Risks Analysis of Business Strategies - Essay Example

Option # 1: Cut the prices of the cars and accept a lower profit margin. Currently, the profit margin is 60%:
- may widen market share due to affordability;
- decrease in sales revenue thereby limiting the ability of the company to meet the demands of the Union. 

Option #2: Cut production costs by installing automated machinery. Modernize the factory. In recent years, the roof of the factory has started to leak and could become hazardous. Raise the prices by 20%:
- increase in Production Capacity and Quality Assurance because of a wider range of production time;
- decrease in Occupational Health and Safety concerns due to improved working environment;
- capital costs are significant due to the purchase of machinery and losses in production opportunity time due to the installation of the system, training of personnel, and repairs in the working environment. In effect, the payback period may be unsustainable;
- increase in sales price will shrink market share;
- the competitive edge of the cars being “handmade” can no longer be applied;
- legal conflict brought about by the reduction of the labor force.

Option #3: Increase production substantially to approximately 4,000 cars a year. Subcontract some of the manufactures of the components to a low-cost foreign manufacturer:
- sales prices can be lowered due to lower production costs;
- increase in production entails an increase in the labor force required. Since the union is clamoring for higher wages, labor costs would be high;
- transportation costs and customs duties may negate the benefits of low-cost manufacturing;
- low-cost manufacturing may entail the use of inferior materials and methods thereby compromising the quality of the product. 

Option #4: Try to get additional finance from an outside source then have a major launch of the cars in the United States:
- new opportunities to widen the market, and increase available capital;
- fluctuations in interest rates of the lending institution can affect business profitability; transportation costs and customs duties may result in higher sales prices; competition with local products afforded with tax incentives and a “patronize local products” edge can be unsustainable. 

Option #5: Set up a joint venture with an overseas car manufacturer. An engine manufacturer in an unstable country in Southeast Asia has expressed interest in a joint venture to build all the engines for Suprema Cars. If they do this, Suprema would have to send out a team of engineers to the country to supervise production in the early stages:
- Increase in availability of funds; low labor costs from South East Asia can lower production costs;
- Transportation costs and customs duties may be too high; fluctuations in exchange rates are high in an unstable country; high Occupational Safety concerns for engineers sent to the country for supervision; quality of engines can be compromised. 

Option #6: Use the Suprema Cars brand name, and design and launch a sporty, environmentally friendly, dual fuel, small car:
- a new opportunity to widen market share as it appeals to the current fad in car qualities;
- significant capital investment for research and development; lost production opportunity time due to the new system of production and training of personnel; competition with other cars with the same qualities may be unsustainable. 

Option # 7 Accept the approach of a major European manufacturer who is interested in providing finance and expertise to boost sales of Suprema Cars in return for a substantial stake in the company:
- Increase in availability of funds and management expertise leading to new business opportunities;
- Conflicts of interest may appear due to differences in nationality;
- A reduction in government provides business incentives.

From the details of the benefits and risks of the options, Option #2 presents itself as the most advantageous business strategy. This is because most of the risk can be controlled and remedied. Raising prices can shorten the payback period and provide capital for personnel and facility development. Legal disputes with the Union can be avoided by compensation packages for those affected. Other alternatives involve risks that are greatly dependent on external factors (i.e. hard to control and remedy) like fluctuations in exchange rates. 

From the foregoing discussion, the option of automating, modernizing, and raising prices is the most advantageous business strategy. Not only does it increase production and lower production costs, but it also provides the company with the necessary cash to serve as capital investment. The risks involved can also be easily controlled making this option the most attractive business strategy.