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Glo-Bus Strategy, Essay Example

Pages: 7

Words: 1803

Essay

Introduction

The company’s share in the world market of digital cameras and the profitability of selling high-end devices, as well as entry level ones has been proven. However, the current task of the management is to create strategic decisions that will create sustainable growth for the next years. With the market being competitive, focus on production cost, return on investment and research and development will be applied in the below analysis. Further, the productivity of the company needs to be matched with the market demand and expectations.

Initial Strategy

Cost reduction through resource planning. In Year 6, for Pixel, the cost of company-assembled units in Quarter 4 rose significantly for entry-level cameras. As Quarter 4 is generally the time when the most of the company’s profit is made, and most of the holiday shoppers go for low-end cameras, it is time to think about manufacturing types of cameras at a lower cost. In Year 7, this seasonal aspect of the market needs to be considered. Indeed, the multi-featured segment analysis indicates that in Year 6, quarter four the net profit per unit declines. In the prediction used during the discussion, we planned on a higher level of units assembled and shipped. This means that if the cost of assembly in this time period is higher, the company makes more devices but less money per camera. Instead of doing assembly work in overtime, the company should adjust its hiring/layoff strategy to the demand of the market.

In Year 8, Pixel would have achieved a credit rating of B, and due to the resource planning and cost reduction initiatives introduced on Years 6 and 7, the return on investment would have increased to 14.1 percent. While in Year 7, the projected total revenues would increase, the net profit would remain almost the same. However, due to the cost-saving initiatives, in Year 8, the company would be able to produce a higher net profit while the total revenue will decrease. This is due to the control of production, assembly, raw material and delivery costs, resulting in a more profitable organization. The actual performance table (Summary of Decision Entries, p. 5) shows a more significant increase of profitability. This enables the company to increase the paydown on debt and achieve a better credit rating.

Rationale of cost reduction. Reducing costs can allow the company to adjust its retail prices to local markets. On the other hand, it can increase the profitability of individual products. As in the busiest season of retail, quarter 4 the profitability of products decreases, this trend has a greater than average impact on the overall performance of the company. Financial balance sheets can be also influenced by decisions to reduce cost of production in quarter 3-4, while extra marketing resources can be drawn for seasonal campaigns worldwide, therefore, increasing sales and revenues. Reducing costs would also have an impact on operating expenses. While employing local workers for assembly and manufacturing, the company could pay higher employee costs. Better scheduling for production in 3rd Quarter peaks would require hiring extra PAT-s on a temporary basis, instead of causing workforce fluctuation through hiring and laying off staff. However, outsourcing the assembly of extra units required by the market to overseas operation or low-cost providers, given that the expansion of workstations is limited would be a more feasible option and require a lower amount of initial investment. Supply chain management decisions, according to Fisher (1997) should be influenced by a market-responsive process, which involves the involvement of excess buffer capacity. (Fisher, 1997, p. 108)

Reducing the number of new models to 1 in both market segments from year 8 to 9 would allow the company to reduce production costs. This would enable the company to increase production, reduce retail prices and increase market share.

By making its operations more profitable, the company is able to realize a higher return on investment, put down more funds towards debts and achieve a better credit rating. Further, in Year 8, the returns on share increase and the net profits rise from a record-low of 7.694K in Year 7 to a healthy 12.9432 K.

Corporate social responsibility- energy efficiency. This is a problematic area for Pixel. Brand reputation among buyers and retailers can be greatly influenced by a social responsibility campaign. Given that the company has no known activity on the field, while it operates in multiple countries, it is likely that it is lagging behind the competition. According to the project discussion and decision, the authors would suggest the introduction of energy efficiency programs. Further, supplier code of conduct and compliance monitoring should be introduced. The training and productivity budget would be increased to 1M USD, which would enable the company to increase commitment and employee loyalty. Starting with development and promotion/training programs for existing employees and implementing strategies for fair employment, compensation, management practices and social responsibility projects would not only result in a “green image” but better reputation, and long-term cost-reduction as well. Charitable giving would be introduced in Year 8, when one percent of the profits was given to charity. The fact that the donation was based on profits and not a fixed sum provides the company with the flexibility it needs in its budgeting process. The energy efficiency program to be introduced in Year 6, 7 and 8, providing equal supply of funds (500K) would provide sustainability and cost-saving for the organization.

