How the UK Lost its Faith in National Champions - Essay Example

UK's Economy Overview The UK is a leading trading power and financial centre and is one of the quintets of trillion dollar economies of Western Europe. Over the past two decades, the government has greatly reduced public ownership and contained the growth of social welfare programs. Agriculture is intensive, highly mechanized and efficient by European standards, producing about 60% of food needs with less than 2% of the labour force. The UK has large coal, natural gas, and oil reserves; primary energy production accounts for 10% of GDP, one of the highest shares of any industrial nation. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. Since emerging from recession in 1992, Britain's economy has enjoyed the longest period of expansion on record; growth has remained in the 2-3% range since 2004, outpacing most of Europe. Current Economic Position: The majority of the companies where held by the government till 1940's. However, at present there is a widespread privatization of formerly government owned companies. Many leading companies are owned by or in the process of bidding for the foreign owners. For instances, Jaguar's acquisition by TATA Motors and BMW selling off Rover. Some of these owners are themselves in public sector or are only must going through privatization process. The crisis in US property market has prompted global banks to rein in lending, leading to fears of a sharp global slowdown. (Fleming 2007). (Cubbin). In 2002, 176,000 companies came off the VAT register and were effectively closed down. (Help at Hand for Ailing Firms. 2004). Effectives of Rescue Strategies Available: There are some acceptable rescue strategies that are used for rescuing corporate organisations. "Many of these strategies require internal changes, which may impact on the following areas:" (Arrangements: Working Towards a Common Goal). Pricing policy: The pricing of products of a company even if it is healthy is of great importance. The pricing of a product will be dependent on many factors like, competition for the product, its exclusivity, consumer perception etc. A company that is in financial trouble can take a look at its pricing policy and try to increase revenues though increased sales. The first thing that could be done is to see whether the products can be priced higher than it is currently priced. If, after due analysis and if found feasible, increased product pricing can help to increase the cash flow of a company in trouble. Another strategy that could be followed is use menu-pricing. This is the practice of assessing the standard price of a product and then add or lessen related services that are associated with the product. In this way the pricing of the product can be fixed so that it will be different from the price of a competing product. "Top pricing performers use menu-pricing--setting a price for a standard service and then offering a range of service levels that raise or lower that price--differently than their less successful peers, and more often. This approach makes it possible for companies to charge customers more accurately for the cost of serving them." (Alldredge, Griffin and Kotcher, 2003). Increasing the price range of products may also be of help. Cash Management: Managing scarce resources in times of need are very important in any situation. A company in financial trouble may find itself starved of liquid assets, especially cash. A thorough understanding of the cash flow of the company should be made. From this it will be clear as to where the problem in cash flow exists. For example, it could be that debtors are not paying what is due to the company. Addressing this problem and trying to find a way out will be of great help in situations like this. Manufacturing process: A modification or restructuring of an inefficient manufacturing process can help in rescuing the company. If is a service sector company, its service process could be revamped. Staff: Paying salaries in times of financial trouble will be a problem for any company. This will also affect the cash flow of the company negatively. If necessary, staff can be made redundant. Remaining staff can be transferred to other departments and, the company continues to work with a skeleton staff. I will be necessary to change the roles of some of the staff members since they will be facing new jobs and responsibilities. Price range: In case of a manufacturing company, it would be worthwhile to see if the product range and pricing can be changed to suit customer needs. If necessary some poorly performing products can be withdrawn thereby freeing up resources. The same can be done for services if the company is a service company. Communication: Communication within the company is very important at this stage. Day to day operations could be made more streamlined and communication channels made more effective. Administration: A more drastic step would be to place the company under and administrator. This would be advisable under certain conditions. In case, the company creditors are unwilling to wait and proceed to sue the company for liquidation, it would be better to place the company under a licensed insolvency practitioner. In such a case the creditors will not get the legal recourse to sue the company. "Administration creates a legal stay against creditor action, whilst also providing a breathing space for developing further proposals that can be put to creditors." (Administration). This would be ideal if the company is facing a severe cash crucnh, but is still found to be viable. Improving Business Performance and Cost reduction: A business instead of functioning in isolation reaps more through collaborations - i.e. networks of