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Economics

Production and Resource Depletion

Life is  a race between Production and Resource Depletion

Natural resources are very important for the continuation of life on earth and without it life will become very difficult. Natural resources are like fuel oil, copper, leather, and all kinds of metals that can be found on earth in spite of water, wood, animals…

Natural resources are becoming more and scarcer on earth due to the high consumption and usage of these resources in production. We know that these resources are necessary for all industries to produce useful products for human beings that are necessary for the continuation of life but the increase of total number of people on earth due to the decrease in death rates and development of medicine in this century and the century before.

People are finding themselves forced to fight for these resources in order to produce and enhance their balance of trade of their nation. There are many wars done in the past and today because of natural resources especially fuel oil. so many people say that the major reason for the invasion and Iraq by the US troops is to control the supply of oil in the region because Iraq has the second largest fuel oil reserve in the world but globally the united states f America say that their target from invading Iraq is for democracy and liberty which is not true at oil.

Lebanon does not have any natural resources except water which is the main purpose for Israel to invade him in the past because Israel water resources are limited. Adolph Hitler in the past invaded the Scandinavian territories to secure steel from Sweden which has very big steel resources in the world and at the same time invaded Ukraine to get fuel oil and wheat for CormIsland there.

Natural resources and its scarcity is considered one of the most problems that human beings faced and still face and it will still face him in the future. There was in the past a global thinking that natural resources with disappear in the future all over the world. So many countries nowadays are facing problems concerning it deficiency to secure their needs from products and commodities for their people due to the scarcity in resources needed for the production of these products. The economic problems that the world is facing are due to the scarcity of economic resources. The world is facing so many economic problems which are:

  • Energy problem
  • Food problem
  • Debt crisis
  • Environmental pollution

These problems will affect negatively the level of economic development which is also affected by the efficiency in using the economic resources. The depletion and misusing of natural resources in an effective way affect a lot on the capability of countries to continue their economic development in the future.

Production factors are:

  • Human resources
  • Capital
  • Natural resources
  • Entrepreneur

There are three factors that create the economic problem:

  • Scarcity
  • Efficiency
  • The big number of human needs of products and commodities

These three factors can eliminate or enlarge the economic problem because the need for these resources in much bigger than its development. people on earth is increasing while natural resources are decreasing and the big fear is that these resources will disappear in the future, that is why countries must take care of these resources and use it efficiently to produce the biggest number of products with minimum resources.

This problem will last for ever and human beings will always be careful about finding new substitutes for these resources like using water resources to generate electricity instead of fuel and plastics instead of iron and metals. By this way they are trying to decrease the usage of these resources and find suitable substitutes that last for ever like water, solar power and wind.

There is another important point concerning the relation between production and resource depletion is that production cost is mainly affected by the natural resources prices and existence. Production cost in Lebanon is very high because of the scarcity of natural resources in Lebanon and the need to import it from abroad at very high prices while production cost in other countries that has natural resources is lower than Lebanon which gives them power and competitive advantage in the market they are selling their products in.

We can say that economic, natural resource has a strategic effect o countries because it will give them power (economic and political power) but the main important thing here is to use their resources efficiently in a way not to lose that advantage in the future when their resources gone with the wind.

Economics

Economies of Scale Concept

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imagesEconomies of scale concept is an old concept but the majority of the companies knew about it through education and sometimes through trial an error, this concept as a summary means that as the quantity produced of each product increase , the unit cost per product will decrease thus the contribution margin will increase and the sales revenue also will increase.

Due to the tough competition nowadays locally and globally, the need to apply this concept becomes necessary for companies especially if they are competing in a very competitive environment where price wars takes place and price competition is played in small margins where every penny may affect the decision of the customers to choose a certain product.

Economies of scale can be achieved through five basics which are, product development, purchasing, production, demand management and order fulfillment.

Continue reading Economies of Scale Concept →

Management - Human Resources

E-business Advancing information strategy to Internet time

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downloadAt the beginning of the 21st century a lot of the traditional trading and business concepts changed. it is not necessary to have a store or outlet to sell your product, it is so simple nowadays to order any product from any country you like, it will be delivered to you in a very short time .There are so many examples for companies who do not have any retailing outlets, they depend on their websites through what it called E-Commerce or E-Business, to sell their products. By this way they can decrease their operating cost through decreasing the fixed assets costs which needs very high capital investment.

