Strategic Marketing Management

Brand Strategy of Sanrio

 

Introduction

 

            In the world of business, competition between different brands is intense. And one of the biggest challenges is to be highly noticeable among others. According to (2006) having a strong brand strategy raises the knowledge of the consumers about a company and its products and services, in a way in which it establishes positive feelings and reactions towards the company.

            In the Brand ID Framework, Brand Strategy is the first and foremost step any company must make. According to  (2005) Brand Strategy has two purposes, first is to know and comprehend the important aspects of the business of the company such as the marketplace and consumers. Second is to use the insights and understandings in order to outline the proper brand strategy. In addition he stated that it is the most crucial part of the framework because it is the foundation of the consecutive branding activities, it also seizes “brand chaos” and provides essential input in order line up the creative and management processes.

            Brand Strategy has important elements, according to the (2003) these elements are targeting, values and proposition.  In targeting, the company must analyze which consumers provide the most value and therefore gains more profit for the company. In Values, in order to maximize the effects of the products upon consumers, it is important to examine the status of the usage of the products highlighting specifically the advantages the customers’ experience. And proposition, in which the company communicates to the consumers via customer service, availability and price.

 

Sanrio Co. Ltd.

 

            According to the company’s history Sanrio is a distributor and designer of character-based stationary, gifts and school supplies. It was founded by Mr. Shintaro Tsuji in 1960; the company is based in Tokyo. ( 2006) The most popular character of Sanrio is Hello Kitty, it also has other popular characters such as The Little Twin Stars, My Melody, Kerropi, Tuxedo Sum, Cinnamonroll and many more. Aside from the characters created and marketed. It also ventured into movie production and publishing. The company also has Hello Kitty restaurants in Japan. Sanrio also has another company branch called Kokoro Company Ltd. That creates animatronics. And it also has two theme parks in Japan namely the Sanrio Puroland and Harmonyland. (2006)

            There is a number of branding strategy used in different businesses; The Sanrio Co. Ltd. uses the House of Brands Strategy. According to  (2003) House of Brands is individual brand names are being used in marketing different products. Delta flow discusses that House of Brand Strategy allows the corporation to govern a product area by creating a successful brand that stands for just a single product. The company created different stationary characters that established its own brand such as Hello Kitty and Little Twin Stars. Each of the characters created by the Sanrio Co. Ltd. has established its own identity and brand among children as well as adults around the world. For over four decades Sanrio Co. Ltd. managed to be successful in creating a specific character and marketing it. Like in the case of Hello Kitty, the corporation developed the character and it became one of the most popular characters in the whole world, aside from stationeries, the hello kitty brand has its own line of bags, accessories, apparels, toys, movies and even restaurants. The company established the Hello Kitty brand successfully around the world.

            Aside from Hello Kitty, the Sanrio Co. Ltd. also created new brand of characters such as the Little Twin Stars, Kerropi and Cinnamonroll which also established a brand name for each. Every character that Sanrio created also has a line of bags, accessories and apparels and is also marketed separately. That is why in a Sanrio Store, as well as their website the company sells bags, clothes, apparels and even appliances under the different characters or brands that Sanrio had developed over the past years.

            The company was able to dominate the Japanese character-based products by creating different characters to rival the established ones such as Hello Kitty. The company is also reaping the advantages of employing the House of Brand Strategy, and one of those is the sales of other characters wasn’t affected an example is when the rights of the baby unicorn character named Unico was shifted to the own company of the creator, the animated movie in which Unico starred together with other Sanrio characters still managed to be sold and marketed.  Moreover, the sales of one of the characters do not have an effect on the sales of others. The company is very successful in using the House Brand Strategy. They established not just one characters but a number of characters having their own specific brands and labels. And the company is so successful; they created two theme parks in Japan based on the different Sanrio characters.

            Although the strategy has done great advantages in the company, it also has slight disadvantages. As mentioned earlier, marketing of each brand takes a great amount of time, money and effort. With a wide range of characters of Sanrio, the company was not able to market the other characters as mush as Hello Kitty, take for instance the characters Kerropi and Tuxedo Sum, the shelf space for these two characters are not as big as Hello Kitty and Cinnamonroll. There are fewer bags, accessories and apparels being marketed under these two brands. In other countries consumers are not even familiar with these two characters.

