Economics Government Regulation and Effects of Corporate Restructuring - Research Paper Example

Effects of Corporate Restructuring Number: Introduction Developing an effective capital budgeting process is one of the aspects that are highly recommended by financial planners to business organizations whenever planning for a long-term expansion. It is termed as the backbone of the success of future expansion plans for any business organization. In the current economy, corporates are staying at the top of their businesses as a result of good decisions that the management had previously made. This calls for a critical reasoning out by the management whenever making crucial decisions concerning investing in plants and equipment among other facilities, that would ensure that the organization expedite its mission as well as increase its profitability. Poor planning leads to loss of resources and in extreme levels to the collapse of the enterprise. Therefore, it is very crucial for organizations to make clear plans that would act as the blue print for the business (Baker & English, 2011; Singh, 2012). The price that a food processing company should charge for its commodities should range between the lowest price at which the company may not make profit at all, to the highest price that is likely to reduce demand of the products if charged. In such a case, a company should consider both the internal and the external factors in order to get the most appropriate price between these two extremes. Introduction of new products calls for adoption of a proper pricing strategy that would completely discourage competition from the new comers (other firms) and most importantly create the desired impact in the market (Kurtz, 2012). Penetration and skimming pricing strategies are some of the basic strategies that may be adopted to determine the right price of the commodity. Skimming pricing encompasses launching a product at a relatively high price and later on reducing it if necessary (Kurtz, 2012). This strategy spends a lot of money in product promotion, and is recommended mostly when the demand of the product is not predictable. The strategy is common especially if the company had spent large sums of money on research, when promotion is likely to expend a lot of money due to the competition, and when the commodity is very innovative in a way that the market is likely to mature gradually. Skimming strategy has numerous advantages such as ensuring that the elasticity of the products price is low as well as ensuring that minimal cross elasticity of demand exists in case there exist products that are close substitutes. This helps the product in making a vital inroad into the market that maybe highly successful. In the initial stages, the strategy focuses on the consumers who are not price conscious and who can buy the produce at high prices. After some time, the price is lowered in order to tap the mass market by making the product more affordable to the majority. However, if the shape of the demand curve is not predictable while the product’s price is very high, slashing the price might be necessary though this requires to be critically analyzed first since it is not possible to starts with a lower price and then hike it later on. Such an action would lead to frustration of the customers and might tremendously reduce the product’s demand even after reducing the price later on. The strategy is highly recommendable for the weak companies that have not yet fully established themselves by building a reputable brand. The initial high prices of the commodities are meant for covering promotion expenditure among other expenses. If the price of the commodity is not inelastic, as it had been previously anticipated, lowering the price while remaining within the profit margin is possible. Many products in the hotel and food processing companies are priced using this policy. When the product is very new in the market, its charges are very high, but the price keep on reducing as time goes by as more and more competitors enter into the market. However, there has been no definite research that shows how high the original price should be, in relation to the production cost even though controversial researches claim that the final price of the product should be at least three times higher than the production cost. It is however important to consider factors such as how quick the competitors are likely to get into the market as well as the price elasticity of the product before determining the initial price of the product. If competitors are likely to get into the market soon, it would be advisable to set the price relatively high (Peng, 2014). Penetration pricing is a strategy that encourages setting of a low initial cost while entering the market purposely to capture a greater pie of the market. This strategy is applicable when the price of the product is likely to be highly elastic and if its elite market does not exist, hence not suitable for this type of product (Kurtz, 2012). The government of United States of America has stipulated clear policies that regulate operations of businesses in the food production industry. Some of the policies that are likely to affect microwavable food industry include The 2002 Farm Bill that requires food companies to label their products clearly indicating their country of origin (Oenema, & Pietrzak, 2002). It also requires the processor to label products that are made from cloned and genetically modified foods. Labeling food gives consumers an opportunity to know the issues that may later affect them as a result of consuming particular products hence helps them make most appropriate choices. Farm and Food bill is another common US policy that affects operations of businesses in the food production and processing industry. It ensures that farmers produce healthy foods as well as regulating processers’ activities in order to make sure that the food in the market place is healthy and fit for human consumption. The policy also ensures sustainable production of foods and regulates costs of produces. Other policies that are likely to affect the business are the Compliance Policy Guide that requires all the food processors to register with Food and Drug Administration (FDA) in order for their activities to be closely supervised (Oenema, & Pietrzak, 2002). The policies would require employment of highly trained and experienced employees as far as food processing is concerned. The policies would ensure that the company engages only in the legitimate food processing businesses. Government intervention in food processing is very important in order to ensure that the type of foods