The wide spread of the internet worldwide created this idea which became a very big innovation all over the world, but E-commerce is facing some problems which is limiting its effectiveness especially in under developed countries.

The internet made the world a virtual community where all people interacts with each other discussing so many subjects, like sports, friendship…

Virtual communities are social aggregations that emerge from the Net when enough people carry on those public discussions long enough, with sufficient human feeling, to form webs of personal relationships in cyberspace. This virtual community lead to something called virtual society. Virtual society is the place in which people abandon real society Relations and community participation in favor of a life in cyberspace. yet in practice people’s real and virtual lives are likely to be entwined in various ways for example by pursuing real interests through virtual contacts, meeting people in a social context who were initially encountered on-line, or through creating representations of one’s community in the virtual world. It is a world wide technological facility for trade. The use of Information to interact and communicate in a globalized high tech Economy. The term “digital divide” describes the fact that the world can be divided into people who do and people who don’t have access to and the capability to use modern information technology such as the Telephone, television, or the internet.EC is an umbrella term covering all electronic Business technologies. A subset of EC, e-commerce is often thought to mean only customers buying goods and services on the Internet, or Customers-to-Business However, the greatest potential savings are in the Business-to- Business area of e-commerce, as businesses exchange documents, goods, and services electronically in ways that have been unavailable until the recent explosive growth of Internet usage and functionality.

Knowledge management involves the identification and analysis of available and required knowledge assets and knowledge asset related processes, and the subsequent planning and control of actions to develop both the assets and the processes so as to fulfill organizational objectives. It is the art of creating value from an organization’s intangible assets.

This cycle for the E-Business must be ended by a business strategy and then the suitable way to implement.

E-Business is facing so many difficulties to become popular in the Lebanese market like, the threat from both parties of stolen credit cards, the loss of trust between the two parties (sellers and buyers) is the main obstacle to be widespread in Lebanon. But the major obstacle nowadays in Lebanon in that the percentage of the credit cards users is very low which is the basic element in the transactions. This problem will be resolved because the users of credit cards in Lebanon are increasing year after a year. if we return back to what happened with the employees of the United airlines we can honestly say that this will never happen in Lebanon where employees become the board of directors in any company because the majority of the Lebanese companies are family businesses and employees are treated badly especially nowadays where job opportunities are minimal and the bargaining power is in the hands of the owners.

This article was wrote a long time ago in 2004 where the e-commerce and e-business was bot popular especially in the Middle East Region where the trust was not well established with online transactions and people were afraid about this new shopping methodology.E-Business nowadays changed the shopping style and businesses selling techniques in addition to the marketing and adverting strategies.We have nowadays complete shops online where you can do you shopping freely at home and during your free time.You can do your shopping overnight without being stuck in traffic jams and loss pay unnecessary fuel and parking fees.The majority of banking transactions are done nowadays online,hence banks can reduce their branches and decrease the high investment cost in opening new branches and target few number of clients while they can go online and benefit from the global client base and offer them widespread basket of services that can make their life easier with minimum time and money spent to fulfill their needs.

The world is changing nowadays you may not need in the future to relocate in order to work worldwide,you can do your job from home and do meetings over Skype and you may establish you shop online and avoid travelling abroad to open a new business in other places.People who cannot develop their skills with the modern technology will find themselves searching for a job which will be difficult to find through traditional ways.

Management - Human Resources

How to become a good Manager

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Managers are responsible for the output of the other employees who are reporting to him . Experienced managers who join a new organization start out by letting everyone know that nothing will be changed for the time being and all the current policies and procedures that are currently in effect will remain valid and no changes in personnel equipment procedures are contemplated for the present.

