3. Strategic analysis
3.2 Nilfisk-Advance
Nilfisk-Advance is a global supplier of professional cleaning equipment primarily focusing on the commercial cleaning market. Although headquarters are located in Denmark Nilfisk-Advance has production facilities, sales offices and distributors all over the world.
The company was founded in 1906 by P.A. Fisker. He started the company by producing motors for different aggregates but later on the focus turned to cleaning equipment. The defining moment came when Fisker invented the Nilfisk C1 vacuum cleaner which could be operated by only one person and therefore revolutionized the world of home cleaning.
In the 1980s the company's rate of growth picked up and Nilfisk-Advance became part of the NKT Group. Since then Nilfisk-Advance has become a global player on the cleaning
equipment market both through aquisition of smaller companies and through organic growth.
Nilfisk-Advance has about 5,250 employees and revenues accounts for about 42% of the groups total revenues.
Products
Nilfisk-Advance markets a wide range of different products used for cleaning and targets both commercial and industrial purposes as well as home owners. The products are sold through several subbrands worldwide and the main product lines are vacuum cleaners, floor
maintenance products and pressure washers. Besides that, the different brands also hold
smaller product groups like conveyors and detergents. The five brands all overlap productwise, but they all add to the extent of worldwide market presence.
Floor cleaning and maintenance
Within this product group Nilfisk-Advance markets a range of cleaning products for industrial cleaning, including scrubbers, dryers, sweepers, burnishers, steam cleaners, carpet extractors, large combination machines and more. The products all come in different models suiting all sizes of cleaning tasks. Some products come both in sit-on models and push operated.
Besides that the different brands all market vacuumers in many different forms, both for
industrial and commercial use and also for home owners through the Nilfisk Consumer brand.
The vacuum cleaners both come in the traditional vacuum models but also in a wide range of wet/dry vacuum cleaners. Part of the product range is also central vacuum cleaning systems.
Pressure washers
Another product group is pressure washers. Also within this product group Nilfisk-Advance markets many different models in many different sizes for many different purposes - for homeowners, commercial and industrial use.
Other
Besides the two main product groups Nilfisk-Advance also markets a few special products and some products supportive of the main product groups. Products in this group includes
detergents, pneumatic conveyors and a number of different accessories for all product groups.
Service
When purchasing a product at Nilfisk-Advance you will to some extent be offered to add a service package along with your purchase. This can vary depending on the type of customer from a fixed-cost maintenance contract or basic annual service subscription to having access to service phones. You can also buy warranties of different length of periods and you always have access to spare parts.
"Green meets clean"
Nilfisk-Advance carries a very green profile. Their declared goal is that every new product has to be more efficient while also using less water, energy and detergents. An intensified focus on sustainability and a healthier environment from governments and environmental organizations
means that customers have to turn their focus to not only use products that are efficient but also sustainable. By being a leader within manufacturing sustainable products Nilfisk-Advance has a good chance of stregtening their market position.
Customers
The customers are far more widespread in Nilfisk-Advance than you see in NKT Cables as sales are made to smaller business units. The products are therefore distributed through a large number of sales units and dealers in over 70 countries around the world26. Nilfisk-Advance split their customers up into three types: the industial market, the commercial market and the consumer market.
Figure 5 - Sales by customers
Source: NKT 2012 Annual report, own creation
The industrial market accounts for 38% of total sales in Nilfisk-Advance and consists of industrial companies that have som kind of special requirement with regards to cleaning. An example of that could be a company within agriculture that needs to be able to remove dust and grains, or a pharmaceutical company that needs hygiene to be of the highest standards.
Within the commercial segment the customers usually demand for less complicated systems for cleaning. Commercial customers include schools, hotels, shops and also cleaning
companies to name some of the potential customers.
26 NKT Corporate Profile 2013 -‐ www.nilfisk-‐advance.com
Industrial market (38%)
Commercial market (51%)
Consumer market (11%)
The last segment is the private consumers. The products are sold for use in homes through different types of stores includning DIY stores or retail chains. The complexity of the cleaning products are lowest in this segment.
Competitors
Nilfisk-Advance is one of worlds leading suppliers of cleaning equipment. The total global market for professional cleaning equipment amounts to an estimated 55 bn DKK and Nilfisk-Advance accounts for about 12% of that. That leaves them in top four manufacturers
worldwide. The three largest competitors are american company Tennant and the german companies Kärcher and Hako.
Figure 6 - Nilfisk-Advance' largest competitors
Source: 2012 Annual report of Tennant and homepages of Kärcher and Hako, own creation
Tennant (US)
• Revenues for 2012 was approx. 566 m EUR (739 m US)
• Target primarily markets of the Americas with 66,5% of sales. The EMEAs accounted for approx.
22,5% of sales and the APAC countries accounted for the rest.
