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Lester Electronics Incorporated: Investment Alternative Benchmarking

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Investment Alternative Benchmarking

MBA540 вЂ" Graded A-

University of Phoenix

Professor Phil Speed

November 26, 2007

Investment Alternative Benchmarking

The global marketplace requires companies continuously to improve in order to remain competitive. One of the essential tools for continuous improvement is a company benchmarking analysis that focuses on some of these key elements: internal and external growth strategies, capital management to maximize shareholder wealth, cross-border growth strategies, and the allocation of resources. The Bernard Lester scenario provides an opportunity to create wealth maximization for a company called Lester Electronics Incorporated (LEI) this paper illustrates this by using other companies that accomplished this.

Lester Electronics Incorporated (LEI) is faced with the need to make huge decisions. The company is confronted with the opportunity to sell the corporation to one of the wealthy competitors in the industry. In addition, Lester also has the possibility to create a vertical merger with the company’s main supplier. If Bernard Lester, CEO and founder opts not to take action on either the acquisition or the merger, the company can be subjected to losing about 43% in revenues over the next five years. Lester has to consider some important strategies before making any decision. Such key strategies include growth, capital management and cross-border strategies. A useful aid in making these decisions can come from benchmarking other companies that have faced similar challenges. Analyze the previous experiences of companies like Sony, AT& T and American Express can assist Lester in making an educated decision.

Key Concepts

In today’s global marketplace a company have several options to overcome potential reduction of revenues. Developing new growth strategies can be an option. Some companies will thrive from internal resources such as internal capital, management and resources. These internal growth strategies can include new capital management strategies. Other companies will venture in to an external business environment looking at horizontal and vertical mergers and acquisitions. With this growth strategy, companies must also consider the location of the potential joint venture and if cross-border strategies will be essential along with prudent for wealth maximization.

Compare and Contrast

Internal growth is how companies in the past have looked for growth strategies. [?] Companies can analyze the internal resources and invest capital into research and development to create new products or product expansions such as Cerner Corporation has done. Cerner Corporation has overcome exchange rate challenges and economic exposure through innovative ways of doing business. However, innovative ways of doing business is not easily achieved. Innovation can be cost money and take valuable time getting a new product to the market. Both of which LEI has a limited supply due to the actions of another company..

Part of a company’s external environment is the competition. Mergers and Acquisitions are impressive ways to grow using external resources. An overall goal of a merger and acquisition can be synergies of the companies and or working capital management strategies to maximize shareholder wealth. “Synergy in business is defined as “the ability of two or more units or companies to generate greater value working together than they could working apart.” (Goold & Campbell, p. 133, 1998) The goal of Lester Electronic Incorporated, Inc (LEI) is to strengthen the company’s position in the global marketplace, increase shareholder wealth, expand working capital, and shared tangible resource allocation. An admirable example of a successful merger is between Norwest and Wells Fargo, who later created Wells Fargo & Co. The merge was slow and well planned taking over two years to be fully evolved. The companies had opposing corporate cultures and strengths, yet both had value in mind and knew each had the skills needed to succeed. This merger created a bank that was well rounded in technology, expanded working capital and customer focus, making wealth maximization possible for the shareholders. Wachovia was also able to overcome the hurdles of a banking merger when the companies successfully merged with First Union. This merger was successful because of the extensive research, corporate resource allocation, and increase in market-share.

However, many mergers and acquisitions happen out of desperation during a bad financial period. An example of this type of merger is between Sears and Kmart. Sears bought Kmart out of a bankruptcy for a relatively low price. After unsuccessfully trying to stay profitable by cutting payroll and reducing location, they sold in efforts to maximize wealth. The merger was rushed and not well planned. Furthermore, Kmart did not have many options. Now the fruits come to show as K-mart is still low in sales compared to retail giant like Wal-Mart and Target. Another acquisition that was not well planned was that of Sony Corporation and Columbia Pictures. The stumbling stone in this scenario was the cross-border issues of two companies with different core competencies along with understanding the two different cultures and business industries. The meeting of the minds was never there for the projects that Sony had for Columbia, making the first business attempts unsuccessful. Some of the challenges met in the Sony and Columbia merger are potential issues for LEI and Avral meaning a foreign company that seeks domestic presence. Mergers and acquisitions are difficult consequently adding differences in foreign cultures, core business competencies and language barriers makes these mergers much more complicated. Sony is a successful electronic corporation; however, the merger with Columbia Pictures was frustrating, intricate and costly for Sony whereas the Wells Fargo and Norwest merger was a smother transition so coming together was easier.

When it comes to Kaufmann’s merging into Macy’s, Macy’s has had many successful mergers and Kaufmann’s was not financially stable anymore. To help the company help its shareholders wealth they needed a company like Macy’s to bring them up. With many capital management strategies



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