Continue reading How to become a good Manager →

Articles Accounting

Statement of Cash Flow Concept

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8858390_f120This article talks about cash flow and the misunderstanding the difference between cash and profits. Profits can be generated either cash or on account. According to the Generally Accepted Accounting Principles revenues incurred at the moment of selling the products regardless cash or on account so the profit or loss statement shows us the net income of our operations but not cash on hand or in the banks. Accounting is a complete system which consists of four major financial statements which are:

Profit and loss statement
Balance sheet
Cash flow statement
Retained earnings statements
There is a very important issue here, the company that is generating high revenues is not necessary has cash on hand.

Every company must care a lot about its cash on hand, cash management is very important for the life of enterprises because the moment they fail to match cash requirements and obligations they may go bankrupt.

There are many tools that can help the financial managers to care about cash which is through financial ratios and proper financial budgeting. Liquidity ratio, acid test, working capital, quick ratio, aging receivables…all of these ratios can help the company to control its cash so that they can measure the time needed to convert non cash assets into cash money.

There are two types of Cash Flow statements one is called Direct Cash Flow and Indirect Cash Flow..The Indirect Cash flow statement is the wide spread cash flow that all finance people knows about it and put it in their periodical reports which is the Beginning cash plus or minus the movement of all balance sheet account positively or negatively from all activities such as operating activities , investing activities or financing activities but actually the management sometimes needs exactly to know the cash flow regardless of the direct cash flow because it may not be effective in the short term while it is effective on yearly basis.

The direct cash flow help the top management to take fast actions and shows them the exact short term cash position of the company and help them avoid surprise insolvency in the company which may lead to big problems to pay important company liabilities such as governmental obligations like taxes and Social Security in addition to bank dues and salaries.

Shortage in cash can lead to break the relationship with key suppliers who are important to have stable relationship with them in order to have a good bargaining power which can help the company to get the best supplies with the best prices but this need to build a stable relationship with the suppliers to avoid late payments and the loss of the advantage to get the company’s supplies at the best prices available in the market.

The Direct cash flow starts from the available cash and banks position and add to the available current cash the confirmed cash that will be generated from sales in the current month and add to it the collections from bills or postdated checks during the same period in addition to the aging of parables in order to identify the overdue during this period taking into consideration the bank commitments and payroll.

Management - Human Resources

PayScale Payroll Debate

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8858399_f120Companies must attempt to pay their people as fairly as possible. You might think a company should try to pay people as little as possible, but companies who subscribe to that philosophy must be prepared to steadily lose all their good employees to competitors willing to pay people what they’re worth. A company must attempt to pay each employee a fair salary, i.e. one that matches the employee’s skills, the market average and other employees inside the company. In other words, the company itself has a vested interest in keeping salaries fair, and keeping salaries secret makes that nearly impossible. Making salaries public (inside the company of course) has some major advantages:

  1. Salaries will become fairer. The system gets a chance to adjust itself.

  2. It will be easier to retain the best employees because they’re more likely to feel they’re getting a fair salary.

  3. The pressure is on the people with the high salaries to earn their keep. Everybody has to pull their weight. The higher the salary, the larger the weight.

Secrecy is very important in the world of business. Sometimes there is some information which are confidential because if it is known by the company’s competitors they will use it to beat the company in the battle in the market field. Launching new products or introducing new inventions must remain confidential till the last minute to retain the competitive advantage. There is big misunderstanding in the business world regarding payroll systems. Payroll is a big headache for the top management because money is the main factor that employees take care about. Every person in this life work to get paid a fair salary in order to have a comfortable life. The problem is this case regarding salaries is that there is not a clear standardized payroll system. Marketing people are getting paid better than other employees although all of them are working under the same conditions.

This problem can be solved in one single way. He must invite all employees in the company for a meeting and cool down the atmosphere and try to explain the variance in salaries between the employees in a certain way not to solve the problem but to cool it down and promise that the top management will review the whole payroll system in the company and everybody will get his fair salary and all salaries will be posted on a big billboard so that it will be public. They must immediately start to work on a new payroll system and put standards for every single position and follow this procedure with every new recruitment.For example: All Junior accountant must get $700-Senior Accountant $1,000 and if a new junior accountant get recruited he will get $700 in a way the new accountant will get the same salary as the old accountant at the moment of recruitment.

