A fundamental goal of organizations is to maximize shareholder value and the worth of their business. Successful organizations, ones that maximize shareholder value, experience higher overall productivity and competitiveness. To achieve these higher levels of productivity and competitiveness, several strategies need to be evaluated, created, and executed. These strategies include the following: internal and external growth strategies, capital management strategies, and cross-border growth strategies.
In addition, organizational performance and portfolio management must also be assessed. Lester Electronics, Inc. is a small, domestic organization that is faced with critical merger and acquisition decisions that will ultimately influence the future financial livelihood and success as an organization. Benchmarking studies have been performed related to the strategies and assessments that must be performed in order to make financially wise business decisions to assist Lester Electronics, Inc. during this critical time.
Overall Analysis Capital Management Strategies The cash flow cycle concentrates and encompasses on all areas of business operations, and allows the organization to use cash to generate a profit. If a business is operating profitably, then it generates cash surpluses. The operating cycle is the time interval between the arrival of inventory stock and the date when cash is collected from the receivables. The cash cycle beings when cash is paid for materials, and ends when money is collected from the receivables, (Jaffe, Ross, & Westerfield, 2004, p734). Financial decision-making uses the gap between the cash inflow and outflows. This relates to the length of the account payable period and the operating cycle. This gap can be filled by borrowing or holding a liquidity reserve for securities, and can change with inventory, receivables, and payable periods (Jaffe, Ross, & Westerfield, 2004, p735).
Lester Electronics faces a decision as to how they can continue to generate cash flow while remaining competitive in the marketplace and maximizing shareholder wealth. AOL’s merger with Time Warner was the result of the organization’s attempt at growing the business to generate more working capital. The company was successful at not only generating growth and providing customers products they desired, but ultimately they were able to grow capital and shares. If Lester Electronics is considering the joint venture opportunities that lie ahead, they can employ benchmarking studies that have been completed. eBay sought ways of producing capital and analyzed the resources they needed to get there. At times it meant layoffs after the amalgamation to reduce costs, other times it was growth strategies to expand business globally.
An organization’s capital management strategy should also consider the potential capital losses while attempting to grow and expand business. For example, eBay acquired Skype in hopes of growing and expanding the business. Although the initial anticipated growth was expected to yield very profitable results, the company has very significant losses which are directly correlated to the acquisition of Skype. The company’s expected return combined with internal and external growth, have been severely off target. Lester Electronics should complete the necessary analysis to weigh risk and evaluate the capital management strategies and decide if an acquisition is the optimal solution, and to avoid a situation like eBay.
Evaluate Internal and External Growth Strategies Evaluating the internal and external growth strategies is one of the critical steps necessary before Lester Electronics, Inc. can make a sound decision regarding their acquisition and or merger situation. Lester Electronics, Inc. needs to evaluate the internal growth strategies which normally focus on actions such as hiring more employees, growing the customer base, opening new company-owned locations or developing new products through internal research and development. They also need to evaluate their external growth strategies, which tend to focus on meeting the growth objectives by establishing relationships with third parties, such as strategic-alliance partners, licensees, franchisees, and co-branding allies (Highbeam, 2008).
Lester and Shang-wa are both open to growth opportunities and looking forward to expand globally. They are heading not only to increase their revenue but also to improve their product and growing their demand. They need to continue to be more aggressive in marketing internationally their product and corporation and be more efficient corporate and service wise than its competitors. Merging will definitely be more beneficial for both companies on growth opportunities and attracting the markets they need.
The Disney, Marriott, McDonalds, and General Mills market expansion exemplified both effective internal and external growth strategies which positively impacted the organization. Lester Electronics can benefit by learning from product expansions like General Mills and Disney or organizational expansions like Marriott and McDonalds. Careful examination of their internal and external strategies will help Lester Electronics, Inc., improve their position within the marketplace, increase shareholder wealth, and increase financial stability and well-being.
Cross-Border Growth Strategies Shang-wa and Lester have had a collaborative relationship for many years. Due to their success in the marketplace, both companies may be potentially acquired; Shang-wa by TEC and LEI by Avral. When Lester entered the business deal with Shang-wa the company became the exclusive distributor of capacitors in the United States. In order to meet the increased global demand and protect both companies, merging together may be the best alternative for LEI and Shang-wa. As well, a capital expenditure for Europe was approved allowing them to be more global. Both companies will need to be more diversified.
Diversification in finance is a risk management technique, which combines a variety of investments within a portfolio. By doing this, the fluctuations of a single security have less impact on a diverse portfolio, and diversification will lower the risk from any one investment. LEI will benefit to benchmark the approach that Starbucks has used. Starbucks does not only rely on the domestic market but finds markets outside of the US where demand for its products are high. By branching out to other countries and markets, LEI will see that Starbucks can be profitable. Implementing cross border growth strategies also means that adjustments will have to be made, especially when it comes to working with people from different cultures.
Merging companies in a cross-border situation should develop a strategic plan in order to have a successful merger. Developing an effective strategic plan includes answering questions such as how will this merger create value, and when will this value be realized? In addition, can this merger pass the “better-off” test – to show more value by being more competitive, having a stronger cost structure, gaining additional competencies that can leverage in new ways (Finkelstein, 1999).
Financial Statement and Ratio Strategies The importance of financial ratio to Lester Corporation is to analyze the processes and to determine the current or future status of the entity. The purpose of applying financial ratio into the company’s status is to find the relationship of Lester operating activities such as current assets, current liabilities, and owner’s equity. The result of the ratio will give the company an idea of their profits and loses which gives Bernard an idea to bid Shang-Wa in a higher price.
The focus of the company is to understand the performance of their competitor by doing that Bernard Lester need to ensure his staff and management are educated and properly trained about the process and changes that accompanies the vision, mission, and values which produce income within the company. As a result, employees will provide good services this will attract more customers and will bring profits to the company. Like Lester Electronics, Coors Brewing Company started small, and grew to where they are today. By taking chances, and aligning with Molson, it allowed the organization to expand into markets they may not have been able to reach originally. By expanding their business, this allowed Molson Coors to increase shareholder wealth, and increase the overall profitability of the organization.