Corporations

The plant’s costs for the semiconductors are higher than the competitor’s market prices since its manufacturing costs are primarily fixed. This means that the cost per unit depends on how much is produced. The more semiconductors produced, the lower the cost per unit will be. On the reverse, the lesser the units produced, the higher the cost per unit will be. With the influx of high quality semi-conductors from the non-US companies with a price at or below that of the Semiconductor division, the product divisions began buying from external sources instead of purchasing within the company.

Since the production of the Semiconductor division is responsive to the demand for its products, it lessened its production as the demand declined resulting to a higher cost per unit for the semiconductors produced. Question 2: The controller should consider encouraging the product divisions to purchase from the Semiconductor division up to the latter’s unused capacity and purchasing the rest from external suppliers since this provides for better goal congruence. Since the Semiconductor division is operating with an unused capacity, it will not incur additional costs to accommodate such orders.

The production divisions will even be helping the Semiconductor division to lower its cost per unit. Also since it is an interdivisional transfer, it has no net effect on Information Systems Corporation as a whole. With respect to the other needed quantities, it would better serve the interest of the company if the production divisions purchase from external suppliers who offer lower prices since in such a case, the Semiconductor will need to incur additional costs to accommodate the extra orders.

Compared to the present scenario where the production division managers purchase all the standard semiconductors from external suppliers which results to sub-optimization, or the situation that transpires when managers do not act in the best interests of the company as a whole (Garrison & Noreen, 2000), the proposed alternative is more beneficial for the Information Systems Corporation as a whole. In connection with this suggestion, the company should consider revising its policy of evaluating its profits centers on profitability alone by taking into consideration other factors such as the above mentioned.

Question 3: All transfer pricing methods has its share of its disadvantages be it negotiated, at cost or at market price. For the case of Information Systems Corporation, the recommended method would be the negotiated transfer prices. This method maintains the independence of the divisions consistent with the spirit of decentralization and is also conducive to more informed managers with regard to the costs and benefits of the transfer to the Information Systems Corporation as a whole (Garrison & Noreen, 2000).

Given that in committing to buy RAMS from the Semiconductor division the production division managers are not assured that the cost and price will not increase later should the selling division fail to meet the planned volumes or its cost objectives, coupled with the reasonable assumption that both divisions will act to maximize their respective profits, the negotiated transfer pricing best provides for better goal congruence.

Both the selling and purchasing divisions will be acting in the best possible manner for their respective segments since they are being evaluated as profit centers at the same time the company’s overall goal is observed at their levels, resulting to an overall benefit for Information Systems Corporation. Reference Garrison, R. H. , & Noreen, E. W. (2000). Managerial Accounting Ninth Edition. United States of America: Irwin McGraw-Hill.

Change in the operating environment can force a company to change its strategies in order to remain competitive and achieve its objective as well. The adoption of new strategies should, however be done carefully so as to fit into the new organizational design necessitated by the change in strategy. The change of strategies should also be done in a way such that a strategic fit is achieved in terms of the organization mission, vision, goals, objectives, strategies and their implementation. (Einhorn 2006)

A company’s mission statement describes the core existence of that company. It describes the raison d’être of the company. Intel’s new mission is to provide technology that is more powerful but simpler to perform tasks without straining the user. This is why the company has rebranded and shifted its focus to other sectors. This will help the company to achieve its mission.

            The mission of the company helps the company achieve its vision. A vision determines where the company wants to be in the future. The aim of Intel’s vision is to power innovation from the living room to the emergency room. This is to mean that the company wants to dominate technology in all aspects of life. A vision basically is a wish of what /where the company wants to be in the future

To achieve a company’s mission, vision, objectives, goals have to be set. Goals give the company a sense of direction thus avoiding conflicts. Goals also describes what the company plans to accomplish. Goals also motivate the employees. The company’s main goal is to provide the manufacturers of laptops and entertainment PCs, cell phones, hospital equipment with a complete range of chips and software. The launching pad to achieve this goal is the Intel Centrino processor (May 2006) Read about network level strategy

Apart from setting the goals, a company should also have some objectives which are basically tangible actions that need to be undertaken in order to achieve the desired goals. Objectives can be short term or long term in nature. Intel corporation objectives is to diversify from the core pc market into other areas e.g. entertainment and medical field. Diversification will help the company achieve the company achieve its goals of being the leading provider of software and chip solutions to manufacturers of a wide range of equipment like home entertainment and medical equipment.

