Competitive strategy refers to how organizations compete in a particular industry. Organizations competitive strategy therefore includes efforts that companies make to gain competitive advantage in the industry. Competitive advantage can be gained through the use of various distinctive business approaches such as distinctive product, raw materials, skills and technology. Various firms can use different competitive strategies to ensure that they remain relevant and productive in the industry.
GEK Technologies has an innovative competitive strategy. Innovation strategy ensures that a company maintains its competitive advantage through introduction of improved or new products. GE Technologies Company regularly introduces new and improved products to suit the changing needs of customers. Since its inception, the company has introduced different brands of audio products that include GEK Record Player, CD players, MP3 players and GEK USB Turntable.
SWOT analysis is the evaluation of strengths, weaknesses, opportunities and threats of a company. SWOT analysis can be used to evaluate a product, a company, industry or individuals. It includes the identification of the internal and external factors that are either favorable or unfavorable to the operations of a company.
- The company has a diverse product line that includes record players, CD players, MP3 players and USB turntables. This makes it to generate revenues from different product lines hence reduce the risks associated with production of a single product line.
- The company has a reputable brand name. GEK Technologies has gained a reputation in the market for the production of prestigious brands of audio products.
- The company has a limited manufacturing capacity making it unable to meet the customers demand for its audio products. This has resulted to delay in the productions as well as backlog of orders from clients.
- The company lacked adequate skilled labor for the production of its record players. Most of the workers in the GEK Record Player line were older and most of the new employees were not interested in learning the skills required to manufacture record players.
- There is growing demand for the GEK USB Turntables in the market. This is due to an increase in the demand of USB in the market as a result of a shift towards the preferences of portable audio products. This provides the company with potential growth in its market share and customers base.
- Technological advancements also offer an opportunity for the company to introduce new product lines. The global market is exposed to constant changes in the level of technology hence the company will be able to offer new product lines that conforms to the new technology.
- High cost of manufacturing cost for GEK Record Players. The company is experiencing high production cost due to high cost of labor and materials used in the production of the GEK Record Players.
- There is a decrease in demand for GEK Record Players in the market. This is a threat to the company since it might force the company to close the production unit for GEK Record Players.
Return on investments, ROI, is organizations performance measurement that is used in the evaluation of an investment. It can also be used to compare efficiency of two or more investments. The formula for ROI = (Gain from Investment – Cost of Investment)/ Cost of Investment. Economic Value Added, EVA, is a performance measurement that is based on the residual wealth. It is calculated by subtracting the cost of capital from company’s operating profit. The formula for EVA = Net Operating Profit After Tax – Capital * Cost of Capital).
ROI and EVA of Southern Australian Division
Profit after tax = 3, 600, 000 * 70/100 = 2,520,000
Cost of investments = total assets less current liabilities = 35,000,000 – 8,000,000 = 27,000,000
ROI = 2,520,000/27,000,000 = 0.09 = 9 percent
EVA = 2,520,000 – (27,000,000 * 0.08) = 360,000
ROI and EVA of Northern Australia Division
Profit after tax = 800,000 * 70/100 = 560,000
Cost of Investments = total assets less current liabilities = 4,000,000 – 2, 000,000 = 2,000,000
ROI = 560,000/2,000,000 = 0.28 = 28 percent
EVA = 560,000 – (2,000,000 * 0.08) = 400,000
ROI and EVA of Fishing Fleet Division
Profit after tax = 70/100 * 300,000 = 210,000
Cost of Investments = total assets less current liabilities = 8,400,000 – 800,000 = 7,600,000
ROI = 210,000/7,600,000 = 0.03 = 3 percent
EVA = 210,000 – (7,600,000 * 0.08) = -398,000
From the calculation, Northern Australia has the highest ROI and EVA at 28 percent and 400,000 respectively. This shows that it is the most profitable investments. Fishing fleet division has the least ROI and a negative value of EVA. This shows that it is the least profitable division of the group. The Southern Australian Division is the average with ROI and EVA at 9 percent and 360,000 respectively.