            The marketing strategy for these two characters is not as aggressive as that of Hello Kitty. Older characters that did not generate that much profit are often removed to pave way to new characters. The greatest challenge for Sanrio is to established success for all their characters and will be able to reach the pinnacle of success that their most popular brand Hello Kitty has achieved and is still holding on.   

            In an interview conducted by  (2003) with Donna Suzuki the product designer of Sanrio, San Francisco, the designer described the company’s mascot Hello Kitty as timeless, which is a huge factor why the company is so successful around the world. She said that “the kids that loved her as kids are now adults and the love for her is still in their hearts. As they become mothers they introduce their little ones to Hello Kitty and the cycle begins again.” And because of that strength the company was able to create a house of brands that transcend for decades. Aside from a timeless character, strength of the company is they create their designs depending on the season and the product that sells. The company considers a lot of factors before releasing a design for a product, that is the reason their products are such a hit in the market. Furthermore,  (2005) discussed that the cute appearance of Hello Kitty has led to the success of Sanrio all over the world. In marketing a product which targets young girls having a cute mascot to represent the company, just like in the case of Hello Kitty, is one of the most significant steps in order to expand globally, and in the case of Sanrio’s characters have proven to be successful.

            Aside from the House of Brand that the Sanrio Co. Ltd has employed, it also uses the mixed branding strategy. In which defined as a combination of corporate and House brands according to . In addition  (2003) defined it as a strategy in which a company markets goods and services under its own name and that of a reseller catering to different consumers. Sanrio just established another company named Kokoro Company Ltd. and in this company they focus on creating humanoid robots. One of the advantages that Sanrio Co. Ltd. gets from the Kokoro Company Ltd. is the corporation was able to a develop product that deviates from their usual products Sanrio has been creating, marketing and selling. The company targets a new type of consumers which are robotic fans. And since the Sanrio Company has already established itself on the market, the new product will most likely be successful. However, since it is a totally different product, the Sanrio Co. Ltd. will have to prove their capabilities regarding animatronics. And because the Kokoro Company Ltd. ventured into a burgeoning product, it needs a lot of development and research before the product will be established in the market. But if the company managed to be successful they will become one of the pioneers in animatronics and will become as successful as Sanrio in the coming years.

            Apart from the creation Kokoro Co. Ltd. the Sanrio Co. Ltd. could also create another stationary company, but this time it targets an older audience. In this company they will create stationeries, bags, apparels and accessories without childish characters such as Hello Kitty. The products will be more sophisticated than that of Sanrio and the colors of the products will be in neutral such as white, khakis, grays and black. This company will obtain great benefits from Sanrio since the creators and marketers behind the successful Sanrio brands will be the ones creating the new products for the company. And since Sanrio is already a household name all over the world the consumers will be assured that the quality will be the same as that of Sanrio products. However, the disadvantage is an aggressive marketing must be made in order to make the company visible to the consumers; it will take a big amount of money and time, especially in establishing shops all over the world. And the biggest challenge for the new company is to deviate as much as possible in the image of Sanrio via creating sophisticated products.

            As mentioned earlier by  regarding the company’s strengths which is having a timeless character, and consideration on a number of factors before releasing a design. Creating a timeless character would also be the new company’s weakness; the company would need a big catching up to do to even reach the status of Hello Kitty. The new character would most likely be shadowed by Hello Kitty’s image that would lead to the downfall of the new company. Moreover, designers in the new company need to create cute characters that will pass beyond the limit of age and gender.      

The Sanrio Co. Ltd. can use the Corporate Branding Strategy,  defined Corporate Branding as a strategy in which the corporate name is dominant in all products. Moreover  (2006) defined it as using a single brand name in all the company’s products. The company can use it, especially when the company will be setting-up a product under the name Sanrio without creating new characters. The advantages that it will get are since the consumers are already loyal to the products of Sanrio the new product will be easily marketed and sold, the time consumed in establishing and marketing the product will be reduced. Still there are disadvantages like when the products of Sanrio did not meet the expectations of the consumers, the image of the company will be clouded. And the customers will have doubts on the subsequent products the company will launch under the corporation’s name. An example of the situation is when the company launched a new product under the name Sanrio without the characters such as Hello Kitty, the benefits will be the time to market will be lessen because it is already established, but when the consumers are not satisfied with the designs and overall appearance of the products, the subsequent products will not be successful and the consumers will have doubts in the ability of the company to provide products that meets their expectations.