Some of the Lebanese companies can give us a clear example at the problem that this company is facing. You can find an executive secretary getting paid much more than Internal Auditor in the company That is why the management try its best to keep salaries confidential because they know that if this auditor knows the truth he will be upset about this matter.Standardizing salaries in the key to avoid problems and fighting inside any organization and will make people work hard to jump from one position to another because it is the only way to get salary adjustment.

Articles Accounting

Profit and Loss Statement Concept

It is the ultimate, unequivocal answer to important questions: Are you getting the job done? Are you a successful entrepreneur? Each month you have these questions boldly answered as you look at the bottom line. The profit and loss statement shows the financial performance of the company through the fiscal year and either it is a successful business or not. Companies’ owners look at the income statement at the end of the year as a school boy is looking at his report card at the end of the academic year and according to it he will decide on his future. If the school boy find himself a none successful person in the academic life he will try to enhance his performance and if he failed to do so he will try to change his major or lately to leave the school.

Businesses owners do the same as the school boy, they look at their financial performance at the end of every fiscal year and depending on the results they will decide to continue in the business, divest, invest or harvest the business. The school boy will be asked by his family about his results and upon receiving his report card he will feel threat and the company owner feels the same because his family will ask him the same question.

The Profit and Loss Statement is a financial concept that help owners of a certain company whether their companies are making profits or are incurring losses.The Profit and Loss is simply the difference between the revenues generated from the sales and the total expenses incurred by the company within the same period.Auditors always insist to allocate expenses to the relevant accounting period in order to show the owners the correct figure.Some Finance managers tends to book some expenses on Provisions accounts in order to hide losses and transfer it to future periods so the auditors usually ask for clear supporting documents for any provisions booked in the Ledger in order to tackle such misleading information for the owners of the company.

The Profit and loss statement is divided into the following main categories and under every category you can put as much details as you want.

  • Revenues (Sales Revenues , Service revenue,extraordinary revenues….)
  • Cost of Sales (This item can be calculated through the following golden formula Ending Inventory=Beginning Inventory + Purchases – COS) in other words the Cost of Sales is the purchases of the period plus the change in inventory balance of the period).
  • General and Administration Expenses like Salaries, rent fees,bonuses,travel expense
  • Financing expenses like bank charges,bank interest and currency difference of exchange
  • Taxes and Municipality fees

Income statements for Groups are somehow different in presentation from small companies due to the need for consolidated or combined financial statements.Profit and Loss statement nowadays are used for analytical purposes and for decision making for the management so the management is requesting Finance people to prepare comparative Profit and Loss showing not only the period results but last period figures , last year figures and budget figures.The management also request variance analysis for the variances in the comparative figures and provide explanations for these variances between actual figures of the current period and the budget figures of the same period in addition to the variances between current period figures compared to last year figures of the same period if exist.

Financial Analysts look first at the profit and loss statement as a first step in their valuation process of the performance of any company.There are basic figures that they should look at in order to base their opinion about the company performance.First of all the Total revenues figure show the total turnover of the company which somehow give the analyst an idea about the volume of the company but it should be linked also to the unit sold (some companies are dealing with Fast Moving Consumer Goods) in order to know the value of the unit sold , the second indicator to look at is the Cost of Goods Sold and hence the Gross profit which is also very important and do the benchmark to the industry gross profit.For example,if you are analyzing an automotive company the gross profit should be relatively 20% which is the logical one in this industry so this company should not show a gross profit of 35% or 5% because it is not logical from our experience in this industry.The conclusion from this practice that the type of industry of such company should help the analyst in his evaluation process.

The administrative expenses also should be analyzed in the valuation process because these expenses should not be overweight compared to the company turnover otherwise it will affect the bottom line in the profit and loss statement and may lead to losses which are hard to be recovered which is either through increase the turnover or minimizing unnecessary administrative expenses.The third part to look at is the financing part in the profit and loss statement because it help the analyst to know if the company is financing its operations through the cash generated from its operations or through bank borrowings.

Modern Profit and lost statement also are requested from Finance people by Cost Center i.e by department for budget control purpose.They may ask for profit and loss statements breakdown by activity especially if the company has several profit centers or selling different brands and the management want to know each branch profitability or losses so the management can take corrective actions or take decision to stop a certain product line.

