The Products of Byte Inc - Case Study Example

Before looking at the corporate responsibility vs. corporate legality, let's assess the problem that BYTE INC is facing. The main problem that BYTE INC. is facing is that it is unable to meet the current market demand or in other words, the products of BYTE INC. are demanded more than they are produced at current level. Since, less production implies less sales, there is a loss of revenue that can be gained from selling the addition units of the products. As a result, the firm plans to expand and there are two options that can adopted for the planned expansion. The first operation involves building a fully automated plant which will provide them with efficiency and planned output. This is a good option but it will require three years to complete, whereas the firm wants the quick resolution of the problem. The other option is to lease a plant in Plainville. This will increase the firm's production and they will be able to meet the current market demand. However, the major problem with going with this option is that this plant will not be efficient and will result in higher costs. These higher costs would gnaw BYTE Inc.'s profits and hence BYTE Inc. is wary of this option also. The firm now wants to decide which option to use after assessing the benefits and costs of both the options. In order to decide on the best option for BYTE Inc, Let's first look at the position in which the firm finds it in. We can assess the current position of the firm by looking at it from various strategic management tools. We can look at the firm's position from the lens of SWOT Analysis, Porter Forces and other techniques such as differentiation and cost leadership before deciding on the best option for the firm in the light of its current position. SWOT analysis is going to tell us about the Strength and Weakness of the firm. These strengths and weaknesses are from the firm's internal structure and does not relate to the outside environment, whereas Opportunities and threats occur due to the outside environment in which the firms is operating in. In the case of BYTE INC, we have the following data: Strengths: Market Leader having 32% Market Share Continuous increase in revenue by 12% from last few years. Weakness: Cannot meet the demand which entails that firm is not earning extra revenue which it could earn They have to take a quick decision because the delay in decision making will encourage new competitors in the market. Opportunities: Leasing opportunity is available for immediate resolution of the problem The leased plant will be less efficient and hence less profitable. High unemployment means that it will be able to hire workers at lower wages at Plainville. Threats: 4000 will be affected when the firm moves to new plant. They plan not to tell the people of the town about their move to new plant, when it is completed. Unionized workers might mean that Labor will have strong bargaining power. If we look at the internal structure of BYTE INC, we can say that this firm is very strong internally. The firm is experiencing a rapid growth in the business and a rising demand which it cannot meet currently. This is a good sign as it tells us that any investment in the firm will yield high returns. Talking facts, the firm is experiencing a growth of 12% annually. BYTE INC is also a market leader, which means that most of the market demand is fulfilled by BYTE INC and thus, it enjoys a good brand name also. If we look at the internal weaknesses of the firm, we can conclude that the firm is unable to meet current market demand. This entails that in order to fill this gap between demand and supply, additional competitors will be encourage entering the market. This would be bad for BYTE INC because additional competition would mean that the firm would lose their position of dominance in the market. In the first stage of SWOT analysis which involves Strengths on the company, we have concluded that investments in the firms would yield high returns, so BYTE Inc can invest on a new plant. This invest would be worthwhile as it would keep BYTE INC in dominating position in the market. Furthermore, they can also increase their production by increasing variable factors such as labors and machines. However, this would only be short-term position of the problem. As we have already known from the data, the company is growing at a rate of 12% annually; the firm would have to expand, sooner or later. Therefore, from these analyses it looks very feasible for the firm to build a new plant and increase their production to bridge the gap between market demand and supply. Now let's look at the second option of leasing a plant in the light of Byte Inc's internal structure and the outside environment in which the company operates in. The data in preliminary research states that the leased plant would be less efficient. This can be due to many factors such as it was not customized according to the company's needs, the labor is of poor quality, the labor is unionized or because the wage rates of labor is very high. Irrespective of the reason, let's relate this to BYTE Inc's plans. This may be a good option if the company wants to maintain good cash flows. Instead of paying hefty amounts for building a new plant, the firm will have to pay lease payments, say every month, but they may not be as big as the payments for acquisition of land, purchase of machinery, legal paper worker required to transfer the ownership of land to BYTE Inc. Thus, leasing would be a good option if BYTE Inc wants to remain in strong position, liquidity wise. Another advantage of building a plant in Plainville would be that it will provide employment to twelve hundred workers in the area, where unemployment is really very high. Every firm has this corporate responsibility of paying back something in return against the profits that they earn from selling its products to the community. Although the dilemma here is that if BYTE Inc decides to operate in this area, it would have to accept lower profits. This leads to another dilemma, which is conflict of interest between the different stakeholders of the organization. These two groups are owners and the community itself. The owners might not be prepared to accept lower profits rate than what they could earn by