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forecasted expenditure of € 45,000 on attending two exhibitions to promote their valve.
The level of research and development expenditure was also becoming an important
factor in the increasing international strength of West German firms. These companies
estimated that they needed to spend around 5 per cent of annual turnover on research and
development to remain competitive. The comparable estimate for Burke Engineering was
0.5 per cent or € 90,000 for the current financial year.
Competitive Environment - the General Engineering Sector
In the general engineering market, the company lacked the resources of many of its major
competitors. Often, it had to compete on price, even though the quality of its work was still
well considered. It was likely that this competitive pressure would become increasingly
strong as barriers to European firms supplying in this sector were progressively lowered
under the Single European Act.
This would also mean that price elasticities would become more severe than they already
were. The company achieved its highest rating in the general engineering sector of all the
sectors in which it operated, in the poll that it had carried out with its major customers as
Table 5 in Appendix A demonstrates. However, it should be noted that all these customers
were from the UK, in contrast to the other two sectors where the majority of clients were
international.
Product Resources
The main sources of turnover and profitability for Burke are listed in Table 6 in Appendix A.
Undersea work had declined as a percentage of total turnover over the last 5 years,
whereas there had been a substantial increase in the contribution of valves and general
engineering. The submersible sector had failed to keep pace with inflation, and margins
had also greatly suffered.
This had been the main contribution to the steady overall erosion in profitability. An
additional factor in the declining profitability was the problems that the company had in
operating in the UK, the Far East and Americas, areas which produced low profits. This is
shown in Table 7 in Appendix A. The company was also highly dependent on government
related work, as indicated in Table 8 in Appendix A, which continued to be less profitable
than other sectors. The emphasis on government work meant that much of the revenue
came from a very small number of major clients as Table 9 in Appendix A indicates.
Pricing
Burke Engineering faced continual problems with the pricing and control of its contracts,
particularly overseas. The initial design work included a detailed costing. However, the
company always encountered problems with such costings and had developed the policy
of adding an additional 30 per cent over the official costing to allow for such complications.
On top of this costing, the company added its standard margin, which then became the
minimum price at which the contract could in theory be accepted.
Recent experience with overseas contracts, especially large ones, had been that the
contract price tended to be negotiated downwards to allow higher commission payments.
This was a particular problem with large submersible contracts, and the company had far
fewer difficulties in the sale of valves, and general engineering. The result had been that
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