Organization design is whereby the company aligns its structure with the mission by focusing on the relationships between tasks, flow of authority and responsibilities to ensure that they all contribute towards the achievement of the company’s objectives.

Strategic control is also essential in the formulation and implementation of strategies. Strategic control helps an organization assess whether the implementation of the strategies is as anticipated and if the outcomes of the strategies are as planned. Strategic control is one of the stages of strategy management; others being strategy formulation and implementation.

Intel corporation shift in strategy has been attributed to the changing business environment. The shift has been necessitated by the declining revenues in the pc market thus the company had to chart new territories in order to generate more revenues. (McConnon 2007)

To achieve this, the company had to rebrand as well as introduce other new products.  The old brands like Pentium processors will be phased out slowly and replaced with new concepts like duo core processors that are not only faster but consume less power. This is after Intel realized that speed was not the only factor that consumers considered. The new CEO of Intel, Mr. Otellini, envisages the development of new products in several other sectors e.g. consumer electronics, wireless communication, health care apart from the pc market. The new product lines will be developed in what the CEO calls platforms

To successfully implement this strategic shift, the company has had to realign its operations in order to fit the new organization structure set up. An example of the change is the redeployment of about 98,000 employees. The new strategy has led to the creation of new job opportunities of about 20000 to work on the new platforms. Read also about network level strategy

The introduction of new products will be accompanied by a new emphasis on marketing. This though has not gone well with some employees of the company who feel that if the company makes good innovative products, the company should not spend time and resources on marketing rather the products will sell themselves. Apart from the skepticism ion marketing, some employees are not happy on the decision of the new CEO to treat every employee as equal. Under the former CEO, high level engineers working on PC products were highly regarded in the company but this has changed. Under the new CEO, even marketers now rank the same as engineers

This is however contradicting the organizations culture that existed under the former CEO. Organization culture can be defined as assumptions, believes, ideologies shared by a group within an organization.

During Mr. Grove’s reign, high level engineers working on PC products were highly regarded and that is how the other employees liked it. This was the culture then. (Intel 2008)

STRATEGIC FITS

For an organization to have successful strategic shifts, it must have a strategic alignment. Strategic alignment is whereby the activities of an organization work together by complementing each other in such a way that the organization is able to achieve a competitive edge. Intel’s new strategies are focusing on diversification into other sectors through rebranding and new product offerings. The new products will be on all the platforms. To ensure that the company is able to achieve its goals, the company hired staff in those specialized fields e.g. doctors. The aim was to have their input factored in the new products. (12manage 2008)

CONCLUSIONS

Strategic shifts in organization usually come with many challenges ranging from lack of appreciation by employees to poor implementation. All these leads to lack of strategic fit in the organization. Therefore it’s paramount that the change in strategy should be a well thought out plan in order to be successful.

The strategic change of Intel corporation was triggered by necessity given the dwindling revenues from its core markets; PCs. This change in strategy worked out well for the company as shown by the current position of the org.

The theory developed in this manual addresses normative principles that specify how things ought to be. The theory supported in this paper is based on the three basic principles of Kantianism, utilitarianism and contracts ethics. Intents of person’s actions can be evaluated using Kantianism theory this is because the action of an individual does not go hand in hand with how he or she is thinking. According to Kant’s theory, one’s action can determine whether the result will bring happiness or unhappiness.

The outer space corporation needs this theory because it will help those who are working for the corporation to determine their actions for the benefit of the corporation. This theory can help individuals in determining what is right or wrong which will hence bring about co-operation between the workers of the corporation and also with the leaders. Utilitarianism theory emphasizes on doing good thing for the majority of people. This theory enables that all people involved in corporation are satisfied due to the action of their colleagues.

In this case the outcome of any progress within the corporation is determined by the morals of individual. Therefore in this case, the theory of Utilitarianism can play a vital role in Outer Space Corporation since it will help the worker to work for the better of the greatest number. Utilitarian argument approves or disapproves an action on whether it increases or diminishes the amount of happiness of the party whose interest is in question. The principle however appeals to the invisible hand of the free market that guarantees the unrestricted pursuit of profit results in the greatest net benefit for all.

