Gap Analysis: Lester Electronics

Gap Analysis: Lester Electronics

In looking for solutions in the manufacturing marketing, Lester Electronics, Incorporated (LEI) is looking for viable options for growth. "Whether a company chooses to make further investments in its core business or decides to expand beyond its current core, there are only three avenues by which companies can grow their revenue base: (1) organic or internal growth, (2) growth through acquisition, and (3) growth through alliance-based initiatives. This is often referred to as the 'Build, Buy, or Bond' paradigm. Selecting the right growth strategy is not easy. A growth strategy that works for one company may not be appropriate for another. It might even be disastrous. A high percentage of mergers and acquisitions, for example, fail to meet expectations. Making the right acquisition, successfully integrating the acquired company into the acquirer's operations and realizing promised synergies is difficult. Relying on internal growth alone to meet revenue targets can be equally risky, especially in years of slow economic growth. Few companies consistently achieve higher-than-GDP growth from internal sources alone. To formulate a successful growth strategy, a company must carefully analyze its strengths and weaknesses, how to deliver value to customers, and what growth strategies its culture can effectively support. Selecting the right growth strategy, therefore, requires a careful analysis of opportunities, strategic resources and cultural fit" (de Kluyver & Pearce, 2006).

The management team of LEI must carefully analyze their current financial position and their long-term goals in order to successfully create growth for their company. In reviewing their current options, LEI must define their intended growth strategies, evaluate the stakeholders, and look for opportunities to increase shareholders' value in their company. LEI is currently evaluating the merger with Shang-wa Electronics (SE). With the completion of this merger LEI would expand their current product base. Jointly LEI and SE need to set new financial and corporate goals and strategies. The results, interpretations and implications for LEI are discussed in the following pages.

Situation Analysis

Issue and Opportunity Identification

LEI goal is to expand beyond its current core. The environment currently surrounding their market creates a number of challenges ranging from hostile takeovers to increased competition. In their current situation, if LEI does nothing they will lose upwards of 45% of their expected revenue over the next five years. This lost would result from Shang-wa Electronics merging with Transnational Electronics Corporation. Additionally, LEI is being looked at by Avral Electronics, S. A., a company that manufactures equipment and components, for a merger.

In evaluating the current issues that LEI faces, they have found a number of options available to improve their situation. One opportunity revolves around developing a joint venture with Shang-wa Electronics to expand their company and protect their future. It would be necessary for LEI to develop a corporate growth strategy. This strategy would open doors to becoming a multinational corporation (MNC), maximize their profits, manage their operating exposure and maximize their shareholders' wealth. "Vertical integration can be valuable if the corporation possesses a business unit that has a strong competitive position in a highly attractive industry - especially when the industry's technology is predictable and the markets are growing rapidly" (de Kluyver & Pearce, 2006).

The second opportunity arises from the proposal of Avral Electronics to acquire LEI. In agreeing to an acquisition with Avral Electronics, LEI would open its company to becoming a MNC and increased globalization. This opportunity would allow LEI, as part of Avral Electronics, to have a worldwide presence in its market, integrate it operations worldwide, and standardize operations in one or more of the company's current functional areas.

Both the first and second opportunities offer diversification strategies, which are motivated by a variety of reasons including increasing shareholders' wealth, increased profitability due to shared resources and synergies, "reduce the company's overall exposure tot risk by balancing the business portfolio, or an opportunity to exploit underused resources. A company may see an opportunity to capitalize on its current competitive position by moving into a related business or market. Relatedness or the potential for synergy is a major consideration in formulating diversification strategies. Related diversification strategies target new business opportunities, which have meaningful commonalities with the rest of the company's portfolio. Relatedness or synergy can be defined by a number of ways. The most common interpretation defines relatedness in terms of tangible links between business units. Such links typically arise from opportunities to share activities in the value chain among related business units, made possible by the presence of common buyers, channels, technologies or other commonalities. A second form of relatedness among business units is based on common intangible resources such as knowledge or capabilities. A third form of relatedness concerns the ability of business units to jointly gain or exercise market power. Strategic relatedness is a fourth kind of relatedness. It is defined in terms of the similarity of the strategic challenges faced by different business units. All these scenarios offer companies an opportunity to exploit the different types of relatedness - not available to singe business competitors - for competitive advantage" (de Kluyver & Pearce, 2006).

The last opportunity involves TEC acquiring and/or merging with Shang-wa. Currently TEC is expanding their environment through mergers and acquisitions. This offer can result in a hostile takeover for Shang-wa. If this happens LEI would lose upwards of 45% of their expected revenue over the next five years without a strategy in place, since the exclusive distributor agreement may end. By developing an alternative plan, LEI can meet the changing environment. By exploiting this business opportunity LEI could look for a new partnering arrangement. "Cooperative strategies take many forms and are considered for many different reasons. However, the fundamental motivation in every case is the corporation's ability to spread its investments over a range of options, each with a different risk profile. Essentially, the corporation is trading off the likelihood of a major payoff against the ability to optimize its investments by betting on multiple options. The key drivers that

...