Perhaps the greatest benefit of offshoring is the cost advantage it produces, which directly affects the company's bottom line. In tight fiscal situations, any savings in operating costs will contribute toward the company's sustenance and growth. Companies in recession segments sustain themselves and grow through innovation. Lower operating costs means they have more money to invest in innovation, resulting in a stabilized domestic workforce. In the service sectors, the cost saving from offshoring enables companies to create new service lines, many of which had been deferred for want of investment.
Cartel-like behaviour reduces competition and can lead to higher prices and reduced output. 3. Firms can be prevented from entering a market because of deliberate barriers to entry. 4. There is a potential
Another possible advantage of privatisation is an increase in competition as the privatisation of state owned monopolies usually occurs at the same time as deregulation of the industry. The increase in competition can be the greatest incentive to improvements in efficiency. For example, there is now more competition in the telecom industry and suppliers are now investing in fibre-optic technology and improving the infrastructure via capital investment. However, privatisation doesn’t necessarily increase the level of competition; it depends on the market structure. For example there is currently no competition in tap water, however this is a widely debated area and we could see a change to this soon and
In the case of Time and Warner those three motives are present: 1. Horizontal merger leads to economies of scale Horizontal mergers are defined as “combination of two firms in the same line of business” (Brealey, Myers & Allen, 2006, p. 871). Since Time and Warner are both in the same line of business, their merger can be considered as horizontal. The primary reason for horizontal mergers is the exploitation of economies of scale. “The savings come from consolidating operations and eliminating redundant costs, […] sharing central services such as office management and accounting, financial control, executive development, and top-level management” (Brealey, Myers & Allen, 2006, p. 874).
However single sourcing can be devastating for a firm, worst scenario the firm would not receive any products. The supplier could also lack the capacity to meet the demand from the buying firm regarding such matters as quantity and quality. Multiple sourcing is more common when the firm seeks to enhance competition and flexibility. The cost will be reduced because of competition and the risk with not getting any products will be reduced. Also the buying firm will get more
The knowledge of a firm finding out where marginal costs equal marginal revenue is very difficult so some firms may not be able to profit maximise as they do not have the correct knowledge required to do so. Instead firms may decide to do cost plus pricing, this occurs when a firm sets its price equal to the average costs at a normal capacity output and then they add a certain percentage mark up. So the level of the price is the level of average cost plus a certain percentage which will be the profit gained. They may decide to do this as it may stop attracting other firms into the market as they are not producing large amounts of profits. Another different objective a firm could have could be to revenue maximise.
Case Study 1 Costco Wholesale Corporation: Mission, Business Model and Strategy Costco Wholesale Corportation (Costco) operates based on a cost-based advantage and also focuses on a market niche. A cost-based advantage involves achieving lower costs than competitors (Gamble & Thompson, 2009). Costco also focuses on the upscale customer, offering more luxurious items, such as diamonds. Costco utilizes many strategies to help achieve low costs that it can pass onto its customers. By minimizing handling of goods through the use of direct shipments form the manufacturer to the store, as well as the use of cross-docking techniques where items are shipped to a cross-dock and then distributed to stores, Costco is able to minimize handling time.
In this situation foundation owned companies could be capital rationed.10 As a consequence, they could make more short term decisions than other types of companies and being less efficient and less profitable on long term. For example, Hansmann and Thomsen found that in spite of good performance of these companies, they grow little bit slower than listed companies. Capitalrationing**** In addition, I think foundation owned companies may use bad decisions when they invest. I mean that they are faced to a risk of overinvestment in the sense that when they are profitable and have positive cash flow, I think they have tendency to reinvest in the firm even when it
Chrysler is very capable in terms of design and product development; Daimler holds the upper hands in engineering and technology” . The integration between the two companies was supposed to “change the face of the automotive industry” and create “a pre-eminent position in the global marketplace” 2 - Cost synergy: The top managers of the two companies were seeking for substantial cost synergies in the merger (in purchasing, research and technology, distribution infrastructure and financial services). Thanks to the strengths of each company in different divisions (design and product development vs. engineering and technology), they can complement each other and save cost. - Reshaping the firm’s competitive scope: The integration between the two helped Daimler-Benz reduce its dependence on North America market and expand to Western Europe as well as helped Chrysler approach to foreign markets. - Learning and developing new capabilities: the two companies could learn from each others’ manufacturing operations (product design and development; engineering and
However, there are still complications that could come with this strategy. The existing companies could easily create an agreement to temporarily cross each others “territories” with lower prices, to remove the new company from the market. They can offer lower prices as they are much larger and are unlikely to have extra start up costs which the new company will have, restricting their profit margins. Therefore this strategy is