Executive Summary Martin Cook, President of Currie Road Construction Ltd has to decide on expansion plan immediately due to anticipated stimulus spending in both Texas and BC, Canada. The company has market share of 2. 7% in BC, Canada. Competition in BC is stiff and it is impossible to increase market share. On the other hand, competition is less in Houston, Texas and Currie Road Construction has higher probability of securing sizeable amount of road construction Houston, Texas.
Mr. Cook has proposed organization structure for Houston division under the leadership of Mr. Brad Carlyle. Brad Carlyle and Martin Cook had done business together in the past. Brad Carlyle has important contacts within both government and construction industry of Houston. Martin Cook is also confident about the leadership potential of Brad Carlyle. Currie Road Construction Ltd should setup office in Houston, Texas because Texas Road department will be investing about $ 4.
5 billion in road construction, competition is less as compared to the competition in BC, availability of fully integrated job costing/receivable/ledger cost reporting and accounting system, availability of equipment during winters of BC, Canada and due to high unemployment in Houston hiring of blue collar employees will be easy. After setting up business in Houston, Martin Cook can expand its operation in the surrounding regions of the Houston and in other parts of US. This will help Currie Road construction to reduce its long term debts and interest payment which are due to the banks.
Currie Road Construction have already decided to buy new equipment for Houston division in order to improve revenue margins and thus avoid breakdowns of the equipment. Introduction Martin Cook, President of Currie Road Construction Ltd wants to expand his business either by setting up division in Houston, Texas or expand current company’s profile in his home country. Currie Road construction has outstanding interest payments of $20 million loan from the bank. Current economy is hit by economic recession hence Currie Road Construction Ltd has challenge to sustain in the market as well as there is risk involved for expanding their business.
I am consultant to Currie Road Construction Ltd. I will be providing the company data analysis of the current situation and my preferred options with the alternatives after necessary risk analysis. Mr. Martin Cook has to take his decision on priority considering economic stimulus spending both in Texas and BC. The following report is addressed in the following way: Background of the company, Basic and Immediate Issue, Analysis of each issue, Conclusion and Action Plan Background Currie Road Construction Ltd is a British Columbia, Canada based road construction and maintenance firm.
After infrastructure revolution during early 1980, focus was now shifted to reconstruction and maintenance of the existing road networks. Before Martin Cook taking ownership, the company were still stuck with their old visions and targets. Martin Cook made few strategic moves to realign company’s goal and to repay interest debts to the banks. In order to grab opportunity of the economic stimulus announced by the federal governments in US as well as Canada, Mr. Cook had to decide on opening operations in Houston and look at the long term perspective of diversifying the business in BC as well in other North American Cities.
Addressing both these issues is important as it meant opportunity to grow its business as well as repay its long term debts and put the company in the positive growth path. Immediate Issue The issue Martin Cook was facing is to whether open a Houston office under Brad Carlyle. The following are the reasons why this issues need to be addressed on top priority- 1. Texas government are coming up with economy stimulus around Feb 2009 with injection of about $ 2. 7 billion dollars. Exhibit 4 shows potential market opportunity in Texas. Bidding process will be started in April 2009.
Hence decision has to be made immediately. 2. Competition in Texas is not as competitive as it is in BC. Hence Currie Road Construction has better opportunity to snap big road construction deals. 3. Currie has Long term debts and due interest payments from the banks. This can repaid in shortest way by clinching road construction deals in Houston, Texas. Basis Issue Currie Road Constructions has to select best investment option for a long term strategy. The following are the reasons why this issue needs to be addressed over a longer period of time- 1.
Currie Road construction has large Long terms indicated in Exhibit 2. Also it has not paid the interest to banks until 2007 owing to economic slowdown between 2000 and 2002. 2. Canada’s Infrastructural development was complete and industry was shifting to reconstruction and maintenance of roads. 3. Market share of Currie Road construction was very less and there was fierce competition in Canada. Increasing of market share is difficult due to no restriction on no of contractor bidding for the contracts. Analysis Immediate Issue: Whether or not to open a Houston office under Brad Carlyle.
