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Curriculum Center Browse Bibliography Build EPacket Pricing Structure Distribution Process Management Control in Nonprofit Organizations
 
Axeon, N.V.
Author(s):
Merchant, Kenneth A.
Van der Stede, Wim A.
Functional Area(s):
   General Management
   Management Control Systems
   Organizational Behavior
Setting(s):
   For Profit
Difficulty Level: Intermediate
Pages: 8
Teaching Note: Available. 
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First Page and the Assignment Questions:
In October 1998, Anton van Leuven, managing director of Axeon N.V., a large Dutch chemical company, was faced with a difficult decision. Ian Wallingford, managing director of Axeon's British subsidiary, Hollandsworth, Ltd., and Jeremy Noble, a member of Hollandsworth's board of directors, were frustrated that an investment proposal that had been presented some time ago had not yet been approved. The board member had even threatened to resign his post. But Mr. van Leuven had received advice from some of his other managers to reject the Hollandsworth proposal.

THE COMPANY
Axeon N.V. was headquartered in Heerlen, in the Southern part of the Netherlands. Axeon produced an extensive product line of industrial chemicals in 24 factories.

Early in its history, Axeon had a simple functional organization structure, with just one manufacturing division and a sales division. Over the years, however, Axeon acquired some foreign companies. These included Saraceno, S.p.A., in Milan, Hollandsworth, Ltd., in London, and KAG Chemicals, AB, in Gothenburg, Sweden. To take advantage of the geographical expertise in these acquired companies, each of these subsidiaries was asked to assume responsibility for sales of all Axeon products in their assigned territory: Southern Europe for Saraceno; the United Kingdom for Hollandsworth; and Scandinavia for KAG. Southern Europe, the United Kingdom, and Scandinavia, respectively, accounted for 8%, 14%, and 6% of Axeon's total sales. All other sales were handled by Axeon's organization in the Netherlands (see Exhibit 1).

The style of Axeon's top-level managers was to emphasize a high degree of decentralization. Hence, the subsidiary managers had considerable autonomy to decide what to sell in their territories. For products produced in the Netherlands, the Axeon Dutch sales organization would quote the subsidiaries the same prices as they quoted agents in all countries. The subsidiaries could bargain, but if, in the end, they did not like the price, they did not have to sell the product.

In some cases, the foreign subsidiaries produced products that competed with those produced by Axeon factories in the Netherlands. To date, little attempt had been made to rationalize the company's production. The subsidiaries were allowed to continue to produce whatever mix of products they deemed appropriate. The subsidiary managers were also encouraged to propose the development of new products, and they were allowed to build their own manufacturing plants if they could justify the investment in their own markets.

Assignment
1.    Is construction of the new factory in the U.K. in the best interest of Axeon N.V.?

2.    Ignoring your answer to question 1, if the plant were not built and AR-42 were shipped from the Netherlands to the U.K., what transfer price would be appropriate?

3.    What should Mr. van Leuven do?