Expert case by Ian
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Problem Definition

Our client is Korean Car Parts (KCP), a multi-national original equipment manufacturer (OEM) of car parts based in Korea. They've recently seen a decline in profits and have brought us in to understand how to address this falling profitability.

Comments

This case is part two of a series. The goal of this series is to demonstrate how an identical case prompt (and corresponding framework) could lead to multiple different outcomes. The goal is to train you to adjust to case information in an agile and adaptable way.

This is a candidate-led case, the style of which could be seen across a range of consultancies, but particularly BCG and Bain. The case is split into 2 main parts:

  1. Geographic/Market Analysis
  2. Market + Competitor Analysis

In addition to the above, this case tests a candidate's understanding of profitability, the automotive industry, globalisation, and, of course, chart reading.

The following can be verbally provided to interviewee if asked:

  • Our client serves the Japanese and US markets
  • They specialize in the production of 5 products: carburetors, A/C units, wheels, airbags, and seatbelts
  • Profits have been falling in both the Japanese and the US markets
  • They care a lot about profitability, as they have limited capital – as such, efforts need to be focused in areas with the highest profitability

Short Solution

Solution

Paragrahps highlighted in green indicate diagrams or tables that can be shared in the "Case exhibits" section.

Paragraphs highlighted in blue can be verbally communicated to the intervieww.

I. Geographic/Market Analysis

In the first phase, the candidate needs to figure out if there is an overall market and/or geographic reason for the client's falling profits. The interviewee needs to ask if we’re seeing differences in the different markets the client serves. They should also ask whether competition is universally seeing the same falling profits that we are.

The following information can be shared if asked:

  • KCP serves the Japanese and US markets
  • They are seeing falling profits across Japan and the US
  • The Japanese and US markets are declining overall, but some competitors are still seeing growing profits

The candidate needs to realize that there is a macro-level impact at play, but, given the success of certain competitors, there are mitigating actions that could be implemented.


II: Market + Competitor Analysis

Part 1:

The candidate should hone in on the fact that some competition is succeeding in a tough market. Their primary goal should be to figure out what is going on in the market, and how/why competition is succeeding.

 

When prompted, show Exhibit 1 to the candidate.

The candidate should note that Wheels, Seatbelts, and Airbags are declining markets while Carburetors and A/C units are growing markets.

 

If they want to calculate CAGR, allow them to, but it is not necessary for the purposes of the insight/takeaway.

 

 

Part 2:

Next, that candidate should recognize that, in the context of this new market information, we want to compare competitors. A hypothesis might be that the winning competitors have either:

  1. Focused solely on these growing markets
  2. They’ve done a good job in gaining market share across markets (even declining ones)
  3. They’ve cut costs aggressively so as to maintain profitability

 

The candidate should ask for information relating to any of the above.

 

When prompted, show Exhibit 2 to the candidate.


The candidate should note that the two players who have seen growing profits (Competitor A and B) also do not offer Wheels, Seats, or Airbags. They should note that this indicates that the path to profitability is in picking the “winning” market in Carburetors and A/C Units.


III. Solution

Before making a final recommendation, a strong candidate will make sure that we have covered all bases. Below are good questions for them to ask and suggested answers:

Q: Have we investigated any opportunities to return our falling product lines (Wheels, Seatbelts, Airbags)? This could be price changes, reduction in costs, or anything else.

A: We have and unfortunately the macro factors at play (falling demand and rising costs) are expected to continue.

Q: Have any of our competitors seen profitability across Wheels, Seatbelts, and Airbags?

A: They have not.

Q: I can go ahead and calculate our new profit/profitability if we were to cut out these 3 products.

A: Not necessary.

Q: Is our client ok with cutting 3 out of our 5 products? I see a good amount of risk in cutting such a sizeable part of our business.

A: Ultimately, our client will do whatever is necessary to return to profitability.

 

The ideal solution for our client is to stop selling the product lines that are in declining markets. That is, our client should stop selling Wheels, Airbags, and Seatbelts.

Additionally:

  • They could look to increase the prices we charge on carburetors and A/C Units, or promote them more aggressively
  • They could look to identify parts with characteristics similar to carburetors and A/C units that can be sold in the US and Japanese markets to replace lost profits and create new revenue streams

Difficult Questions

Question: Are there any other markets you would recommend our client expand into? Why?

Possible Answers:

  • Really anywhere where we can easily (quickly) supply parts AND has car manufacturing. Since we are in Korea, this may include (Eastern) Russia, China, Vietnam, Thailand, Malaysia
  • We may have exhausted our geographic options, in which case we should expand into other product markets. We should identify other parts that we can sell to our existing Japanese and US buyers

 

Exhibits

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Exhibits