John Maryland owns a small business in the Washington – Baltimore corridor with about 200 employees and annual revenues of about $20,000,000. John Maryland, Inc. (JMI) manufactures, installs, integrates, and tests specialized electronics that are used in military and many hi-tech auto, rail, and avionics applications.

In addition, JMI is one of only four US small-business companies that has access to, and is authorized to manufacture, certain specialized software and firmware that features encryption and other cryptographic algorithms that are highly regarded by the US Government. (About 35% of JMI’s sales are related directly or indirectly to this line of products, but they account for a disproportionate 50% of JMI’s profits.) As the US Government has reduced control of this technology over time and created substitute platforms, JMI anticipates that it will lose its key position in this market. JMI’s other sales are comprised as follows:

Radar and Sonar technology: 20%

Mechanical Controls Technology: 20%

Sensors and Displays:            20%

After Sales Services for all Sectors: 5%

JMI has been very successful as a small, private business, but John Maryland believes that there are several competitive pressures that are leading him to expand JMI’s business operations.

Presently, 20% of JMI’s sales are from exports to Europe and Asia and 80% are in the US. All of JMI’s competition is US based, and JMI shares this unique market with four other companies. Export sales have grown steadily over the last five years from about 5% of sales to the present 20% of sales. Margins on international sales tend to be a little higher, so he is pleased to have managed this development and this allows him to be more price competitive in the US, when necessary.

The industry is now changing. A large Dutch multinational recently acquired one of his US competitors and it is transferring some of the manufacturing to China, Ireland, and Argentina to reduce costs and to be more competitive internationally. Another competitor is rumored to be “on the market” for sale. Over the years, large US aerospace companies have shown interest in collaborating with JMI, but John Maryland was always suspicious of the control they sought in any of these programs where they might have potentially worked together. John Maryland is concerned that if his traditional competitors continue with this trend, they may be able to achieve certain economies of scale and eventually reduce prices.

He believes that he has several choices: (1) collaborate more with other companies to find more applications for his unique technology; (2) try to expand his international business; (3) consider selling the company and benefit from its unique position in the market; (4) consider an acquisition of another company to expand his product offerings.

This morning John received an e-mail from a company in Germany inquiring about licensing JMI’s technology so that it could sell it in Europe. He has received similar calls in the past, but he did not consider them very seriously. However, now he believes that licensing might be a nice complement to his growing export sales. Also, he believes that the JMI Management Committee will encourage this type of expansion and it recognizes that an international sales base may be helpful in several ways:

JMI would access to new customers

JMI might have access to new technologies

JMI could more easily have eyes and ears around the world to see what competitive pressures are like

John calls you because he knows that you have almost completed this program and he wants to pick your brain about what issues might arise as JMI considers this opportunity further. What issues would you identify as important right now? How might you think his business, operationally and financially, will change as a result of these developments, particularly more international sales? How would you advise JMI to proceed strategically?

Most importantly, what else do you need to know from John Maryland to help him develop a strategy?