I would recommend for the adjustments of accounting audit. The accounting audit should be adjusted to reflect the value of assets that are leased and owned by the respective divisions. This will help the company to calculate the real value of assets owned by the company hence gives accuracy in the calculation of ROI and EVA.
The proposed price for the Reading component by Millwal Company is $7.68 which includes variable manufacturing costs plus 20 percent. This price is below the total cost incurred by the Reading Company in manufacturing, selling and distribution of the component. Reading company according to its costs structure incurs a total of $10.00 in manufacturing, selling and distribution of the component. The management of Reading will incur a loss of $ 2.32 if they sell the component at $ 7.68 to Millwal. This will make reading management to feel that intercompany business is not profitable. The reading management will also feel that Millwal does not consider standard manufacturing cost and selling and distribution costs in its evaluation of the price of the component.
The Corporate management proposed a price of $10.12 which includes standard manufacturing cost plus 15 percent. This price will make the company make profit margin of $ 0.12 which is below the Readings expected profit margin. This price will make management of Reading Company to feel that intercompany business does not consider selling and distribution costs as suggested by the pricing of corporate management.
Reading Company proposed a price of $11.80 which considers regular selling price less variable selling and distribution cost. This is because the management views that there is no selling and distribution costs incurred in the intercompany business.
The negotiation of a price between Miliwal and Reading does not provide the satisfactory method to solve the transfer price problem. This is mainly because the two companies have different objectives and targets to meet. Each of the company will work towards realizations of its objectives and goals. Both Reading and Millwal will provide a transfers policy that will suit their own specific needs hence there will be difficult in attaining a compromised transfer price policy that is acceptable to both the two companies. They will both act and make decisions in away that will ensure that they maximize their profits and increase their performance. This will imply that no company will be able to agree with a pricing policy that does not increase its profitability.
The corporate management should become involved in the transfer pricing controversy since it forms the top management of all the three companies. Since it is the corporate management that conducts evaluation of the company’s performance, it is appropriate for the negotiation to involve corporate management. The presence of corporate management will provide satisfactory solution to the transfer policy since it will act as a neutral body in the negotiation.
The rules and regulations of a business identity are made by the top management of organizations. This implies that Reading and Millwal are not authorized to make transfer pricing policies. This makes them unsuitable for providing appropriate solution to the pricing problem.
|Customers satisfaction with accuracy of a charge account bills||To increase the level of accuracy in charge account bills||Number of disputed bills||Zero disputed bills||Training the account clerks|
Percentage of salesclerks trained correctly to enter data on charge account slips
|To increase the level of accuracy in entering data on charge account slips||Percentage of salesclerks trained correctly to enter data on charge account slips
|100 percent||Training sales clerk|
Unsold inventory at the end of the season as a percentage of total cost of sales.
|Reduce the level of unsold inventory||Unsold inventory at the end of the season as a percentage of total cost of sales.
|Sales promotion and marketing|
Written-off accounts receivables (bad debts) as a percentage of sales.
|To reduce the number of bad debts||Bad debts as a percentage of sales.||Zero percent||Training of sales clerks|
Percentage of account bills containing errors.
|To reduce errors ion account billing||Percentage of account bills containing errors.
|Zero percent||Training of accounts and sales clerks|
The balance scoreboard excludes some of the performance measures due to various reasons. The first reason for exclusion of some performance measures is because the performance can not be used to solve the problem that the company is currently facing. The company currently is facing two major problems that include problems with payment of bills and unsold stocks. These measures cannot be solved through the use of performance measures such as total profit, profit per employee and quality of food among others. An effective balance scoreboard should be able to address specific needs of an organization hence the measures included in the balance scoreboard are meant to address specific needs of the company.
Some of the measures are not included in the balance scoreboard since they are not specific and measurable. Balance scoreboard should include measurements that can be easily measured in quantitative terms and also should be specific. An example of measurement that is not quantitative in nature is the quality of food. This measure cannot be included in the balance scoreboard since it is difficult for individual to measure the quality of food in quantitative terms. Measurement in balance scoreboard should be easily measured using appropriate units to allow for the determination of the outcome and progress of the company.