The strength of the company that can be of big advantage is, like mentioned earlier, a huge consideration on factors that will affect the designs. Because of profound study and reviews on the season’s trends, the company will definitely create a line that will have a huge impact on the consumers. The weaknesses would be the other strengths of the other brand strategies such as creating a timeless product and a cute character that everyone would appreciate and will go beyond time. Development of a timeless product is very difficult especially nowadays wherein competition for global market is fierce, it would certainly be a weakness especially if the consumers are having high expectations and the company did not meet it, moreover, cuteness of cartoon character changes overtime, a cute character during this decade may not be on the next. Creating a cute and timeless character is a huge challenge if the company is going to use a corporate strategy knowing that they have already established a range of characters that all people around the world loves. On the other hand, if they become successful, the gains of the company will be truly fruitful. 

            The different brand strategies can be incorporated by the Sanrio Co. Ltd. especially if they are launching new brand of characters and if they are planning to venture into other products and services. The brand strategies discussed could be a very efficient strategy in boosting the sales and identity of a particular corporation or brand, the companies must understand the advantages and if not eliminate reduce the disadvantages of every strategy.   

           

THE CHARGES AGAINST SOCRATES

 

The Apology

The Charges against Socrates

The Athenians, like other Greeks, believed that people could offend the gods in various ways, and that when they did, the gods might well condemn the entire city to terrible evils. To discourage what might anger the gods, the city passed a law forbidding impiety, and it was this law that Meletus charged Socrates with violating. Socrates says that Meletus charged him with being impious in three ways: Socrates does not believe in the gods of the city, he introduced new divinities, and he corrupted the youth ( and  2004, ).

 

How does Socrates Defend Himself?

The apology comes from the Greek word for defense-speech. The Apology provides Plato’s version of three speeches Socrates makes before his jurors at the trial: his defense, a counter-penalty proposal following his conviction, and some final words after he has been sentenced to execution.

 

At the end of Socrates’ defence speech, he announces that he will not beg for mercy nor will he allow his children and relatives to appear before the court in the hope that it will arouse pity for what will be their plight if Socrates is convicted. Socrates gives two reasons why he will not engage in such a manipulative tactics, he believes that he has a reputation for being superior to the run of people and that anyone who also thinks he is superior whether in wisdom, or courage, or in any virtue and yet who engages in such a shameless tactics brings disgrace to Athens. The second reason why Socrates refuses to appeal to the jury’s sense of pity concerns his commitment to justice and piety. Socrates believes that it is never right to undermine the legal institutions in Athens. He believes that it is fundamentally unfair for any citizen, even one who is convinced of his innocence, as he is, to try to thwart the outcome of a duly constituted legal process ( and  2004, ).

 

Socrates’ defense shocked and even angered the jury. He always tried to “make the worse seem the better cause”. He believed that it was the gods’ judgment to make him the wisest man. He tried to tell the jury that he is a god and therefore telling a lie would be a violation of his nature. The philosopher made it known to the jury that in his quest to find the wisest man, he met many people who were proud but ignorant. He concluded that no man is wiser than he is because he acknowledges the fact that he knows little. The jury was shocked by his defence and was greatly offended.

Should Socrates’ be considered a Martyr?

No. Socrates had different motivations why he chose to die. At the conclusion of the trial, Socrates sees that his life – if he were to continue it – would be so plagued by troubles that it is no longer worth living. He also plainly believes himself to be a good man, whose goodness is undiminished by the fact that he has been convicted and condemned to death. He regards his life as no longer worth living ( and  1995, ).

 

Descartes’ Radical Doubt

Descartes’ project of radical doubt starts with a rejection of sensuous apprehension of the world and then retreats into the “minds eye” of subjective rationalism (, 2003).