Marketing articles

Nike International Business Problems

Introduction:
Nike is a large multinational corporation that employs some of the most recognizable people in the world as its spokespeople. Therefore, Nike will be in the public eye and will receive criticism for any business practice that is in the least bit questionable. As a result, Nike has in recent years received a large amount of negative publicity for the working conditions and wages in factories that produce their products. Human rights activists are concerned that Nike may be taking advantage of workers in poor countries to add to their own wealth. The real argument is not whether this is true, but whether Nike is truly violating human rights in these countries.
When the sweatshop debate first started, I believe Nike was rightfully being criticized. The company outsourced to developing countries because of the extremely low labor costs and took no real notice of the conditions in their factories. Nike had to be called out before they took any real action and for that they should be criticized. However, following the criticism, Nike has taken actions to ensure that workers employed in factories producing their goods are treated well.
It should also be noted that Nike is not the only industry member to produce goods in developing countries. Virtually all of Nike’s competitors have similar factories in similar countries. However, the competition is not such an easy target because they are not industry leaders. The fact that Nike is such a recognizable name makes them vulnerable to criticism. If these factories are truly a problem, they are an industry problem, not just a Nike problem.
By outsourcing clothes to developing countries, Nike is simply participating in a global economy with global competition. Nike is helping the economies of these countries not hindering. The company cannot be expected to raise the standard of living in a country just because its apparel is manufactured there. Developing countries will benefit in the long run by having companies just like Nike located there. By allowing global businesses into their borders, they will earn more money and begin to build wealth. That is when living conditions and wages will begin to increase.
Following the implementation of foreign labor codes of conduct and the use of monitoring organizations, I believe Nike is completely justified in employing low wage workers in low wage factories. Nike is producing their goods globally at the cheapest price possible and workers in developing countries are being employed with reasonable wages. Nike should be admonished for basically “turning its head” in the early 90s, but there has been little evidence of worker mistreatment at Nike factories in recent years. As long as Nike continues to enforce its code of conduct, the company should be able to utilize workers in developing countries.
Nike is not responsible for working conditions in foreign countries because the subcontractors are the ones who set wages and salaries according to the minimum wages margin in that countries but the main point is that Nike corporation (mother company) can play an important role in setting wages in that foreign factories. many examples are given in this case like what happened in Indonesia when Nike terminated its relationship with four Indonesian subcontractors when they refused to comply with the company’s standards for wage levels and working conditions. Relationship with Seyon subcontractor for example was terminated because the refused to meet a 10.7% increase in the monthly salary, to $70.3 declared by the Indonesian government in April 1997.
Nike and all multinational companies invaded Far East in order to produce at lower cost. we know that the highest cost in the united states and Europe is labor cost because there are standards in that countries that must be obyed.this is not true in far east workers in the far east are not working according to standards that must be set by the local government and if the local government did not issue such legislations and law, Nike is not guilty about that issues because Nike is not the party who charges workers who talk during working hours but the subcontractor who is aware on the working environment in the far east which is different than in Europe and the united states. Nike must force the subcontractors to work according to the local standards concerning the wages, overtime and working environment and not according the American standards. The subcontractors who will not meet those standards must be terminated in order to protect the mother company from critics.
The local economy of Indonesia is facing a big problem according to salaries and wages. The minimum wage is about $1 per person per day. This economic problem is a local problem and the government is responsible to regulate this rate. Multinational companies is finding an opportunity in such countries especially those where raw materials and resources are available so that they can produce at lower cost. Multinational companies can only force their subcontractors to abide by the local countries law and implement the new legislations and laws such as salaries raises. If the subcontractor refused to abide by the rules, Nike must take a corrective action such as pressing on their subcontractor to adjust his policy and abide by the governmental legislations. Nike subcontractors are paying double the minimum wages in Indonesia so I do not find any reason for criticism in this case but if they are forcing their employees to work unpaid overtime hours this must be heavily criticized.