The theory demands that the business person or enterprise as a whole must consider the welfare of all persons that could possibly be affected by their decisions. The theory calls for such people to consider determining what will best maximize the happiness of those considered. This interest should count more than others and it asks them to consider some of their duty, to these stakeholders in a non consequential fashion. The rationale behind this theory is not to establish the criterion of the right, i. e. the normative theory job, but to provide intermediate principles that most clearly allow the normative criteria to guide the decisions of business practitioners. The utilitarian argument clearly supports the interest of stock owners in terms of maximizing profits. The stake holder theory accents rightly a business contractual obligation which consists of rules governing how people treat one another. The principles addressed in contract ethics touches on principle of liberty, opportunity, distributive justice, justice and principles of need. Also read utilitarianism and business ethics essay

(Snare, 1992). The practices and values presented here set an example for a new economy as well as for the daily lives of individuals choosing to live off earth. Contact ethics of this corporation will help the corporation to adhere to the code of conducts of the corporation for the better understanding of different roles which need to be carried out by workers. By drafting contact ethics within the corporation, employees can be aware of their duties and how they ought to perform them.

Lamoiyan Corporation is the first Filipino company to succeed in penetrating the local toothpaste industry, long dominated by multinationals, with their own brand of toothpaste, Hapee. Since their formal inauguration in March, 1988, they were able to maintain a consistent quality standard on their toothpaste. Because of this, they have become patronized and loved by the Filipino nationwide.

THE PRODUCTS

They provide a variety of quality products for oral care, household, and personal care at an affordable cost.

Some of their brands include Hapee, Kutitap, and Gumtect toothpastes, Dazz dishwashing paste/liquid, and Licealiz for lice infestations.

THE ADVOCACY

They believe that businesses have the best opportunities to serve their communities. This is why take an active part in various activities that help promote health, education, and the environment. Through these efforts Lamoiyan Corporation hopes to contribute to the advancement and progress of the Filipino.

MISSION, VISION, & VALUES

Lamoiyan Corporation is a 100% Filipino-owned Company with 25 years of manufacturing excellence.

At Lamoiyan Corporation, they are fueled by their corporate philosophy which is to make a difference for the glory of God. “The most important objective in business should be the desire to uplift the living standards of consumers by providing quality products that are cost efficient. And most of all, I do all these to make a difference for the glory of God. ” – Cecilio Kwok Pedro, President & CEO of Lamoiyan Corporation.

MISSION

We exist to improve the quality of life by bringing essential products within the reach of the common people.

VISION

We aspire to have a Lamoiyan product in every home.

VALUES

We achieve our mission and vision by living according to our corporate values. Social Responsibility. We make our presence a blessing to society. Pursuit of Excellence. We do things better than before and better than competitors. Integrity. We do things right. Respect for the Individual. We value individuality by treating each other with fairness. Teamwork. We reach collectively goals that we cannot reach separately. Also read narrative report for OJT business administration

When it comes to ethical principles concerning corporations, the expectation is they have to be responsible toward society in everything they are doing. There are situations that need avoiding, which could be refraining from acting, while at the same time there are situations that require acting. It is up to each entity which action to choose and follow through and the case of each entity could be unique since most companies are doing different things. Nevertheless, there are common areas where everyone involved in a society should feel responsible about and when it comes to corporations the theme is “corporate social responsibility”.

It stipulates that the interest of customers, employees, stakeholders, the involved communities, and the ecology will require their utmost consideration. This leads to what is known as sustainable development a process that should look beyond profit and dividend maximization and the immediate wellbeing of the people that will come into contact with such entities, as well as what the effect of their activity will be on the immediate and long term of social and environmental wellbeing.

VeriFone has a code of business conduct and ethics guidelines in its investor relation section at verifone. com and the main theme is to conduct business with honesty and integrity and to avoid conflicts of interest. When anyone is in doubt there is an office to approach for advice and the company encourages such an approach. When it comes to disclosure the focus is the Security Exchange Commission (SEC) that has a strict requirements in place that will have to be adhered to and any failure could be costly and the company communicates that to its staff very clearly.

The compliance section urges the staff to comply with the law and government regulations and since it involves everyone the idea is it does not want anything to go wrong because of oversight, because it had been proven to be costly as it had been witnessed by others who had failed to adhere to the rules. A company that had resuscitated its business by clamping down on its expenses cannot afford to break the rules. The reporting and accounting section has an authority to ask anyone to comply with the company rules and regulations.

Anyone who has a question or is aware of any wrongdoing in the company could also approach the code of ethics contact person. The corporate opportunities section stipulates that priority has to be given to the company’s interest when it comes to any kind of dealings, especially with anything that would originate from within the company in any form, and such a rule will not be waived unless the company had stated so. The message being any company finding or business secret should not benefit anyone else other than the company and its stakeholders.

