Mini-Paper2 United Technologies Corporation

Mini-Paper 2 United Technologies Corporation

StudentCalvin Amos

BUS5480

Strategic Management

April 22, 2012

Instructor: Dr. Iaquinto

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Mini-Paper2 United Technologies Corporation

Industry Introduction

With business units in a number of different industry fields, United Technologies Corporation

(UTC) has numerous competitors, though most competitors are specialized to only one business

field, such as aerospace engines/products, helicopters, HVAC units, elevators, and fire/security

systems. However, similar UTC international competitors are probably best described as other

conglomerate company structures like itself within the aerospace and industrial building systems

technology industries. Though there are several companies that could possibly fit this

description, a few of the most notable are Boeing, ThyssenKrupp and GE, with 2010 sales of $64

billion (5 business segments), $64 billion (8 business segments) and $150 billion (5 business

segments) respectively. A strategic group mapping of these companies and UTC with 2010 sales

of $54 billion is shown below.

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Mini-Paper2 United Technologies Corporation

This industry is a highly competitive and high capital resource industry. Some of the “Key

Success Factors” of the Industry are shown below, followed by a Five Forces Model that

generally describes this industry.

Aerospace/Industrial Technologies Industry KSF Table1. Extensive Research and Development (R&D) ExpendituresIn this mature market, competitive advantage is usually gained by product innovation through the latest technology. Efficient technology and techniques are important for price competition customer satisfaction. This makes R&D critical.

2. Establishment of Good Customer Service and Buyer RelationshipsMost products are high price long term purchases, with after sale services; therefore securing a sale ensures further customer interaction for many years. If a potential sale is lost to a rival, it could be as many as ten years before that relationship ends. However, the organization that secures the contract is generally ensured long-term interaction and often future business follows. It is therefore crucial to capture any potential customer at the earliest opportunity.

3. Economies of ScaleRelative low product quantities at high production costs require seeking greater profit margins through lower per unit costs that can only be gained through economies of scale.

4. Relationship Marketing of Differentiated ProductsProduct differentiation from similar products, as well as experience in building relationships with government officials and company executives is necessary to capture market share and earn higher returns.

5. Strong Access to the Commercial Paper MarketStrong cash positions (at levels usually only afforded to conglomerates) help to insure confidence among lenders and serves as an important tool in making quick strategic acquisitions , or making favorable production and delivery terms for a customer, or adjustments for currency fluctuations.

6. Vision and Capital Resources to Expand Globally With the limited number of government of commercial buyers for most products, globalization is essential for economies of scale and sustained growth within the industry.

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Mini-Paper2 United Technologies Corporation

UTC International Strategy Elements

Company Description and Corporate Structure

Over the last five years (and longer), United Technologies (UTC) corporate structure is that of

a conglomerate. UTC is a global provider of high technology products and services to the

building systems and aerospace industries. UTC operations are classified into six principal

business unit segments: Otis (elevators units), Carrier (HVAC units), UTC Fire & Security (fire

and security systems), Pratt & Whitney (aerospace engines), Sikorsky (helicopters), and

Hamilton Sundstrand (aerospace and industrial products). UTC has a presence in 4,000 centers

in about 71 countries. Geographically, the company operates in 180 countries across Latin

America, Europe, North America, Asia Pacific, Africa and the Middle East. UTC is

headquartered in Hartford, Connecticut, the US.

Company Strategic Vision

A part of UTC corporate and international strategy has been for each of their subsidiaries

to be the top company in their market segments. They have accomplished this by relying on

their top name recognition to capture business. Also, sizeable amounts of money have been

invested in R&D to come up with leading edge technology for their markets. Finally, they saw

large opportunities in emerging markets like India and China, and took action to capitalize.

Going forward they are going to continue to focus on R&D and expanding their margins

bringing added equity to their stockholders. Although each one of UTC business units

companies operate somewhat independently within their specific industries, UTC uses its

conglomerate corporate structure for competitive advantage over its single industry competitors,

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Mini-Paper2 United Technologies Corporation

by using the experience of culture awareness and foreign currency awareness obtained from its

other business units that might have previously entered the foreign market.

Other Key International Strategies

To limit the impact of any one industry or the economy of any single country on its

consolidated operating results, UTC strategy has been, and continues to be, the maintenance of a

balanced and diversified portfolio of businesses. UTC businesses include both commercial and

aerospace operations, original equipment manufacturing (OEM) and extensive related

aftermarket parts and services businesses, as well as the combination of shorter cycles in its

commercial and industrial businesses, particularly Carrier, and longer cycles in its aerospace

businesses. UTC customers include companies in the private sector and governments, and our

businesses reflect an extensive geographic diversification that has evolved with the continued

globalization of world economies.

As part of its international growth strategy over the last five years, UTC invest in

businesses in certain countries that carry high levels of currency, political and/or economic risk,

such as Argentina, Brazil, China, India, Mexico, Russia, South Africa and countries in the

Middle East. However, at December 31, 2010, the net assets in any one of these countries did

not exceed 7% of consolidated shareowners’ equity.

Also apart of its international strategy is growth by acquisition. Considering the fact that

UTC chose to spend more than twice as much as 2008, and about 4 times as much as 2009, in

2010, it's easy to say based on UTC's several acquisitions in 2010 that they are on a rampage in

terms of international expansion strategy by acquisition.