Nike did almost what can they do according to eliminate the effect of such bad publicity using there strong public relations such as Andrew Young a formal U.S ambassador in the United Nations. But this guy is highly criticized by human rights and labor groups for not taking his on translators and doing slipshod inspections, an assertion he repeatedly denied. They are also engaged in the fair labor association alongside with market leaders to find a way to organize the workers rights in the Far East. They also worked with Ernst and Young, PWC for foreign factories auditing and inspection but all of this did not put an end for that debate.
In my opinion Nike did what it is necessary for them to protect their company but the main issue is that sometimes the human rights associations say things which cannot be achieved. Nike cannot alone put an end for poverty in the Far East and especially in Indonesia but to cope with the standards given by the local government of Indonesia such as weekly working hours and minimum wages. The first criminal in this personal issue is the Indonesia government who is responsible for such bad economic situation of the country. Low wages is not a problem in Indonesia only but all over the Far East especially in Indonesia and china. The huge number of people in the Far East is the major problem for those economies and the companies who are searching for profits must invest in those countries to produce at lower costs.
I believe Nike was rightfully being criticized. The company outsourced to developing countries because of the extremely low labor costs and took no real notice of the conditions in their factories. Nike had to be called out before they took any real action and for that they should be criticized. However, following the criticism, Nike has taken actions to ensure that workers employed in factories producing their goods are treated well.
It should also be noted that Nike is not the only industry member to produce goods in developing countries. Virtually all of Nike’s competitors have similar factories in similar countries. However, the competition is not such an easy target because they are not industry leaders. The fact that Nike is such a recognizable name makes them vulnerable to criticism. If these factories are truly a problem, they are an industry problem, not just a Nike problem.
By outsourcing clothes to developing countries, Nike is simply participating in a global economy with global competition. Nike is helping the economies of these countries not hindering. The company cannot be expected to raise the standard of living in a country just because its apparel is manufactured there. Developing countries will benefit in the long run by having companies just like Nike located there. By allowing global businesses into their borders, they will earn more money and begin to build wealth. That is when living conditions and wages will begin to increase.
Following the implementation of foreign labor codes of conduct and the use of monitoring organizations, I believe Nike is completely justified in employing low wage workers in low wage factories. Nike is producing their goods globally at the cheapest price possible and workers in developing countries are being employed with reasonable wages. Nike should be admonished for basically “turning its head” in the early 90s, but there has been little evidence of worker mistreatment at Nike factories in recent years. As long as Nike continues to enforce its code of conduct, the company should be able to utilize workers in developing countries.
If Nike did so they will not loss their potential for competing with their competitors because price is the only factor that affects people to buy a certain product or not but there many factors that may affect the customers’ buying decision other than prices.
Due to the emergence of globalization companies are forced to go internationally in their production and sales. Products are not only produced locally but also produced through subcontractors, franchisees, joint ventures…The degree of control over quality and labor is lower in subcontracting rather than wholly owned businesses abroad. The mother company forces the subcontractor to work according to its international standards and do several inspections during the fiscal year but there are some problems that cannot be inspected but the mother company due to the type of foreign investment.
Let’s take an example in Lebanon. Let’s suppose that Nike is interested in opening a new factory in Lebanon and signed a new subcontract with a local Lebanese investor. The company can force the Lebanese subcontractor to pay for the employees the minimum salary for his employees which are in Lebanon 300,000 LBP and work 48 hours per week according to the Lebanese labor law. The Lebanese subcontractor forced his employees to work additional unpaid working hours otherwise they will fire him from work. I think that he will do what his manager said to him because he will be sure that he will not find another job. Businessmen in undeveloped countries knew the economic problems in their countries and knew well about the high unemployment rate so they are participating on their own without referring to the mother company although the mother company knew that they are working according to the local laws. Nike is paying their employees in Indonesia double the minimum wages set by the government, where the problem here is, is Nike building its empire on the backs of poor people. I don’t think, Nike is only searching for the best place to invest and read about the labor law in Indonesia and they are paying double than others.
The ones who are criticizing Nike for their behavior must set a global agreement with all multinational companies about the salaries of the workers, working hours, working environment and everything else related to the labor forces in the targeted country so that to avoid further debates about this issue because poor people have the right to live peacefully and companies have the right to generate profits.