 

In the First Meditation reasons are provided which give us possible grounds for doubt about all things, especially material things, so long as we have no foundations for the sciences other than those which we have had up till now. Although the usefulness of such extensive doubt is not apparent at first sight, its greatest benefit lies in freeing us from all our preconceived opinions, and providing the easiest route by which the mind may be led away from the senses ( cited in  2002, ).

 

On Descartes’ own view of human life, our beliefs about our selves and the world around us are pervasively distorted by a tendency, acquired in our earliest years, to surrender too much authority to our senses. We assume that the things we see and touch are the basic sorts of things that there are, and we assume that they are much as we perceive them to be. Descartes thought these assumptions were false. Conscious things are basics sorts of things, but we cannot possibly see or feel them. Moreover, the basic components of physical things are bodies that are too small to see or feel them ( 2002, ).

Descartes thinks that it will help us to inquire into the truth by starting with radical skepticism because this will loosen the grip of the senses upon our minds. If I am suspending judgment about whether anything I sense even exists, then I am, at least temporarily, freeing my thoughts from the distorting assumptions I have grown up with. This may subsequently allow me to discern and embrace principles that can replace the bad assumptions that have taken root in my mind ( 2002, ). In the first meditation, Descartes spelled out radical grounds for doubt, grounds that are attenuated but whose scope universal. For complex motives, the meditator resolved to suspend judgment about everything that falls within the scope of these reasons for doubt, even though the reasons are slight and exaggerated. He took this bold step both because he thought that to establish something lasting in the sciences, he must first demolish all his opinions, and because he thought that using this maxim would enable him to execute a strategy with the power to go up against the authority of common sense. Such a method would greatly widen the scope of doubt from its everyday limits, and it would require us to suspend judgment about everything that falls within that widened scope (, 2002, ). Descartes’ aim was to establish the absolute certainty of his beliefs by showing that their truth is a condition of his using the method of doubt. Among these are the beliefs that he exists and that he has an idea of God. Descartes thought he could show that those absolutely certain beliefs together entail that he is created by a non-deceiving God, and from that, he claimed, it follows that all of his clear and distinct ideas are true. So ultimately, the existence of God and the truth of clear and distinct ideas are conditions of his use of the method of doubt. Some of Descartes’ clear and distinct ideas concern mathematics, and from others he draws the further conclusion that some of his sense-based beliefs are true, including the general belief that material things exist. Overall, then by uncovering the conditions of his doubt, he thinks he can establish truths about his own existence and existence of God, the truth of his clear and distinct ideas, and then also the truth of his mathematical judgments and of his judgment that the material world exists ( 2002, ).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deontological and Utilitarian Ethics

Deontological Ethics

Deontological ethics, according to  and  (1990), are sometimes associated with divine command theories of morality (what is right or wrong is a matter of what God commands) and with the moral theories of the philosopher  (). As  argued, people should be treated as members of the kingdom of ends. People are objects of moral worth and should be treated as ends in themselves, never merely as a mean to some other end. We often treat each other as means to an end – for instance, a student may treat a teacher as a means to gaining knowledge – but we ought not to treat people merely as means. Such treatment dehumanizes persons by treating them as things. Persons are not bundles of pleasant and unpleasant mental states, nor are they merely valuable because of their social utility. A human being is a person with intrinsic value simply because that person is a member of the natural class “human being” ( and  1990, ).

Utilitarian Ethics

Utilitarians view moral life in terms of means-to-ends reasoning. They are agreed that the rightness/wrongness of an act or moral rule is solely a matter of the non-moral good produced directly or indirectly in the consequences of that act or rule ( and  1990, ). Utilitarianism is an approach to morality that treats pleasure or desire-satisfaction as the sole element in human good and that regards the morality of actions as entirely dependent on consequences or results for human well being ( 1995, ).

Types of Utilitarianism

1. Act Utilitarianism – an act is right if and only if no other act available to the agent maximizes utility more than the act in question.

2. Rule Utilitarianism – an act is right if and only if it falls under a correct moral value which covers that generic type of act. And a rule is a correct rule if and only if everyone’s acting on this rule would maximize utility compared to everyone’s acting on this rule would maximize utility compared to everyone’s acting on alternative rule.

 

For ulilitarians the rightness of an action is determined by the goodness of its consequences. Deontologists on the other hand believes that one ought to engage in certain actions because to do so as a matter of principle.