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Mini-Paper2 United Technologies Corporation

UTC Strategy Effectiveness and Five Year Financial Summary

An effective strategy is a precursor for success for firms, especially those that face

intense competition. UTC international strategy has produced a strong portfolio of diversified

sales across its business segments, and its foreign regions as shown in the charts below. Non

U.S. international sales of over 60% of company sales in 2010.

In 2010 UTC had revenues of approximately $54B which was up from 2009 by about

$2B. On that revenue UTC was able to garner an 8% net profit margin and generate about $6B

in operating cash flow. Although their margins have historically been below the industry and

S&P averages, they have remained stable through an uncertain economy. For 2010 UTC has a

current ratio of 1.33 to an industry of 1.0 showing they have a solid cash position. UTC is

showing a 22.2% ROE and an 8.4% ROA which is considered very healthy, and it grew from

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Mini-Paper2 United Technologies Corporation

2009 which is another excellent sign. Receivable, inventory, and asset turnover is in line with

the industry average which indicates management is effectively utilizing the company’s

resources. The overall financial health of the company is very strong even in a week domestic

economy and uncertain foreign markets. The S&P gives UTC a risk assessment rating of low with

a quality rating of A+. UTC has paid a dividend on its common stock for 75 consecutive years.

From the 2010 annual report “For the period from Dec 31, 2000, through Dec 31, 2010, UTC has

delivered total shareowner return of 140%.”

Five Year Financial Summary

Financial resource fit is important in a diversified company in order to make sure there is

sufficient cash flow to fund the daily capital requirements, pay dividends, and meet debt

obligations. The evaluation of United Technologies Company indicates that it is a solidly

managed company with stable earnings and average growth for the sub-industry. The company’s

cash flow to net income ratio being above 1.3 for the recent years indicates that earnings (net

income) are being economically produced and not just produced by accounting methods. The

company’s strategy of growth by disciplined acquisition and capital redeployment, along with its

focus on research and development that capitalizes on the trend toward energy efficient products

seems to have it well positioned for stability and continued industry growth. Return on Equity

and Return on Assets indicate a healthy company that gives solid value to its investors. This is

further indicated by the last five years financial summary chart below:

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Mini-Paper2 United Technologies Corporation

Conclusions and Recommendations

United Technologies Corporation (UTC) growth strategy falls under three quadrants:

growth through key acquisitions, increase international market share of through promotion of the

long history its business segment brands names, and product innovation. The first two have huge

potentials, as has been demonstrated by the success of UTC over the years. Using the old adage

“if it ain’t broke don’t fix it”, UTC should continue using its existing strategy over the next 5

years. Many of its business segment companies have industry recognition and track records

extending 75 to 100 years. UTC should continued use name recognition competitive advantage,

combined with continued key acquisition of foreign companies with that have a clear strategic fit

with its current business segment and products lines.

References

United Technologies Corporation, http://investors.utc.com/Investor+Relations

United Technologies Corporation, Annual Report. (2010) Hartford Connecticut

United Technologies Corporation, Form 10-K. (2010). Hartford Connecticut

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Mini-Paper2 United Technologies Corporation

Gale, James. 2006 Investigation of Aerospace Industry. Retrieved from:

http://edissertations.nottingham.ac.uk/409/1/JamesGale-InternationalBusinessDissertation.pdf

Layne, Rachel. “United Technologies Raises Full-Year Forecast After Profit Tops

Estimates” July 20, 2011. Bloomberg.com. Retrieved from

http://www.bloomberg.com/news/2011-07-20/united-technologies-boosts-forecasts-after-profit-

gains-19-1-.html

2010 Annual Report. United Technologies. Retrieved from

http://www.utrc.utc.com/visits/presentations/UT_2010_Full-Report.pdf

2010 Annual Report. The Boeing Corporation. Retrieved from

http://www.envisionreports.com/ba/2011/20707FE11E/d2e2b5ec9432426e825952329f64083a/

Boeing_AR_3-23-11_SECURED.pdf

Wallace, Charles. “Can the U.S. Sidestep Growing Global Inflation?”. February 16, 2011.

DailyFinance.com. Retrieved from

http://www.dailyfinance.com/2011/02/16/can-us-sidestep-growing-global-inflation/

Competitors. United Technologies Corporation. NASDAQ. Retrieved from

http://www.nasdaq.com/symbol/utx/competitors

Investors link provided within UTC Website:

http://www.utc.com/Investor+Relations/Dividends

http://utc.com/News/Archive/2010/

UTC+Board+of+Directors+Increases+Dividend+10.4+Percent

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Mini-Paper2 United Technologies Corporation

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The professor’s comment about the mini-paper:

Based on the instructions in the video in the week 1 weekly outline, your paper should have done the following: 1)

Describe the way your company has been organized internationally during the last five years; 2) Assess the structure

and modus operandi of the firm in relationship to its objectives to exploit global (or regional) advantages yet

remaining responsive to local conditions; 3) Does the firm have the resources to compete internationally; and 4)

Provide recommendations for the firm to become a market leader in the next five years This assignment was different

than the case studies. There was less need to do a five forces model or KSFs, since you are looking at a specific

company (there really was no need to mention the other companies in that industry). But if you were going to include

these tools you should have done something more than to simply plop them in the middle of your paper. You should

have at least intergated any conclusions you reached by using those tools into the text of the paper. As for

addressing point one, you stated that the company operates in many contries, but you really didn't discuss how those

operations are structured. In other words, who reports to whom? Who controls or coordinates their international

operations? Do all international operations report directly to the president, to a VP of operations OR is there one

person in charge of Europe and another who is in charge of other areas? You did do a nice job of addressing points 3

and 4.

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