Alrafadi, Khalad, & Md-Yusuf, Mazila. “Comparison between financial ratios analysis and
balanced scorecard”. American Journal of Economics and Business Administration, 3(4) (2011), 618-622.
Bezdrob, Muamer., & Car, Mirha .”Performance measurement model – developing and testing a
measurement model based on the simplified balanced scorecard method”. Zagreb International Review of Economics & Business, 15(3) (2012), 79-98.
Dévényi, Márta., & Somogyvári, Márta. “OMEGA FILMS LTD: A CASE STUDY IN
NEGOTIATION”. International Journal of Conflict Management, 13(4) (2002), 341-354.
Elahee, Mohammad & Brooks, Charles. “Trust and negotiation tactics: Perceptions about
business-to-business negotiations in mexico”. The Journal of Business & Industrial Marketing, 19(6) (2004), 397-404.
Hanselmann,Jacob . “Success in negotiation”. Business Credit, 103(8) (2001), 60-61
Ormanidhi, Orges., & Stringa, Omer.” Porter’s model of generic competitive strategies”.
Business Economics, 43(3) (2008), 55-64.
Sharma, Ashu.” Implementing balance scorecard for performance measurement”. IUP Journal of
Business Strategy, 6(1) (2009), 7-16
Shivaswamy, Melkote., Hoban,James & Matsumoto, Keishiro. “A behavioral analysis of
financial ratios”. The Mid – Atlantic Journal of Business, 29(1) (1993), 7
Simoneaux, Sarah, & Stroud, Chris. “BUSINESS BEST PRACTICES: SWOT analysis: The
annual check-up for a business”. Journal of Pension Benefits, 18(3) (2011), 75-78
Vandervelde, Scott, Chen, Yining & Leitch, Robert. “Auditors’ cross-sectional and temporal
analysis of account relations in identifying financial statement misstatements”. Auditing, 27(2) (2008), 79-107
 Orges Ormanidhi, & Omer. “ Stringa. Porter’s model of generic competitive strategies”. Business Economics, 43(3) (2008), 55-64.
 Sarah, Simoneaux & Chris Stroud. “BUSINESS BEST PRACTICES: SWOT analysis: The annual check-up for a business”. Journal of Pension Benefits, 18(3) (2011), 75-78
 Khalad, Alrafadi &, Mazila Md-Yusuf. “Comparison between financial ratios analysis and balanced scorecard”. American Journal of Economics and Business Administration, 3(4) (2011), 618-622
 Melkote Shivaswamy, James Hoban & Keishiro Matsumoto. “A behavioral analysis of financial ratios” The Mid – Atlantic Journal of Business, 29(1) (1993)., 7
 Scott, Vandervelde, Yining Chen, & Robert Leitch. “Auditors’ cross-sectional and temporal analysis of account relations in identifying financial statement misstatements”. Auditing, 27(2) (2008), 79-10
 Mohammad Elahee & Charles Brooks. “Trust and negotiation tactics: Perceptions about business-to-business negotiations in mexico”. The Journal of Business & Industrial Marketing, 19(6) (2004), 397-404.
 Jacob Hanselmann . “Success in negotiation”. Business Credit, 103(8) (2001), 60-61
 Márta Dévényi & Márta Somogyvári. “OMEGA FILMS LTD: A CASE STUDY IN NEGOTIATION”. International Journal of Conflict Management, 13(4) (2002), 341-354.
 Ashu Sharma.” Implementing balance scorecard for performance measurement”. IUP Journal of Business Strategy, 6(1) (2009), 7-16
 Muamer Bezdrob, & Mirha Car .”Performance measurement model – developing and testing a measurement model based on the simplified balanced scorecard method”. Zagreb International Review of Economics & Business, 15(3) (2012), 79-98
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