Rationale for corporate social responsibility. The company is planning for long-term market gain and brand image enhancement (Swift & Zadek, 2002). While seasonal marketing campaigns work for retail, they do not convince large retailers to keep on buying from the company. Recycling projects in store, for example, in collaboration with retailers would create consumer engagement, while make the ties between partners stronger.

Competitive advantage through research and development- features and price. The main aim of the company should be to increase its competitive advantage and reduce its weaknesses. As it has been reviewed previously, through the exercise, the main competitive advantages of Pixel are tech support provided for retailers and customers, multi-store chains of suppliers, online revenue and existing brand awareness. Further the competitiveness of product B and F (Competitive Efforts Table) are adding to the score of the firm. It is important to review these products and identify the reasons why they represent a greater market share than others. As the planned product price is an average price with ten to 20 percent discount offered to chains, the company needs flexibility. Price competitiveness means that the price of the unit needs to be  compared with average prices of other companies for devices with the same feature. However,  it is important that the company, apart from focusing on its global competitiveness, pays extra attention to the most profitable markets.

Rationale of competitive advantage through research and development. Research and development investments have the highest potential return. While successfully managing staff in the department, it is also important to note that the digital imaging market is one of the fastest developing industries. Therefore, keeping an eye on the competition’s entry-level and high-end products and prices is essential. Product design decisions are made by research and development department, and they need to consider the following: the cost of technology involved, the competitiveness of the solution, the cost of production, potential risks of using the technology. Currently, the company has a great market position in high-end products, and it is due to the correct approach towards investing into research and development. Therefore, it is crucial that the balance is maintained and ROI figures are maintained.

Results

Reducing operational costs, given that the price paid for suppliers for parts would decrease by 5 percent in the next few years is likely to be successful. By evaluating the cost of outsourcing extra devices’ assembly in Quarter 3 to low labor cost countries, the company would make a substantial saving. This would allow the firm to put extra paydown on loans and increase its credit rating.  Therefore, the net profit per unit in quarters 3 and 4 is likely to increase, while the operations expenses would decrease. This would provide Pixel with a greater profit margin and a healthier looking balance sheet, resulting in an A- credit rating, predicted in the Year 7 discussion.

The introduction of an energy saving strategy of the firm would not only improve brand image and recognition, but has the potential to increase the company’s global market share. By working together with suppliers and retailers while monitoring their compliance Pixel can make corporate citizenship appear more positive, long term agreements and recognitions can be achieved. The cost of implementing energy saving policies and equiplement will return in maximum five years.

By investing into research and development in order to remain an innovator in entry-level and multi-featured products, the company can maintain and further develop its competitive advantage on the digital camera market.  In Year 8, the company would develop five different models in the most profitable entry-level market and one in the multi-featured camera market. The company’s research and development area within the product design sector will come up with one new model in year 9 in both entry-level and multi-featured camera markets. In order to ensure that these models are providing the organization with a competitive advantage, investment needs to be consistent towards the costs of R&D, while the new products need to be compared with competitors’ products.

Assessment of Results

The company should monitor the performance of the above mentioned projects, based on the assessment of production costs, brand image (market research to be used) and market share. Quarterly project meetings reviewing statistical data and market figures would be reviewed. Profit, credit rating and marketing decisions would be reviewed based on the projected performance of the organization in order to create a strategy modification plan in case the figures do not match the predictions.

Modifications of Strategy Based on Assessment

The strategy outlined above is subject to modification, based on: market demand, change in supplier costs, delivery costs. Extreme exchange rate fluctuation would also call for intervention and change of strategies. Based on the projected results for Year 9., it is iportant to note that while in Year 8, the return on investment met the investor expectations, stock price, image rating and stock price of the company did not. This is due to the low impact of profitability intervention on the actual results in Year 8, therefore, it is important to rethink the citizenship strategy of the organization. Corporate social responsibility impacts the company’s image, and the company should look for ways to increase its reputation while further reducing costs of production.

References

Fisher, M. (1997) What is the right supply chain for your product? A simple framework can help you figure out the answer. Harvard Business Review. March-April 1997. pp. 105-116

Swift, T & Zadek, S. (2002) Corporate responsibility & the competitive advantage of nations. Accountability. The Copenhagen Centre. Retrieved from: http://www.accountability.org/images/content/0/9/095/Competitive%20Advantage%20-%20Full%20Report.pdf

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