazilian market is limited especially for ETC systems projected in the declining revenues. Focusing on less expensive projects, and widening product suites are alternatives to the problem. However, international market expansion has more positive impacts when it comes to solving the problem. The international market expansion is a remedy to the problem of the limited market.
Key Case Facts
Despite having gained the dominant share of the market in Brazil by developing strong relationships with the local government, toll road operators, and an international reputation for the technological expertise and quality, Compsis revenue fell to US$3.3 million in 2004 from US$4.2 million in 2003. Apart from the government prolonging delay in awarding new toll road construction rights to road operators, the company was unable to win new ETC projects in Europe and Latin America. The declining revenue affects the benefits gained by the owners of the company as well as by the employees. Brazil offers a limited market for the growth of the company by a variety of products and internal market offers growth opportunities for Compsis (Lehrich et al., 2015). The company’s strengths include dominant local market share, international reputation, technological expertise, and experience .Weaknesses include limited market and giving more attention to one product. The opportunities include international market and product expansion. Competition is a major threat.
Attempts to penetrate the international market
Despite considering Brazil as a fertile ground for the services, Compsis still sought to expand the business to international market. The company expanded to Latin America with a small but growing market. However, the targeted countries had limited experience with toll roads which made it hard for them to spend on the expensive services offered by the company. Compsis also entered the U.S market but had no physical presence in the market.
Waiting for government to reward contracts
By the end of 2004, the company had operating cash in the bank. This means that revenue was not being generated. The only option for the company was to wait out the drought period and wait for the Brazilian government to fund the toll concessions as predicted. After the concession grants were re-opened, then the company had to wait for the contracts to be awarded, wait for proposals to be petitioned to negotiate prices and commence the project after winning the bid.
The primary problem
Declining revenue, attempts to penetrate international market, and having operational cash in the bank all point to one major problem, limited market. In Brazil the market for EYC systems integration was growing and promising to companies like Compsis. Many similar companies were offering similar services in the market and only the aggressive ones managed to win bids. The competition saw the company lose bids to other companies seen in the declining revenue in 2004 at US$3.3 from US$4.2 in 2003. The company also sought international market as a remedy to the limited market problem. However, even with aggressive efforts, it was unable to win new ETC projects in the international market including India, Europe, and Latin America. Even with the upgraded SICAT, the ETC software, into a flexible and simple product, the company still doubted the ability of the available market of absorbing the product (Lehrich et al., 2015). The company has to adopt an effective strategy that would enable it to utilize the existing market and explore the available opportunities to increases its revenues.
Focus on less expensive projects
Integrating complex software and hardware systems is an expensive endeavour. In offering advanced traffic management systems, magnetic guidance system, vehicle monitoring system, and primarily electronic toll audit, Compsis emphasized on offering products and services of higher quality at a higher price. The company also pursued contracts for very expensive projects. The problem is that many companies in the country seem to seek the same contracts. This increases competition lowering the chances of winning bid. Instead, the company should pursue contracts for less expensive projects, an opportunity that many companies have ignored. Such projects are characterized by minimal competition if any increasing the chance of winning bids and hence the assured income.
Widen product suite
By 1996, Compsis expanded its technology strategy by investing in intelligent transportation systems (ITS). Instead of focusing on customer service centers and manufacture of transponders, the company decided to stick by its core skill which is the integration of complex software and hardware systems. Now as a system integrator, the company offered various Brazilian ITS projects including advanced traffic management, vehicle monitoring systems, magnetic guidance system, and electronic toll audit. Among the four products, electronic toll audit (SICAT) attracted more buyers. The company derived the majority of its revenue from SICAT (Lehrich et al., 2015). This made the company focus intensely on the product limiting its portfolio and strengthening the risks in the SICAT market. To generate more income, the company should consider focusing more on the other systems, that is, magnetic guidance system, vehicle monitoring systems, and advanced traffic management to widen the product suite. This will broaden its portfolio and spread the risk among the products.
International market expansion
Compsis has attempted to penetrate international market though with limited success. The company entered new international markets with the successful product SICAT and then it would introduce other products. In Australia, the company was successful in the implementation of SICAT 4 systems for a toll plaza until its partner Philips was bought by Tyco which lost interest in the business. This presents a potential market that needs to be explored. Although India seemed interested in the toll business, the high cost was a barrier. Compsis needs to come up with affordable systems to take advantage of the Indian market. Having a physical presence in India will enable the management of the company to have an experience of the culture of India and be able to determine the kind of products they are willing to pay for. Just as in the Indian case, the company should create systems that are affordable and simple to use for regions such as Latin America with limited experience of the toll road for them to find it easy to implement the system attracting more potential customers. The United States offers a great market for the systems as it has experience with toll road systems. By having a physical presence in the country, the company will be able to identify its needs and respond to the effectively (Evans, 2015). The international market offers growth opportunities for the Compsis and should therefore take the opportunity.
The alternatives were evaluated on a yes, no, or may be the answer based on the impacts of the alternative on the factor evaluated against. Table 1 shows that international expansion has more positive impacts followed by widening product suite and focus on less expensive projects consecutively.
|Decision Criteria||Less expensive projects||Widen product suite||International expansion|
|Increase sales||may be||yes||yes|
|Consistent with the corporate mission||yes||yes||yes|
|Easy to implement||yes||may be||yes|
|Increases employee morale||No||yes||yes|
|Increases customer satisfaction||may be||may be||may be|
|Related to the problem||Yes||yes||yes|
Compsis have not been very successful in the international market. The major issue is the strategy to enter these potential markets. Focus on project management, and learning cultural differences will enable the company to attract customers in other countries. Understanding cultural differences helps in determining the kind of products a society needs. Sending teams in different countries will create an international awareness useful in creating customized products for each country which will not only attract buyers but also work as a competitive advantage over competitors (Evans, 2015). Ailton should expand the market to the international market with customized systems associated with increased sales.
Limited market prevents businesses from gaining maximum benefits. Even when products are of high quality, the limited market can lead to the collapse of a business. Compsis offers excellent products, however, the Brazilian market is limited especially for ETC systems seen in the declining revenues. While the company can rely on less expensive projects or on widening product suite, international market expansion has greater potential in increasing the revenue. However, the company should seek to implement the other two alternatives to take advantage of their benefits.
Evans, M. (2015). 10 Key Steps to Expanding Your Business Globally. Forbes. Retrieved on 11th March 2018 from https://www.forbes.com/sites/allbusiness/2015/03/04/10-key-steps-to-expanding-your-business-globally/
Lehrich, J., Paredes, P., and Ravikumar, R. (2009). Compsis at a Crossroads, pp. 1-17.