Kärcher (GER)
• Revenues for 2012 was 1.923 m EUR
• Kärcher products are sold worldwide and are the largest manufacturer of cleaning equipment in the world.
• Holds a very large product range including more products for home owners and additional products for industrial and commercial use.
Hako (GER)
• Revenues for 2012 was approx. 400 m EUR
• The products of the Hako Group are sold through the three brands Hako, Minuteman and PowerBoss in over 60 countries around the world.
3.2.2 Macroeconomic environment Political
Nilfisk-Advance operates in many different countries. Some of these contries are emerging economies that historically tend to be in some sort of political turmoil in periods. This can have an impact on the way businesses in the country act and delay decisions to invest - also in cleaning equipment. So Nilfisk-Advance is dependent on stable political environment in the countries where they operate.
It is on the political agenda in many countries that companies have fulfill certain demands to workplace environment. This can impact demand for cleaning equipment positively. It is also possible that politicians would want to have a say when it comes to the requirements to the cleaning equipment. The cleaning equipment has to meet certain demands and if these
demands are increased from political side it can push the manufacturers of cleaning equipment to develope products that live up to these demands. Therefore Nilfisk-Advance always has to be on the forefront of requirements to the products. These requirements could very be to the environmental standards of the products.
Economic
The economic downturn that started in 2008 and still leaves its mark on economies around the world also has an impact on the sales of cleaning equipment. The demand for cleaning
equipment is to a large extent linked to the standard of living. If the wage level in a country is high enough to justify replacement of manual cleaning with cleaning equipment of all sorts the demand for cleaning equipment is off course impacted positively. But the countries Nilfisk-Advance operates in a very different from eachother. Growth rates are higher in the emerging market countries than in the western countries like Europe and the US. Both economic downturns and upturns impact the economies differently. Nilfisk-Advance is exposed to both emerging and developed economies.
Social
It is important for Nilfisk-Advance to be able to attract employees for jobs at all levels of complexity. This is both sales force employees, engineers and leaders.
One of the most important strategic goals for Nilfisk-Advance is to have an intensified
customer dialogue to make sure that their products meet the demands of the customers in the right way. To strengthen this dialogue with customers Nilfisk-Advance opened a new website in 2012 where it is possible for clients to interact with Nilfisk-Advance27.
Technological
The product range of Nilfisk-Advance can not be defined as high tech products. Nevertheless, Nilfisk-Advance puts in significant resources to research and develop their product range. In four competence centres in different locations product development is concentrated on user-driven innovation, industrial design, sustainable products, quality and cost. By innovating Nilfisk-Advance tries to move the market to their favor and optimise the products with regards to energy use.
But focus is not on the physical product only. Nilfisk-Advance has some focus points with regards to their market appearance where quality in the products is one of them. The second one is the increased customer dialogue. The company wants to streghen the relationships with customers through dialogue to make sure product quality is right but probably also to take good care of the relationships to customers. The third point is optimizing delivery times to make sure customers are happy. It is not very important to the clients that the products get more and more high tech. It is more important that deliveries are efficient, service is good and products are energy efficient. The main technological issue for Nilfisk-Advance is to improve the existing products and not to come up with new ones.
Environmental
Customers have an increased focus on the environment. They want products that are efficient and use less water, less energy and less detergents. This increases the focus for companies like Nilfisk-Advance to manufacture new products that live up to these demands. Nilfisk-Advance targets this with the 'Green Meets Clean'-strategy. This is their way of committing to corporate responsibility of marketing sustainable products.
27 2012 NKT Annual report
Legal
Nilfisk-Advance operates in many different countries and therefore they operate under many different laws. It is important for the company to comply with relevant rules in every country to avoid jeopardizing their reputation.
3.2.3 Industry analysis Threat of new entrants
Earlier new entrants into the market of cleaning equipment had pretty easy access. A startup capital is needed to produce the machines, but once you had that you were going. The
machines were no technological miracle. Today the customers demand more from the cleaning equipment they buy. Especially the industrial and commercial customers demand good
functionality, efficiency in terms of the use of resources and good service agreements. So today it is not enough to just manufacture the equipment. You need to establish a research and development unit to make sure that the products live up to the standards demanded by law and by the customers. To establish that the new company needs to have a certain size and turnover to be able to cover the costs.
Besides that the large companies within cleaning equipment has for many years established a very large network of sales offices around the world. So distribution coverage is key to a business like this, and you do not establish that in one day.
It is also very important that a new company in the business can offer high quality service agreements that enables customers to call for help at any time and any place. This is also not easily established.
A possibility to enter this market is for an existing company that already has established the distribution network and research and development units. Such a company can take advantage of this and diversify its product portfolio to also contain cleaning equipment.