partners, suppliers, customers, regulators and stakeholders. This also emphasis on the point that business cannot function inside the four walls of a room. In order to succeed in this world a company should possess a blend of skill and experience. The firm must be able to convert its strategy into sustainable performance. Outsourcing is one best way of improving the performance, both skill-wise and cost-wise. In many industries, contracting out non-core business functions to third-party providers is gaining acceptance. Companies are even ready to outsource parts of their operating processes. "There are many familiar names among companies that outsource and offshore, across a wide range of industries: Oracle, Boeing, Prudential, American Express, Franklin Mint, IBM, ExxonMobil, Ernst & Young, Reuters, Office Depot, Northwest Airlines, Amazon.com, Intel, Kaiser Permanente, America Online, and Aetna." (Who are the Outsourcers 2005). However, it would be better that the company does not outsource its core competencies. Cost reduction methods like Lean Manufacturing and Just in Time are also being incorporated, especially in the manufacturing sector. "The lineage of Lean manufacturing and Just In Time (JIT) Production goes back to Eli Whitney and the concept of interchangeable parts." (Just In Time, Toyota Production System & Lean Manufacturing, Origins & History Lean Manufacturing). Reporting Performance: High quality corporate reporting is very important to the business. New regulations and standards such as Sarbanes-Oxley and International Financial Reporting Standards (IFRS) as well as the continuing proliferation of guidance and regulations relating to 'narrative' reporting accompanying financial statements, have made the task even more challenging. The best negative example of erroneous reporting is of course Enron. A few years of covering up of financial statements ultimately led the company to bankruptcy. However today, investors are on guard against reporting that may pass regulatory muster, but fails to provide a fully transparent view of a company's health and prospects. Also those investors asks companies to report on a broad set of non-financial measures that are combined with financial reporting can provide a better basis for judging corporate performance. (Reporting Performance. 2005-2008). Managing Crisis: There are several reasons for a company to undergo serious financial crisis. Economic downturns, changing markets and competitors, outmoded technology, strategic errors, cross-border disputes, fraud, or regulatory investigations can all put fundamentally sound businesses at risk. The way Johnson and Johnson managed the Tylenol crisis is an example. This best selling drug was laced with cyanide by an unknown person. The company recalled the entire product in the market and re-introduced it in tamper proof packs. Even sudden natural or human disasters can also endanger operational stability. Underperformance, declining earnings and liquidity and cash-flow blockages are the serious after effects of financial problems. (Managing Crises. 2005-2008). The management must be vigilant enough for early detection and swift decisive actions are to be taken to regain control, restoring performance, and rebuilding value. Timely actions enable to prevent or mitigate the risks of serious business crises and thus it is equally important. The bankruptcy codes of UK is more rigid that offers no benefit to the affected in relation to the US code, which is more varied in the options enabling a flexible basis to prepare for possible emerging crises thus modifying the character and impact of after effects. (Holmes 2008). Strengthening governance and regulatory compliance: There has been a reasonable change in many economies in the way that corporate governance, compliance and business ethics are approached. People are more concerned of the factors stated. This is continuing because of the demanding performance expectations, increasing stakeholder demands and growing public scrutiny due to spectacular failures around the globe. Risk Management: Business risks can be credit risk, financial risk, geopolitical risk, operational risk or reputation risk. There is no certainty about the risk element in business, only remedy is for adjusting for risks through possible conventional mechanisms and strategies. Striving for zero failure puts the firm nowhere since it is either said to be impossible or too expensive to achieve. Conclusion: The ailing companies in UK need to achieve the above mentioned strategies so as to escape form the threat of winding up. Though the strategies have their own pros and cons, if the firm is able to put them into practice in right proportion, undoubtedly they can withstand the difficult time period prevailing. The government is coming with enough support to the companies. The government passed the Enterprise Act last year that will help the country's economy to boom. Other economies, like France, have recognized the importance of this Act and implementing the same now. The government should also try to take over the ailing companies themselves than putting then for biding to foreign owners. Bibliography Administration. [online]. Begbies Traynor. Last accessed 21 May 2008 at: http://www.begbies-traynor.com/administration/279 ALLDREDGE, Kari G. 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How the UK Lost its Faith in National Champions. London: UK Competition Commission. Last accessed 4 May 2008 at: http://www.staff.city.ac.uk/sm340/Consulting&Policy/J%20Cubbin%20presentation%20on%20National%20Champions%20Final.ppt Who are the Outsourcers (2005). [online]. Outsource Outrage.com. Last accessed 21 May 2008 at: http://www.outsourceoutrage.com/who/ Read More