January 25 th 2003 Iskra

January 25 th, 2003 Iskra - Ljubljana / Slovenia 1

January 25 th, 2003 Iskra - Ljubljana / Slovenia 2

THE POWER TOOLS INDUSTRY Definition: Power tools include any tool containing a motor and capable to be guided and supported by an operator. International Industry • Segmentation: The power tools industry is divided in two segments > P r o f e s s i o n a l a n d D o - I t - Y o u r s e l f ( D I Y ). • Figures: in 1989, a global turnover of € 5 billion. Major markets: North America (28%), Europe (47%) and Far East (18%). • Growth: January 25 th, 2003 3% growth rate per annum since 1980. Iskra - Ljubljana / Slovenia 3

THE POWER TOOLS INDUSTRY European Industry • Figures: 47% of the international market. 75% of European market dominated by Germany, France, Great Britain and Italy. Growth rates are very irregular. • Sales: see below the part of each country in 1989. • Germany: 28% • France: 5 000 pieces, 20% • Great Britain: 4 300 000 pieces, 17% • Italy: 2 500 000 pieces, 10% Total: January 25 th, 2003 7 000 pieces, 18 800 000 pieces 75% Iskra - Ljubljana / Slovenia 4

THE POWER TOOLS INDUSTRY European Industry • Distribution Channels: • Professionals: Hardware stores, tools specialists, direct sales • DIY: Wholesalers, hardware stores, home centers, supermarkets • Competition: in 1989, 75 power tools manufacturers in the world. These are the major competitors in Europe (often multinationals): • Black & Decker: 100 countries. 25% of total market Major incomes source: DIY segment. Good brand image • Makita: Japanese company. Efficient price and quality strategy Only on professional segment. Wide range of tools • Bosch: Germany. Present in Professional and DIY segments January 25 th, 2003 Iskra - Ljubljana / Slovenia 5

ISKRA POWER TOOLS - POSITION SWOT ANALYSIS : INTERNAL Strengths: - Low-priced products and workforce - Quality of the products - Experience acquired on Eastern Europe markets Weaknesses: - Unable to supply the requested quantities - Problems with suppliers & production process - Very limited tools range (less than competitors) - Lack of communication and of creativity - High indirect costs January 25 th, 2003 Iskra - Ljubljana / Slovenia 6

ISKRA POWER TOOLS - POSITION SWOT ANALYSIS : EXTERNAL Opportunities: - Enter the Western Europe Markets : France, Italy - Perles Brand: an existing tools company - Reinforce the presence in Eastern Markets - Opportunities in Russia and in the new States Threats: - Political crisis & war threats in Eastern Europe - High customs and entrance fees (in 1991) - Rude competition: Bosch, Black & Decker, … - Lack of presence in Western Countries January 25 th, 2003 Iskra - Ljubljana / Slovenia 7

ISKRA POWER TOOLS - POSITION January 25 th, 2003 Iskra - Ljubljana / Slovenia 8

ISKRA POWER TOOLS - POSITION Europe: Both DIY and Professional segments • Joint-Ventures with Perles and Skil • Iskra as OEM Supplier Eastern Europe: • Czechoslovakia: Naradi, Merkuria (10% market shares) • Poland: Celma • USSR: Institute of Power Tools Yugoslavia: • 50% market shares • Sales with Iskra Commerce January 25 th, 2003 Iskra - Ljubljana / Slovenia 9

ISKRA POWER TOOLS - POSITION Competitors’ Strategy • Black & Decker: Largest market share (25%) > DIY and Professional > Sales in 100 countries • Bosch: Third largest power tool manufacturer > DIY and Professional segments > Strong position in Europe • Makita: Presence on foreign markets except Europe > Professional segment only • Skil: Major manufacturer > Professional segment in the Nordic markets and DIY segment in the rest of Europe (Germany, France) • Niche players: Festo > Majority of sales on their own markets January 25 th, 2003 Iskra - Ljubljana / Slovenia 10