Marketing articles

Marketing Management Jones Blair Case Study

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Jones Blair Case Study

Introduction:

Jones-Blair Company, primarily based in the Dallas-Fort worth (DFW) area, is an established company in the $13 billion US paint industry. A large portion of the maturing paint industry, $10 billion, is established from architectural coatings and the annual growth rate is expected to equal that of general inflation in the coming years. As the growth rate is slowing, the number of paint companies is shrinking at a rate of 2 to 3 percent per year. This decline is due in large part to the slow sales growth, but is also fueled by the necessity for continued expenditures in research & development and recent compliance standards set forth by the EPA. In the coming years, the Jones-Blair Company faces these challenges, as well as those presented by mass merchandisers competing with Jones in current business sectors, as they attempt to exponentially increase company sales growth. In order to reach these business goals at a time when growth is nonexistent, Jones-Blair must take immediate action and increase their sales team and refocus their sales energies. Mass merchandisers pose a serious threat to the future achieved sales levels of Jones-Blair Company. Of the three primary groups of customers, do it yourself paint contractors

Problem:

Jones. Blair Company’s main objective is to increase sales volume as to increase market share. So the senior management executives are gathered to discuss achieving those objectives, but the major point of disagreement among them was where? And how? To deploy corporate marketing efforts among the various trade paint markets served by the company.

Constraints:

There are many constraints that keep the company far from achieving their objectives and leads to a slow sales growth and the number of paint companies is presently declining at a rate of 2 to 3 % per year as follows:

  • High competition due to readily available technology and difference in paint formulations associated with regional climatic needs.
  • Usage of alternative materials such as aluminum and vinyl siding, interior wall coverings and wood paneling affects the needs for painting by decreasing it.
  • Developing a higher quality product that reduces the amount of paint necessary per application and the frequency of repainting.
  • Producers of coating had developed more durable goods.
  • Manufacturing cost and raw materials is very high (cost of goods sold is 60% out of the net sales) and it’s not decreasing in the future.
  • Environmental constraints adopted by the EPA which proposed a three-step plan for the reduction of VOCs in architectural and industrial maintenance coatings which leads to low profit margins in the paint industry.

Note that the only good thing that happens in the paint industry is the increasing demand for paint sundries due to a trend toward do-it yourself painting by household consumers.

Alternatives:

A: the vice president of advertising introduces the first alternative which is:

  • We must direct our efforts toward bolstering our presence in the DFW do it -yourselves market because DFW was estimated to account for 60% the dollar volume of architectural paint and allied product sales.
  • We need an awareness level of at least 30% among do it -yourselves to materially affect our sales. So an increase of $ 350000 in corporate brand advertising beyond what we are now spending with an emphasis on television will be necessary.

B: The vice president of operations introduces the second alternative which is:

  • Advertising is not the way to go.
  • The DFW area alone is too narrow a focus.
  • We have to be competitive in household paint market.
  • The customer appears price-sensitive, so cutting our price by 20% on all paint products will achieve parity with national paint brands.

C: The vice president of sales introduces the third alternative which is:

  • Putting our effort into non-DFW area where half of our sales and most of our dealers exist.
  • One additional sales representative must be added whose sole responsibility is to develop new retail account and the direct cost to keep on representative in the field is $ 60000 per year.

D: The vice president of finance introduces the fourth alternative which is:

  • Pursuing our current approach.
  • Guarding our margins and controlling costs.
  • Recoup non capital expenditures with in a one-year time horizon.

3-Issues:

  • The first issue given by vice president of advertising and this issue has advantages and disadvantages which are:
  • Strengthen their presence in Dallas and their brand name through advertising especially by TV spots, which will reach also rural consumers as well.
  • The advertising campaign will cost an incremental of $ 350000 while our earnings before taxes are $ 1140000.
  • The main disadvantage of this issue is that the vice president of advertising didn’t take into consideration that the main factor that affects our sales volume is our high prices and advertising will not give us a lot because 75% of the audiences are not buying paints.
  • The second issue was given by vice president of operations and his issue also has advantages and disadvantages which are:

The direct advantage of this issue is increasing in dollar sales if they cut their prices by 20% which means gaining a bigger market share.The disadvantage of this issue is that 20% cutting in prices is not enough to capture contracts attention because they have to cut their prices by 40% in order to do so. The second disadvantage is that the contribution margin will decrease less than 35%as usual.