that the consumers are taking have low calories. It is the responsibility to protect its citizens from unscrupulous processors and manufacturers who do not have the interests of the consumers at hand. Failure by the processors has led to a significant increase in the number of diseases that are associated with poor diet. Such diseases include obesity, which is very rampant among the Americans particularly teenagers and diabetes among other fatal illnesses (Oenema, & Pietrzak, 2002). This call for the government intervention in order curtails obesity among other unhealthy conditions that result from poor eating habits as well as poor diets. Such interventions include banning some food processing methods and creating awareness to the public about the types of food they consume and their possible effects among other methods. This is achieved through establishment of strict policies like the ones explained above. Expansion of a business via capital projects is accompanied by numerous complexities or challenges in terms of legal, managerial, and financial challenges. Expansion of a business means that more and new employees are to be hired, that the management of the company has to be decentralized, modes of handling internal politics within the company have to be introduced, expansion calls adoption of new strategies to deal with competition as well as investment of more capital, which creates new tasks to the shareowners. Expansion maybe become a challenge especially if the company grows at an extremely high rate than the management had prepared for (Tansky & Heneman, 2006). Growth is wonderful but can easily overwhelm a poorly prepared management to a point of being a daunting task. Such expansion calls for leasing of facilities and spaces, which is usually done on contractual basis. It is important for the management to be keen while signing the lease agreements since the growth may be only temporarily. Record keeping is another common complexity for an expanding business. It is essential for businesses are expanding to update their systems of monitoring cash flows, managing finances, deliveries, as well as human resource information among other aspects (Tansky & Heneman, 2006). There exist many record keeping software programs that may be adopted by such businesses that would greatly help in record keeping. Capital requirement is another common complexity. Getting expansion capital may at times be very difficult especially if the business does not meet the requirements needed by the financial institutions in order for them to give a loan. Large capital is required for promotion activities as well as for purchasing new plants and equipment. In addition, personnel issues are likely to emerge as a result of a company’s expansion and proper preparations should be made in order to meet the challenge amicably. This may involve hiring of new labor force or even training the current employees. Other complexities may include ownership issues, customer related issues and change in responsibilities among others (Moles, Parrino, & Kidwell, 2011). Shareowners and the corporate management may at times get into conflicts of interest. Good management should identify these potential conflicts and take proper actions before the problem gets out of hand. Money related issues are some of the major conflicts that are likely to arise. Managers have a tendency of feeling that they should get financial bonuses from the surplus profit that the business is making. Owners on the other hand find this as an opportunity to grow their business (Ronen & Yaari, 2007). Managers tend to attribute the business’s success from their competence hence demanding for pay rise and promotion while owners on the other hand argue that without their money there would be no profit in the first place. If the managers are the shareholders, there is likely to be a tag of war as each manager/shareholder push decisions for his or her favor. Some of the managers would be pushing for stock dividend with others pushing for bonuses depending on what favors them. It is advisable to be giving managers a bonus while giving dividends to the shareowners. This would ensure that all the parties are satisfied and would be willing to work extra harder for the benefit of the company. Managers are the key players for the accomplishment of the organization and they should be equally rewarded for the good performance in the corporates. This would motivate them and the business is likely to expand more since they feel more appreciated (Moles, Parrino, & Kidwell, 2011). In conclusion, developing an effective budgeting process is one of aspects that are highly recommended by financial planners to business organizations whenever planning for a long-term expansion. It is the pillar of the success of future expansion plans for any business organization. There are two major types of price setting strategies namely reflective and skimming strategy. Skimming strategy is the most appropriate plan to adopt while determining the price of a commodity whose price elasticity is likely to be inelastic. The method is commonly applied in the launch of many food products whereby the initial cost is relatively high, but later on keeps on reducing as more competitors get into the market. Reflective strategy is commonly applied for good with elastic demand. Expansion of a business is accompanied with variety of complexities. Such challenges include personnel issues, management issues, and record keeping among other problems that are likely to arise. However, proper preparations should be made in advance so as to embrace the business’s growth in an amicable way. References Baker, H. K., & English, P. (2011). Capital budgeting valuation: Financial analysis for todays investment projects. Hoboken, N.J: Wiley. Kurtz, D. L. (2012). Boone & Kurtz contemporary marketing / David L. Kurtz. Mason, OH: South-Western Cengage Learning Moles, P., Parrino, R., & Kidwell, D. S. (2011). Fundamentals of corporate finance. Hoboken, NJ: Wiley. Oenema, O., & Pietrzak, S. (March 01, 2002). Nutrient Management in Food Production: Achieving Agronomic and Environmental Targets. Ambio: a Journal of the Human Environment, 31, 2, 159-168. Peng, M. W. (2014). Global strategy. Mason, Ohio: South-Western. Ronen, J., & Yaari, V. (2007). Earnings management: Emerging insights in theory, practice, and research. New York: Springer. Singh, N. (2012). Localization strategies for global e-business. Cambridge: Cambridge University Press. Tansky, J. W., & Heneman, R. L. (2006). Human resource strategies for the high growth entrepreneurial firm. Greenwich, Conn: Information Age Publishing. Read More