What comes next is confidentiality that seals everything the company is doing with anyone or any information that had been entrusted to the staff will also have to be kept confidential. The fair dealing section stipulates that the company should not be engage in beating competition or raise its revenue by doing anything unethical that could affect the company inadvertently in the long run, as well as it believes it is not fair for others that will be involved with the company at any capacity.

Moreover, it states clearly that everyone involved with the company should have a responsibility of looking after the company’s assets. Overall, even if corporations come into existence to avail profit to the stakeholders, the way they have to do it will have to adhere to the rules, regulations, and norms that are different from the law, because most of the time the law has a means of addressing any breaches, but if ethics is breached there is a different form of retaliation or correction measures that does not have anything to do with taking an entity to court.

Companies could cause a lot of damage both to humans starting from their workers, to their customers, suppliers, creditors etc. , without per se breaking the law and such lack of ethics is usually dealt through peer pressure, where it is possible to expose a wrongdoing of a company so that no one will want to do business with it unless it starts adhering to an ethical way of doing things.

VeriFone has no problem so far and it has a very good reputation and record of accomplishment with its staff and almost all its suppliers and partners had a good opinion about it. It is so because the company had stipulated clearly what is ethical and what is not, which enables it to always adhere to them, and such effort always adds to the goodwill companies already have, which has a lot of value when it is time for the company to be sold since no one would pay good money for a company with bad repute.

One good proof for that is HP had paid more than $1 billion to acquire VeriFone although how much the Gore Group paid was not public, since that price could reflect how useful the company was for HP at the time of getting rid of it. Other than that, even if VeriFone manufactures its own electronic equipment the damage it causes to the environment is minimal and is not different from the other businesses that are engaged in a similar endeavor that are not know for harming the environment.

Ethics deals with questions of right and wrong. Business ethics deals with questions of right and wrong in business. What is wrong in daily life could become right in a business context. For example, if one were to ask a friend to change a Rs. 500 note for him, he expects to receive in return Rs. 500 in smaller notes. But if one were to go to a money changer for the same transactions, he would expect to get back only lesser value after deduction of some commission.

It would be wrong for the friend to make such a deduction, because he is not in business. Ethics are contextual. There are often grey areas as to what is right and wrong. Standards of rights and wrongs are called values. They vary between persons. Every member of an organisation must understand its values. Otherwise, they will act in a manner contrary to what the company thinks is right. Conformity in behavior is achieved easier through values than through rules and regulations.

This is particularly so because of intense competition in the market place and employees nay be called upon to respond quickly in order to counter the strategies of the competitors or to recover an aggrieved customer. Value dissemination is also necessary for empowerment. The Multinational Corporations/Managers The multinational corporation (MNC) is a mixed blessing. It is the major vehicle in the contemporary world economic system for technology transfer and the production of the goods and services that cross national borders.

But it is also the means by which substantial social and environmental dislocation can be precipitated when considerations of capital accumulation clash with material provisioning. In diverse ways the MNC may contribute to social injustice manifested in the use of sweated labor, discriminatory practices based on differences in race, gender, class, and national origin, the denial of effective workplace and political participation, and in practices that damage biodiversity and environmental sustainability.

Social economics emphasizes the dichotomous nature of the MNC, captured in the phrase “making goods versus making money”, to explore the ways in which conflict between these motives may precipitate social injustice. Often this social dislocation prompts collective action to redress the injustice, in effect lowering the social costs of the MNC’s actions. The multinational corporation (MNC) is dichotomous in nature. While on the one hand it is a vehicle for private capital accumulation, when socially-embedded it may serve as a means to further social provisioning and social justice.

A social economics approach to the MNC is developed to incorporate both private and social transaction costs in international production and trade where the divergence in these costs may require collective action to mitigate the effects of social dislocation. These issues are illustrated by experiments in corporate codes of conduct related to child labor and environmental sustainability. Since corporate codes may be insufficient to socially embed the activities of MNCs, efforts to develop supranational governance mechanisms to better achieve social justice are also considered.

Why is Brown Forman considering buying Southern Comfort?

As a leading producer, marketer and importer of wines and distilled spirits, Brown-Forman (BF) was the fifth-largest distiller in the United States. In the late 1970s, the whiskey market declined and this presented BF with growth challenges in a mature market. BF’s response to market pressures and the competition was to aggressively attempt into other faster-growing divisions of the alcohol beverage market which required to expand its product lines. The company intended to increase advertising of $86 million to massively promote its alcoholic product lines. The company also realized that future growth was very dependent on it gaining access to foreign markets. Due to those obstacles, Southern Comfort (SC) seems to be an attractive horizontal acquisition for BF with the following advantages and disadvantages.

