CALIFORNIA STATE UNIVERSITY, SACRAMENTO

College of Business Administration

MGMT 170 – Fundamentals of Business Strategy

CASE STUDY QUESTIONS

(Case: Video Computer Technologies)

1. Please state in (bullet-point format) what the numbers tell us in this case.

VISION
Numbers	Implication
No vision numbers.
Company is 15 years old.

INTERNAL
Numbers	Implication
50/50 ownership.
European operation also 50/50 ownership.
$32,000 initial investment.
At four times PBT company is worth $4 million.
VLC-32 and V-LAN beats the competition on price by thousands for same performance.
Gross margins 50% in Europe: - Europe gets transfer price that is 44% less than U.S. wholesale cost. European operations lose money three out of last five years including last two.
Gross margins 30% in U.S. Net margins in the U.S. a +5.4%.
Current ratio down from 4 in 1987 to 3.4 in 1988.
Acid test ratio down from 3.1 in 1987 to 2.4 in 1988.
Company has no long-term debt.

EXTERNAL
Numbers	Implication
15% of sales to non-professional market.
50% of international sales to professional market.
By 1989, 50% of total manufactured sales were to international customers.
PAL systems are a considerable portion of the world market and growing.

2. Bill and Dick set up their company on a 50/50 ownership split. What do you see as the pros and cons of this structure? It worked at HP with Hewlett and Packard and P & G with Procter and Gamble, yet doesn’t seem to be working well in this case. Why not? What lessons do you draw from this about selecting partners and structuring a company?

3. Evaluate VCT’s entry into the international arena. What, from a realistic small company standpoint, could have been done better? Break the international problem down into root causes and symptoms: what are root causes of the current difficulties?

4. Should VCT, with less than $10 million total revenues, try to be an international company with a significant presence in Europe, or should it pull back to a purely domestic focus until it gets larger? If you think it should try to be an international company, what basic structure should Don seek to implement (full divisions, wholly-owned subsidiaries, sales offices, mail order, joint venture, distributors, technology, licensing, arrangements, etc.)?

5. Put yourself in Don’s shoes in October 1989. What will you do with Brian? What will you do about the fact that the two owners don’t talk to each other and have different ideas about where to take the company? What else should be on the top of your priority list as CEO over the next three years?

336 MGMT 170 VIDEO COMPUTER CASE