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Executive Summary - Case Study Example

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In the year 2006 company faced few critical problems in its overall business operation. Major problem for the company was it was not involved into international sales except Novo which was a…
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Executive summary ment of the Problem Baker Adhesives, led by Doug Baker, is small specialty adhesives manufacturing company. In the year 2006 company faced few critical problems in its overall business operation. Major problem for the company was it was not involved into international sales except Novo which was a Brazilian customer. Baker’s all other customers were US based and they were moving their units to outside US. As a result Baker’s sales were about to decrease. Other problem was regarding a Novo order which was denominated in Brazilian real (BRL) and when the agreement was made the exchange rate of US$ and BRL was different. As a result the value of per-gallon price which was decided at that time was founded later to be much lower than anticipated. Moreover Novo was not ready to change the price. So, when the price in BRL was converted into US$ Baker found that there is significant lowering in profitability. Furthermore when Baker decided to borrow an amount in BRL from a Brazilian bank it discovered that the interest rate was 26% which was much higher than the rate (8.26%) in US.
Analysis of the Problem
Most of the US companies started to shift their unit outside US with the purpose of focusing more on economies of scale and increase the market share. As a result most of the adhesive giants decided to focus on international sourcing and manufacturing capabilities. But unlike these companies Baker was not that involved in international sales and quite obviously company was about to see some significant decline in its sales. The problem of exchange rate was created because of its changing nature. As the exchange rate of US$ and BRL keep changing value of the price of any product would also keep changing. So the value of price per-gallon of Baker adhesives also changed when it was converted into dollar. Again the problem regarding the interest rate charged by the Brazilian bank was much higher than the rate by any US bank. This was because the inflation rate in Brazil was much higher. Higher interest rate was actually set by the government of Brazil in order to control the high inflation rate.
Potential Solution
In the adhesives market competition is intense and profit margin is slim. As a result most of the company has focused on the international sourcing and manufacturing capabilities. Baker adhesives also need to focus on the international market in order to stay ahead in the competition. Focusing on international business would enable the company to focus on scale economies. Furthermore flexible production system and good chemist are crucial in the adhesives business. So Baker Adhesives need to focus on these aspects also. Moreover, when deciding upon the price company should effectively analyze exchange rate factor.
Recommendation
Baker Adhesives need to analyze the present market condition and adopt strategy accordingly. It needs to take more aggressive strategies in order to increase its customer base. Since the margin is slim in this business volume of sales must be increased in order to be successful for a long time. Top management must be more cautious regarding various factors like exchange rate, interest rate and finally they must use their negotiation skills in more effective and efficient manner. (Analysis of financing Tactics: Leases, Options, and Foreign Currency, Case 37)
References
Analysis of financing Tactics: Leases, Options, and Foreign Currency, No Date, Baker Adhesives, Case 37. Read More
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