New Bus Dilemma
The author of this report has been asked to assess a situation where a bus company is trying to make entry into a market. They are present in said market but the barriers to entry as well as the barriers for any firm other than the top three players in the field to stay there are quite high. It is to the point that there would seem to be subterfuge being executed by at least one of the three competitors. Given all that, it would seem that the best option is to put Greenbus (the subterfuge party) in the limelight for not following the law or just acquiring the two smaller players in the market and go after Greenbus head to head. The author of this report will describe the situation and will then describe the best path forward.
The situation here is pretty basic. Tom Newhouse is the CEO of Newbus and he is finding it very hard to compete in a market where three other companies make up eighty percent of the market share by themselves. Indeed, there is Greenbus, Brownbus and Whitebus. They command market shares of fifty percent, twenty percent and ten percent, respectively. Newbus is finding two major challenges as they do business. First, they have very high-quality buses but they are losing out on tenders to the bigger competitors all of the time. This is particularly true of government tenders. About the only reliable business that Newbus can get a hold of are private sales of buses to schools and community organizations. Newbus has also attempted to procure maintenance contracts on Greenbus buses. However, the business model is being greatly complicated by what has to be at least some amount of subterfuge and sabotage on the part of Greenbus. Newbus is getting charged a huge premium as compared to what should be the normal price and the parts take a much longer time than they should to arrive. It is easily to the extent that they could be pursued for violating the terms of the Competition and Consumer Act of 2010. Indeed, the law as written is supposed to provide for proper competition, fair trading and protection for consumers. Obviously, Greenbus is trying to prevent Newbus from getting a foothold in the market and should absolutely have their hand slapped and be told to stop it (Australia, 2016). However, there is not the only alternative that is present.
There is also the option of partnering with a private equity firm to make a much larger gambit. Rather than try to have Greenbus punished for its misdeeds, there is instaed of the idea of making a ploy to buy out Brownbus and Whitebus so as to make a larger company that will encompass at least thirty percent of the market, which is much closer to the fifty percent that is currently possessed by Greenbus. The growth that will be experienced by Newbus will obviously not be organic, at least not at first, but this would allow Newbus to make a firm entry into the market and the reliance Newbus previously had on Greenbus to be ethical in their business patterns will almost certainly be negated or at least limited. Rather than having to rely on maintenance contracts for Greenbus buses, they can do maintenance contracts for their own buses including all of the current Brownbus and Whitebus fleets. The creation of a much larger competitor would also position Newbus and the larger new company in a way that will make it much easier to receive and keep government tenders.
As for what Mr. Newhouse should do, the recommendation is actually both. If Greenbus is not following the law when it comes to competitive practices, they need to be reviewed and sanctioned appropriately. However, the primary focus of Newbus should be to make themselves a player in the market overnight by become a company that will have at least sixty percent of the business that Newbus has. There may be some antitrust concerns on the part of the Australian government. However, the anti-competitive practices being executed by Greenbus might mitigate those concerns and make the case that Newbus should be allowed to become a larger presence given their fair dealings and quality buses.
This all being said, Newbus and the company will need to be mindful of practicing what they preach. If they become this new and larger market player and end up doing the same thing that Greenbus is doing, then they will receive the furor of the government as well. If Greenbus starts trying to procure maintenance contracts for the buses sent out by Brownbus, Whtiebus or Newbus, then the new competitor created by Newbus needs to cooperate. Rather than sabotaging those contracts or violating the law, Newbus needs to show why their maintenance departments are better and why their buses are better. The case study notes that Newbus has very good buses and they are of high quality. This can be a huge selling point to public and private buyers alike. Higher-quality buses mean less wear and tear that normally occurs and this can help Newbus charger less fees for the same level of service. If this occurs over time and at high enough a level, there is certainly the chance that Newbus and its new business partners could eventually eclipse Greenbus in terms of size and presence. Government agencies in particular will pay a high amount of interest to a higher-quality and lower-cost contract and vehicle fleet as such agencies deal with finite budgets and constricted time periods (Australia, 2016). Also important to note is that Newbus offers a great variety of buses and this can also help them market their wares and services as they provide a unique and high quality product that many different parties can consume.
Mr. Newhouse has to understand, though, that doing the equity buy-out option is going to be a big endeavor. Taking the norms, standards and practices of three different companies and melding them together will be no small task. There will be a number of major adjustments that will have to be made. For example, it will have to be decided whether the three companies will still operate under their own names or if all three companies will remain present in the market landscape even if they are under one corporate envelope. Another issue is that the company cultures of each firm will be different and that will have to change. Whether this means existing companies are changed or that one or more of the acquired companies is rolled into the Newbus envelope from a corporate culture standpoint, leaving the companies as separate ideological and business practice “islands” is a non-starter. The strategic and business decisions made by the newly formed company will have to be unified and heading in the same direction. For example, if Brownbus and Whitebus vehicles are of lesser quality, then that needs to change in the form of quality improvements or perhaps there should be a shake-up of the model lineup. Whether there be entirely new buses designed or whether Newbus plugs in their own buses, there has to be a maximization of quality. The quality pertains to the service and to the buses themselves. Products that are inferior from a quality or longevity standpoint should be phased out or fixed and high-quality products should be brought to the fore.
While continuing to slog it out with the Greenbus people may seem like a decent option, it is not the winning one. Even if Greenbus comes around a bit after government scrutiny for not competing in a fair fashion, they will always be against Newbus and their other competitors. As such, there will always be a degree of resistance and so forth. If the equity firm capital exists to make the play that is mentioned in the scenario, then that is the way to go. Again, inorganic growth like this is not ideal and forming the three companies into one will be a challenge. However, it will be a huge boon to Newbus and the new company in general if the strengths and advantages of each firm can be maximized and positioned properly so as to attack Greenbus head-on while not resorting to petty antics and illegal behaviors.
Australia. (2016). Competition and Consumer Act 2010. Legislation.gov.au. Retrieved 6 June 2016, from https://www.legislation.gov.au/Details/C2011C00003
Australia. (2016). Frequently Asked Questions (FAQs) — Department of Finance. Finance.gov.au. Retrieved 6 June 2016, from http://www.finance.gov.au/procurement/ict-procurement/contract-framework/sourceit-model-contracts/faqs.html
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