Hy-Plex Essay, Research Paper

James McKay, George Buchanan and Arthur Dalzell founded the company in 1965. Initially the company started with a small production of golf clubs with fiberglass shafts but thanks to the great demand that their products encountered, in 1972 Hi-Plex expanded its manufacturing facilities that resulted in a turnover of over ?3 million and a pretax profit of ?600,000. In 1975 Global Products Inc., a rubber and steel manufacturer, took over the company and Hi-Plex became a vertical integrated company with total sales in 1992 of ?13,600 million and a pretax profit of ?800 million.

In the early 1990s the company suffered a steady decline in profitability, thanks to the risen in external competition in the rubber and steel production. Also the interdivisional trade was causing problems, especially because Hi-Plex insisted that purchases should be made within the company. Interdivisional sales totaled ?4,000 million, being ?600 million for sales of rubber and ?3,400 million for sales of steel to the Golf Division. Both the rubber and steel division would only have a mark up of 10% over cost to the interdivisional sales. This scheme constrained their sales to unaffiliated companies to ?4,800 million and ?400 million respectively.

The above described situation raised two important problems, on one hand the divisional managers of the rubber and steel division felt that they could improve profitability by increasing the proportion of sales to unaffiliated companies, and on the other hand the golf club divisional manager