Currie Road Construction Ltd will have to hire new employees under Brad Carlyle for its Texas business. Also Cook and Brad were deciding to buy equipment for the operations in Texas. Also due to collapse of global credit and equity market in US, expansion plans into the Texas market is highly risky. However by Feb 2009, the US Congress would inject about $100 million in infrastructure projects. TxDOT have approved more than $4. 5 billion which is scheduled between April 2009 and Dec 2009. Refer Exhibit 4 for the upcoming bidding projects.
Brad Carlyle has valuable contacts within both the governments and the construction industry. He also knew the Texas market very well. Brad Carlyle had previously done business dealings with Cook. Cook was confident of Brady Carlyle leading the operations in Texas. In absence of Brad, the U. S entry would have to be delayed as Currie did not have additional team member for taking care of the operations. Similar economic stimulus package were announced by BC government who are considering injecting about $ 880 million in infrastructure project. This will be very good opportunity for the Currie Construction to bet on.
Basic Issue: Selections of the best investment/growth option for Currie Road Construction Ltd. Further Investment in asphalt plants and gravel operation can yield profits only if in next 5 years there will be new road construction projects and no new competitions comes up. However as stated the BC, Canada has now developed road infrastructure and industry has shifted to road reconstruction and maintenance. Diversifying in the unrelated industry involves great risks since it involves investing huge capitals as well as company is unfamiliar in the new industry.
Currie Road construction can opt for reinvestment in costly capital equipment related to pavement maintenance. This will help to reduce breakdown time for the old equipment and thus be competitive. However this involves risk due to high equipment cost and it will further increase debts. Also economy has decelerated and carry potential risk to worsen further. Currie Road construction can go ahead with expansion plans in North America only after market study and successful operations in Houston, Texas. Directly expanding to other regions poses great risk due to economic slowdown.
Conclusions Mr. Martin Cook, President of Currie Road Construction Ltd should proceed immediately with opening up office in Houston, Texas due to the following reasons: Texas Department of Transportation in Houston will be investing about $ 2. 7 million for road construction and maintenance and will be scheduling bidding of projects from April 2009 to Dec 2009 as mentioned in the Exhibit 4. Exhibit 5 also shows projected infrastructure projects for the month of April 2009. Moreover competition was less as compared to the competition in BC.
Texas is also undergoing growth in infrastructure and government has budgeted approximately US $ 1,400 million a year. Brad has better understanding of the Texas construction market and has valuable contacts within government agency. Brad can effectively lead the Houston operation under him as per the proposed structure mentioned in the Exhibit 3. Currie Road Construction Ltd has fully integrated job costing/receivable/ledger cost reporting and accounting system. For Houston division, it can receive monthly cost analysis as shown in the Exhibit 6.
Due higher rate of unemployment in Texas hiring supervisors and equipment operators will not be a problem. Hence operations can be started immediately within next 2-3 months. Also the cost of hiring blue collar employees will be half of that Currie was paying in BC. Most of the Currie’s machines remains idle during winters. After Houston operation begins, these machines will be better utilised thus increasing the profitability of the company. Currie Road Construction Ltd should focus on Geographical Expansion (Houston and other cities in U.
S) as the best investment option to address the basic issue. The following are the reasons which helps support the stated above recommendation. U. S government will be injecting $ 100 million in infrastructure to revive the economic downward trend. After setting up office in Houston and getting hold of good infrastructure projects, Currie under Brad’s leadership can easily expand in surrounding cities. Increasing market share in BC, Canada is difficult considering the present level of competition. Hence Currie Road Construction Ltd will not be able to increase market share.
Risk associated with it is higher only if government pulls out the economic stimulus in infrastructures which is unlikely to happen considering economic deceleration. Action Plan: 1. As per Exhibit 3 Cook and Brad Carlyle should finalise the organisation structure for Houston division immediately. 2. Brad Carlyle should start hiring Blue collar employees immediately. 3. Cook and Brad should purchase new equipment for Houston division and raise capitals from the banks by submitting the business case for Houston division. 4.
Brad and his team should working on preparing proposal for bidding process by using the Currie in built software which gives cost estimates as shown in Exhibit 6. 5. Target dates for setting up office, purchasing equipment, and proposal for bidding should be set up by March 2009. 6. As far as long term expansion plan is considered Cook should start visiting and studying markets in the surrounding cities of Houston. 7. Cook should set up next five year strategic plan for expansion in the cities such as Florida, Georgia, North and South Caroline, Tennessee, Alabama and Louisiana.