ISKRA POWER TOOLS - POSITION Key Success Factors • Small power tool manufacturers: Makita, Skil, Niche players • Niche Products • Price Competitiveness • Quality • Large power tool manufacturers: Black & Decker, Bosch • Numerous and innovative products • Low costs • Strengthening of their presence in foreign markets January 25 th, 2003 Iskra - Ljubljana / Slovenia 11

STRATEGIC RECOMMENDATIONS MANUFACTURING RECOMMENDATIONS • The simplification of the manufacturing chain: Fluidity of the process • The implementation of the Just In Time (JIT), which allows a best management of stocks. Difficulties in delivery delays. • The new organization must be more flexible to adapt itself to the products demand. • New investments are indispensable in machines and computers (especially for the design department) to reach a high level • Too high indirect costs for the production volume. The motivation of the employees (internal promotion and training). January 25 th, 2003 Iskra - Ljubljana / Slovenia 12

STRATEGIC RECOMMENDATIONS MANUFACTURING RECOMMENDATIONS • Improve the internal relationship between different departments, in particular between design and manufacturing • It’s necessary to hire young designers to increase the creativity of the department and to create new tools • A better performance improves the fluidity of information. A better circulation of information • Iskra must find new suppliers, who respond to Iskra’s quality checklists • To establish a system to harmonize the payment of the customers and the suppliers January 25 th, 2003 Iskra - Ljubljana / Slovenia 13

STRATEGIC RECOMMENDATIONS THE IMPLEMENTATION OF THE MANUFACTURING STRATEGY • Evaluate and study the problems, then to invest in new technology (JIT, Computer-Aided Design, …) • The fluidity of the communication will increase the productivity. Try to improve the circulation of information in the firm. • With more creativity, the engineers can create new products to raise the line of products which is too limited. • Better order the premises for a best result in terms of competitiveness and production process. January 25 th, 2003 Iskra - Ljubljana / Slovenia 14

STRATEGIC RECOMMENDATIONS Manufacturing Options: Niche player • Focus on European Markets: France and Italy • Specialize on company’s expertise: Angle grinders and drills • Strengthen ties with volume players: Skil January 25 th, 2003 Iskra - Ljubljana / Slovenia 15

STRATEGIC RECOMMENDATIONS Manufacturing Options: OEM player • Focus on Eastern and Western Europe • Sell in both Professional and DIY segments • Apply a low costs strategy • Agreements with volume manufacturers on distribution channels January 25 th, 2003 Iskra - Ljubljana / Slovenia 16

STRATEGIC RECOMMENDATIONS Investment Opportunities • Negotiate agreements with volume manufacturers: Distribution channels • Reorganize the production process: New machines, standardization of tasks, … • Invest in Research & Development and Design Innovation, creativity January 25 th, 2003 Iskra - Ljubljana / Slovenia 17

STRATEGIC RECOMMENDATIONS MARKET STRATEGY Before deciding to “conquer” the Western Europe: • Make a Market Study to know and to test our capacities to enter the Western Europe • Restructure and improve firm’s internal capacities: this will determine our success on new markets • Perform the marketing and the distribution network: the case of Iskra Commerce • Improve the Brand Quality Image: to be known January 25 th, 2003 Iskra - Ljubljana / Slovenia 18

STRATEGIC RECOMMENDATIONS MARKET STRATEGY Establishing an external strategy: • Choose a market and segments: Eastern or Western Europe, Professional or DIY? • Plan a Joint-Ventures and cooperation plan: throughout Perles, with larger players • Establish a network in Western Europe: A central office, an After-Sales Service, etc … • Develop direct sales method: in Professional segment January 25 th, 2003 Iskra - Ljubljana / Slovenia 19

STRATEGIC RECOMMENDATIONS MARKET STRATEGY - PRIORITIES Establishing an external strategy: 1. Reinforce Perles presence in Western Europe 2. Concentrate our efforts on France and Italy, in Professional and DIY segments 3. Serve as a Niche Player 4. Serve as an OEM Player if investment is made 5. Study opportunities in Russia and Eastern Europe January 25 th, 2003 Iskra - Ljubljana / Slovenia 20

January 25 th 2003 Iskra — Ljubljana