In general it is not difficult to enter the market but it takes a huge effort to become large. The large companies including Nilfisk-Advance does not only grow organic but also through an
acquistion strategy. This consolidation trend in the business makes it hard for smaller businesses to grow large before being snapped up by larger competitors.
Threat of substitute products
The market of Nilfisk-Advance gets more and more fragmented and small businesses with a niche product are bought to supplement the existing product portfolio. This means that in detail there are probably a number of substitutes for the different types of products.
But if we base the analysis on cleaning equipment in general one important substitute product are manual work. As described earlier the crucial criteria for whether to choose between manual work or cleaning equipment is the cost of labor. In the more developed countries wage levels are higher making it more favorable using equipment to do the cleaning saving the expensive salary for manual work. In other countries its still the other way around, but we must expect that the trend is towards more use of cleaning equipment.
Bargaining power of customers
The customer base consists to a large extent of smaller companies that do not have much bargaining power. Also the private customers has not got much bargaing power. But the commercial customers are getting more and more bargaining power. The professional cleaning companies get bigger and bigger and gradually they increase their bargaining power. When it comes to public institutions it is normal these years that they establish a central purchasing unit where cleaning equipment for the whole network of schools or other public institutions are purchased. This of course increases the bargaining power.
But in general Nilfisk-Advance is a large player in the market of cleaning equipment and has a strong position when negotiating contracts with their customers.
Bargaining power of suppliers
Nilfisk-Advance products are to a large extent put together by parts that are produced at other companies. Motors, painting work and other processes are outsourced and the more
outsourcing a company does the more dependent the company are of their suppliers. Most of the processes that are outsourced can be overtaken by other smaller companies in a situation of
disagreement but other processes, like motor manufacturing are done by large suppliers which entails a risk for Nilfisk-Advance. An important ability for Nilfisk-Advance is the ability to transfer any increase of cost to their customers. This has been the companys strategy and they intend to proceed like that28.
In general the bargaining power of suppliers are low. But in some cases the dependency of suppliers are a bit higher, but not seen as a big risk.
Intensity of competitive rivalry
Nilfisk-Advance is one of the four biggest manufacturers of cleaning equipment and the four companies together accounts for about 35%. As described earlier the 3 other companies are american company Tennant and the german companies Kärcher and Hako. The remaining part of the market is formed by over 100 regional companies29. Because of the very diverse nature of the market the companies are not entirely comparable.
Nilfisk-Advance has its main focus on the commercial and industrial market where the largest part of sales come from. In 2012 89% of sales was on the commercial and industrial markets.
The last 11% of sales was to the household market. Competition is intense on the cleaning equipment market, but Nilfisk-Advance has a good size and a good position worldwide especially in the commercial and industrial markets. Therefore Nilfisk-Advance is in an advantegous position when it comes to the expected continued consolidation of the industry.
Nilfisk-Advance continously tries to keep this good position in the market by streghening the quality of the total product which means that not only the physical product has to be of high quality. Service and a better interaction with customers are other things that Nilfisk-Advance focuses on. In 2011 the management of Nilfisk-Advance introduced five Must Win Battles to become the customers first choice. Besides the before mentioned focus on quality in service and customer interaction the focus is on meeting customers supply expectations, to strengthen the culture of the company, to stay a strong player in EM and to improve IT systems.
28 NKT Annual report 2009
29 NKT Annual report 2012
Figure 7 - 5 Must Win Battles
Source: NKT Annual report 2012, own creation
In general the intensity of competitive rivalry is high in the market for cleaning equipment. The most intense competition is on the household market, which is the least important for Advance. In the commercial and industrial markets competition is also high, but with Nilfisk-Advance as a very strong player.
3.2.4 Conclusion on Nilfisk-Advance
To sum up the conclusion on the strategic analysis of Nilfisk-Advance the most important findings will be listed based on the SWOT-model.
Strengths
Strong presence worldwide
Diverse product portfolio
High product development goals
High quality products including top class service.
1. To create maximum
customer satisfaction
2. To meet customers supply
expectations
3. To develop strong culture and
leadership 4. To ensure
leadership in signi_icant emerging markets 5. To reduce
complexity
Green profile
The flexibility that outsourcing gives.
Good size.
Weaknesses
Dependent of growth in economies. Companies that want to rationalize do not spend that much money on cleaning equipment.
Dependent on solid supplier relationships and quality.
Opportunities
Because Nilfisk-Advance is one of the largest companies they can take active part as a buyer in a consolidation process in the industry. Consolidation can reduce level of costs.
Stronger growth in the emerging markets.
Threats
More large competitors.
Increased wage levels.
Political turmoil in the emerging markets.
If manual labor gets less costly than cleaning by the use of machines.
Customers create even larger purchasing unit and increase their ability to put pressure on prices.
Higher supplier bargaing power can put pressure on prices.
3.3 Photonics Group