Question

The following discussion focuses on the change in production and selling strategies of Timken Co., the Canton, Ohio, firm that is a major producer of bearings:
To counter the low prices of imports, Timken Co. in 2003 began bundling its bearings with other parts to provide industrial business customers with products specifically designed for their needs. Timken had begun bundling prelubricated, preassembled bearing packages for automobile manufacturers in the early 1990s. Evidence indicated that companies that sold integrated systems rather than discrete parts to the automobile manufacturers increased their sales. Other industrial customers put the same pressure on Timken in the late 1990s to lower prices, customize, or lose their business to lower-priced foreign suppliers. Manufacturers are increasingly combining a standard part with casings, pins, lubrication, and electronic sensors. Installation, maintenance, and engineering services may also be included. Suppliers, such as Timken, saw this as a means of increasing profits and making themselves more indispensable to the manufacturers. The strategy also required suppliers to remain in proximity with their customers, another advantage over foreign imports. This type of bundling does require significant research and development and flexible factories to devise new methods of transforming core parts into smart assemblies. The repackaging is more difficult for industrial than automobile customers because the volumes of production are smaller for the former. Timken also had to educate its customers on the variety of new products available.

Timken has an 11 percent share of the world market for bearings. However, imports into the United States doubled to $1.4 billion in 2002 compared with $660 million in 1997. Timken believes that the uniqueness of its product helps protect it from foreign competition. However, the company still lobbied the Bush administration to stop what it calls the dumping of bearings at low prices by foreign producers in Japan, Romania, and Hungary.

Required:
a. What factors in the economic environment, in addition to foreign imports, contributed to Timken’s new strategy in 2002 and 2003?
b. How does this strategy relate to the discussion of bundling presented in the chapter? What additional factors are presented in this case?

Answer 1

Answer:

Timken Co.

a. Factors in the Economic Environment that contributed to Timken;s new strategy in 2002 and 2003 in addition to foreign imports at cheaper prices:

1. The needs of industrial business customers for integrated systems

2. Lowering of prices resulting from bundling

3. Addition of installation, maintenance, and engineering services, leading to increasing profits

b. The relationship of this strategy to bundling

1. Remaining in proximity with customers

2. Significant research and development

3. Flexible factories

4. Education of customers on product variety

c. Additional factors presented in this case are:

1. Customization

2. Means of making entity more indispensable to manufacturers

3. Uniqueness of products

4. Lobbying to stop dumping

Explanation:

a) Data and Calculations:

Share of the world market for bearings = 11%

Value of bearing imports in 2002 = $1.4 billion

Value of bearing imports in 1997 = $660 million

b) Companies engage in bundling by offering their main products together with several others together with services as a single combined unit.  This strategy always lowers the bundled price when compared with the prices of the separate products and services.  Thus, companies that sell bundled products and services often achieve more sales at the expense of profits.