 

 

 

 

 

 

 

 

 

 

The Death of God

The idea of God according to  was the supreme achievement of resentiment and reactive values: the invention of a higher form of life in order to judge and condemn human will and earthly experience. Humankind clings to faith because it no longer feels able to create new values and style of living. Faith is coveted most where will is lacking ‘giving rise to a demand that has become utterly desperate for some “thou shalt” ( 2003, ).

 

’s famous declaration in The Gay Science, first published in German in 1882, of the ‘death of God’ was intended to alert humanity to this ‘twilight of the Idols’ and to underline the necessity of producing an interpretation of life unconstrained by the Christian inheritance. What distinguishes  from other nineteenth-century critics of religion, morality and nineteenth-century life is that he does not search for a more effective moral life; he attempts to save life from morality itself. He argues that nineteenth-century culture experiences life as a form of nihilism because it has invented a series of moral concepts such as ‘truth’, ‘selflessness’ and ‘equality’ that have been raised above life in order to regulate and judge life. Not only do these moral values repress what  took to be the most profound instinctual forces of life; they also encourage us to live reactively according to an inflexible and timeless moral law instead of creating our values actively for ourselves ( 2003, ).

 

 

Death of God: Freedom and Responsibility

’s declaration of the death of God was his way of saying that the idea of God in no longer capable of acting as a source of any moral code. It meant that we can no longer use the idea of God to

 

It was his way of reminding us that we must now take responsibility for what we say about the world rather than trying as we have in the past to impose such responsibility onto a fantasy of the way the world is in itself. We have seen how that fantasy distorts our conception of the nature of the responsibility  believes we can be said to bear for the sense we make. As he says in The Gay Science, the death of God is something that we ourselves have brought about, something we have done. He was convinced that, as we stand, we fail to take responsibility for our commitment to truthfulness--we are not properly responsive to it. We fail, in short, to understand the death of God as an event. Our will to truth, he says, is not self-conscious. It remains moral or pious in character, and is, to that extent, life denying ( 1995, ).

 

 believed that surrendering the belief in God gives humans freedom to develop and enhance their creative abilities. The Christian God will no longer impose laws and commands on people making humans to acknowledge the world’s value. The acceptance of the idea that God is dead will give humans freedom to become something new, different creative. The death of God comes with freedom and responsibility. Giving up the Christian faith may mean to pull out moral values attached to this belief and hence the emergence of the need for the new ones. The idea of God according to  prevented variety of things, people’s trust in science and scientific explanations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Nature of Human Self

The Five Aggregates

1. Material Form – concerns our physical nature. It refers to our entire body and in particular those aspects of it that make possible the five senses.

2. Feelings – have to do with our sensations, whether originating from the mind or the body, and their quality as pleasant, unpleasant, or indifferent.

3. Perceptions – go beyond sensations and involve judgments about the world.

4. Formations – refer to anything that moves us to act –desires, wishes, volitions, and so on. They are classified as being ethically good, bad, or neutral.

5. Consciousness – concerns the general fact that we are aware, either of the world, or of ‘ourselves as having the other aggregates.

 

The doctrine of aggregates is an attempt to classify the various undergoings and doings of the self. It refers to familiar features of persons. According to the , every aspect of what we ordinarily regard as a person is encompassed by one or more of the five aggregates, and each of these aggregates in impermanent. Whether we consider the body or aspects of the mind such as feelings, perceptions, volitions and the like, all we ever find is something that changes - this sensation, that desire, this judgment, that feeling, and so on ( 2003, ). According to the  if we carefully observe what we call ‘ourselves’, we will realize that all we ever actually observe are particularly impermanent aggregates.

 

Dennet

Dennet is an advocate of science-based materialism. Dennet believes that self is an abstract entity of some sort. Dennet’s theory of mind is rooted in the empiricism of science. Dennet states that the self, as an abstract object is a ‘fiction’.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bibliography

 

Economies of Scale

Economies of Scale

 

Economies of scale have been defined concisely as advantages resulting purely from size (1989) and have been studied extensively (1982; 1971; 1975).

Further, scale economies have been categorized by source,  identified seven of them: cost indivisibilities, economies of increased dimensions, economies of specialization, superior techniques or organization of production, the learning effect, economies through control of markets, and economies of massed resources which is also known as statistical economies of scale (1971).