  • The third issue was given by vice president of sales:

The main disadvantage is the cost of each representative, which is 60000$each per year. This issue also disregards the effect of high prices on our market share, which is the main problem.The advantage of this issue is to create new retail accounts and to increase our sales volume through employing new representatives.

  • The forth issue was given by vice president of finance who advised to stay stable and don’t do any marketing efforts.

The advantage of this issue is guarding their profit margin and contribution margin as of controlling costs.There are so many disadvantages for this act which are:

i. Losing some of their present market share because their prices are higher.

ii. He didn’t mention any solution for their main marketing problem.

iii. Cannot attract contractors because our prices are still higher than our competitors.

iv. This issue is concentrating on profits and disregards market share.

Conclusion:

After analyzing the four issues I can came with conclusion that:

Cutting the prices by 20% even 40% is not the answer because it might be effective for a short while because our competitors will do the same so they’re forced to do that or they will be out of the market. Also the increase of the advertising costs will not solve the problem because 75% of the audience is not buying paint. The only solution is through geographic segmentation by concentrating on the rural markets which is growing in an ascending trend and hiring more representatives especially in places that we have a deficiency in satisfying the customer’s needs. The representatives will help us developing new retail accounts and presentations or call on professional painters. Note that the cost of adding new representative is low which $ 60000 per year is.

Marketing articles

Managing in a Borderless World

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This article is identifying the suitable to manage in a border-less world, it identifies the purpose for the companies to go abroad and trying to invest in foreign countries regardless of the way to enter it, like joint ventures, wholly owned businesses, licensing …but effective global operations require a genuine equidistant of perspectives. But even with the best will in the world, managers find that kind of vision hard to develop and harder to maintain.

One of the factor that encouraged companies to go abroad is that so many things have changed from the past, today people of course everywhere are more and more able to get the information they want directly from all corners of the world. they can see for themselves what the tastes and preferences are in other countries, new fashion styles, the sports and their lifestyles and so on.

Managing effectively in this new border-less environment does not mean building pyramids of cash flow by focusing on the discovery of new places to invest. nor does it mean tracking our competitors to their lair and preemptively undercutting them in their own home market.

Most managers in all big companies are trying to increase their sales and market share, but the only way nowadays is to search for new market where there are new opportunities (especially in the far east) in order to expand their businesses.The major purpose to go internationally is due to the intensive and huge competition the companies are facing in their local markets, domestic and foreign competition.

The other factors that lead managers to manage in a border-less world are the cost factor that all companies care about because it will identify the profit margins. We all know the economists are seeing china is the future vacancy to invest in due to the huge population there, in spite of the availability of very cheap raw materials and very low labor cost which is very interesting for these companies.

By this way so many companies did that like Sony which has now factories in Malaysia and china where the production cost is very low and they can provide their customers with cheaper products at the same level of quality thus they can quarrel with Aiwa and Sanyo.

There are some threats that every management must take into consideration before investing in any country abroad like, the economic situation of that country, the currency rate, interest rates, inflation rate and unemployment rate…that’s why this article is trying to teaches us that there is a lot of danger if we decide to invest in any company, sometimes our company may incur a very big loss because they did not understood the culture of a certain country. the major and deadly action that may end our existence in any country in trying to change the culture and traditions of a certain nation like what nestle was trying to do in Italy which is a major fault which caused their market share to be only 1%.

We have few multinational Lebanese corporations that are in need to expand internationally but this concept of investing internationally is an opportunity for the Lebanese companies to find bigger markets than Lebanon which is a very small market .Some companies see Lebanon as an opportunity for them to invest in like KFC,Starbucks,Dunkin Donuts…in addition of the hospitality chains which invested their money in Lebanon depending on the tourism season that will cover the low season losses which is in my opinion a very big mistake ,hotels number is increasing year after a year and the Lebanese market is becoming saturated.