operating in other parts of the country. On the other hand, the community would want the firm to provide employment to unemployed area and accept a reduction in profits. This may lead to conflict of interest between, perhaps the two most important parties that are engaged in the day to day running of the business. In order to avoid this conflict of interest, the firm's management has devised a very shrewd plan to fool the community. They have decided to appease both the local community and the owners and solve the problem as well. They will lease the plant which is available till the time their customized automated plant is built. However, as soon as their new plant is built they will close down their operation in the leased plant and will move to the new automated plant. They also plan not to tell the local community and even the management of the leased plant about their possible closure of the plant as soon as the new plant is completed. However, this can lead the firm into losing their goodwill. Thus, in the light of SWOT analysis, we can establish that the firm is in a very difficult position, considering the two alternatives and their possible drawbacks. In the light of above discussion, I think the option of leasing a plant is more feasible than building a new plant from the scratch. The reason behind my option is because building a new plant will take too much time which the firm could not take at the present scenarios, as otherwise, new competitors will be attracted towards the industry. The other reason why the firm should choose the second option is because it would affect the lives of four thousand workers. Every firm has this social responsibility of giving something back to the community from the profits they earn. Similarly, the firm could use certain strategic management techniques, so that they are not affected by high costs that they are going face due to inefficient conditions of the leased plant. They could do this by differentiating their products from their competitors. This involves adding something extra and something new in your product than the conventional model of the products. The differentiation could also be provided by giving a unique service or giving snob appeal to your product. As a result of these techniques, the firm would be able to command higher prices for its products. In other word, it would be able to pass on the additional cost that may arise due to inefficiency of the plant to consumers and thus will not have face a decline in the profit, even if the costs are higher than other plants. The other techniques that the firm could use to fight inefficiency is re-designing or customizing the leased plant. This would help the firm to get rid of any costs that are arising from inefficiency. This means that the firms will be able stay at the former profit levels and thus its profits will not decline. The decision will also be based on the present and future value of the money as it is done in real estate management. The present value of money is what money could buy if spent now current stage, whereas the future value of money is what the money could buy in the future if it is stored now and spent in the future. If the plant is leased, then this lease-payment will have no future value as it is money that is gone out of your pocket into someone else's pocket. If Byte Inc buys a plant, then it is expected that in future its value is going to increase and hence future value of such payment is going to be more than the lease payments. Therefore, as a important concept of assets and real estate management, BYTE Inc. will also take future value of their expenditure into account. In this scenario it is better for the firm to buy a new property rather than lease it. The reason behind this is that the money spent in lease-payments will have no future value, whereas money spent in buying a new plant will have a future value which is going to be greater than the current value of money. So, BYTE Inc. would be better-off, if they buy a new plant rather lease it, ceteris paribus. We can also solve this problem by tackling the issue from real estate strategies. This may involve the firms into taking bold decision and hence, would involve more risk. If these strategies are implemented successfully, however, they will also reap large profits for the firm. One way to do this is to sell the current plant, which would provide high cash flow to the firm. They can use this cash flow and the profit which they have been earning from the past few years and could buy a bigger plant. This, at first, may look like a very risky decision, but it may turn out to be the wisest decision for the firm. They can buy a plant with bigger capacity using the cash that is obtained from selling the old plant and by using the money that firm has been earning for years. If this plant is designed properly and setup according to the needs of the firm, it would produce a large output. This output will meet the market demand and hence bridge the gap between demand and supply. There are also a lot of other benefits that this plant would render due its huge size. The firm would enjoy huge economies of scale which would make them cost leader in the market and enjoy the benefits such as, low cost, high profits and increase in market share due to low costs provided by economies of scales. In the light of above discussion, we can safely conclude that the real estate strategic option of buying a bigger plant is the most feasible option, considering the condition of the firm and the current market conditions and also taking into account the future and present values of money which is a important factor in corporate decision making and portfolio management. Reference: Peter Borrington (2001). Business Studies. Cambridge University Press Collin Bamford (2002). Economics. Oxford University Press Richard Daft (1997). Management 4th Edition. The Dryden Publishing Susan Haka and Mark Bettner (1997). Accounting: The Basis for Business Decisions. Pearson Educational Harold Randall (1996). Accounting 3rd Edition. Letts Educational. D. Scarrett (1995). Property Asset Management. E and FN Spon. T.L. Wheelen (1995). Strategic Management and Business Policy. Addison Wesley A Complete Revision Notes Site. Tutor2u. 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