Advantages

20% of the SC sales were overseas. Its export market also had the highest 5-year compound growth rate compared to other markets The company developed a distinctive brand with loyal customers SC being a liqueur does not need to age and can be produced and sold much faster than the traditional whiskey line. With an acquisition, shareholders’ value will lead to an increase in both earnings per share and the share value. A strong balance sheet with a higher than average sales/assets ratio of 2.49 in 1977, the company has more profitable assets that can generate more earnings by minimizing the fixed cost per unit as a result of higher production levels. SC is a profitable company with a profit/sales ratio as high as 7% on par with BF. BF has a low debt/equity ratio; over the past few years, the firm has placed itself in an outstanding financial position, which has brought about the higher levels of debt that they can use to finance new acquisitions and other investment opportunities. Similarly, SC was never sold at a discount by its manufacturer and was considered a very strong brand within the liquor industry.

Disadvantages

SC is not listed and wants to be taken over at $94.6m but the book value in 1977 was just $16.7m. SC may be overestimated at this price. This acquisition should be further investigated more as a strategic acquisition, and depend upon the company’s post-performance. The hurdle rate is too high meaning that BF is very conservative to make the decision. Thus the company should change this hurdle rate; otherwise, they could miss out on important opportunities such as SC. BF may run out of liquidity if the company uses a significant amount of fee spending in advertising to market the SC brand more attractively.

What is Southern Comfort worth?

SC produces unique liquor, which is mixed by a secret formula and has exclusive rights that have a huge synergic benefit to the present BF product mix-line offerings and brand equity. SC has strengthened channels of foreign distribution and fantastic brand growth in 1977 compared with competitor brands in the same product line. SC is not widely marketed and that it is incorrectly positioned market because they think it is a whiskey. If acquired, SC could bring in the foreign penetration capabilities and known-how to BF. If strongly marketed and repositioned SC could add huge extra value to BF. SC also has a well reputable brand offering and the management is effective and efficient, thus the acquisition of SC would fit well in the BF style of management philosophy.

SC also has modern equipment that is to strengthen the assets of BF and could be used in the continued production of SC without replacing assets in the foreseeable future and/or tries to adjust the production of SC to BF product line systems and standards. Thus the operational strategic competitive position of BF could be enhanced. That could also improve agility or obtain resources that are vital to the future prosperity of the SC in particular and BF in general. SC has a number of tangible and intangible resources that will address the gaps in Brown Foreman’s growth strategies through an acquisition. From a tangible resource perspective, its plants are equipped with modern equipment, it has strong financials as indicated by its net profit margin of 7% in 1977. Its strong intangible resources and capabilities are its secret recipe to expand Brown Forman’s product line. Estimation of FCFF, terminal value and discount rate:

To which assumptions are the valuation most sensitive?

Both FCFF and WACC are the most sensitive to the valuation. Increasing the growth rate of the cash flow or reducing the WACC will lead to the value raise. BF has experienced a smooth growth rate of their cash flow so it may be difficult to obtain an additional increase. Therefore WACC is a key element that BF should be focus on by now, lower WACC and maintain the required rate of return to increase the shareholders’ value. It should be the most sensitive element in this case. Growth Rate examination: In Exhibit 9 the SC is showing a good average gross profit growth rate of 7% which will enhance the shareholder value after the acquisition, historic data shows shipments of Southern Corporation’s 5-year compound growth is 13% and 20-year compound growth is 13.45%. The decline of growth could be achieved in the mature range of lifecycles. The product could have reached maturity and will need more innovation.

What should Brown do?

Based on the factors mentioned above, it is recommended that BF may acquire SC. The firm value is calculated $90.0m that is lower than $94.6m; hence BF should completely analyze the acquisition because the Southern Comfort Corporation seems to be overvalued Exhibit 10 has shown a decrease in stock price from 6/16/78 to 6/30/78, which could indicate relative concern in the marketplace regarding an acquisition. The debt to equity ratio of Brown Forman is 24.7% and the Industry average is 55%. Therefore the company can try finance more debt to take over this acquisition as well as receiving the additional tax shield benefits (currently tax is very high at 49%) As much as management has experience with other acquisitions, this does not necessarily mean that this particular transaction will be seamless. BF should negotiate to reduce the price in order to make the practical transaction.