According to  (2003), economies of scale are achieved when more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be achieved when economies of scale are realized.

While cost reduction efforts appear to be extremely popular among companies attempting to strengthen their competitive position, the effect of traditional cost reduction strategies on company productivity is less clear, and may in some cases be detrimental to long-term financial performance.

Particularly during times of economic recession, it is important for companies to identify cost-reduction strategies that create long-term benefits for the company. It is hypothesized that reducing unit costs through the use of volume and learning economies of scale can provide significant productivity benefits to a company, provided policies regarding flexibility and innovation do not create barriers to strategy implementation.

The importance placed on increasing company productivity has gained considerable momentum in recent years as companies struggle to keep pace with increased competitiveness and consumers' increasing awareness of product quality. Since company productivity is generally defined as a ratio of output to input (for example, revenues divided by costs) management strategies for improving productivity have usually included some form of cost-reduction effort.

While many of these efforts are necessary and indeed enhance company productivity, some cost reduction strategies actually reduce the company's ability to be less able to provide customer service, to react quickly to changes in customer tastes, to maintain an innovative approach to process/product design and marketing and to simply maintain product output levels at some adequate level of quality.

Learning economies of scale are created when technical knowledge gained through company experience permits changes to be made to existing plant, equipment and labor, leading to better and more efficient use of existing resources. The learning effect is the term used to represent this impact of technical innovation on the cost function of the company. In this context, technical innovation is referred to as the implementation of any value-enhancing techniques to the transformation process of the company (examples include supply-base reduction, storage consolidation, use of shop floor control policies, group technology plant layout changes and just-in-time production techniques).

Extensive research indicates that as the cumulative output of a product doubles, the real, value-added unit cost of manufacturing that product tends to be reduced by a constant percentage.

Learning economies of scale include labor and organizational production and planning advancements that accrue with time throughout the company's transformation process. (1964) describes three types of learning economies:

 

Ø  labor improvements in the performance of tasks;

Ø  improvements in managerial planning and control; and

Ø  product and process innovations that reduce unit costs or increase value

 

There are two aspects of economies of scale. Economies of scale that appear at the aggregate level are described as external economies while economies of scale that appear at the individual or firm level are called internal economies of scale which the focus of this paper.

 

There are some types of internal economies of scale which includes technical, commercial, managerial, and risk bearing. Internal economies of scale relate to the lower unit costs a single firm can obtain by growing in size itself.

Technical economies are when businesses are able to benefit from improved techniques involved with large scale production. For example, a company like Gillette or BIC operates with very large modern factories using automated production technology. The result of using these technologies is that costs of production are reduced significantly while quality control is kept to a very high level with virtually zero defects.

Similarly, electronic and electrical goods industry can also acquire such modern and automated production technology. Technical improvements include simultaneous product and process design, setup time and batch size reduction efforts, automated group technology layouts and new product designs that use part commonalities to reduce design costs and improve manufacturing quality.

In addition, commercial economies are concerned with the purchase of stocks and the selling of end products using a large scale approach. Modern production plants are able to operate using components and materials that are purchased just-in-time for their use. The production line is managed at the speed required to meet the needs of end consumers just-in-time.

Electronic/electricity goods industry can use mass production techniques in which they are able to operate their plant at high levels of capacity, while benefiting from bulk purchasing of components, equipment and materials.

Moreover, managerial economies of scale involve these firms in employing skilled production managers with the experience of working with modern technologies enabling them to manage highly sophisticated state-of-the-art factories. As a firm grows, there is greater potential for managers to specialize in particular tasks such as marketing, human resource management, finance. Specialist managers are likely to be more efficient as they possess a high level of expertise, experience and qualifications compared to one person in a smaller firm trying to perform all of these roles.

In the case of the electronic/electrical goods industry, these companies should employ specialist on the field of marketing, human resource management or finance.

Management improvements used in many electronic/electricity goods companies include fewer levels of management with greater decision-making authority given to line workers and shop floor managers and new systems of control, such as total preventive maintenance and total quality control programs that improve company performance. These companies should place a great deal of emphasis on employee skills development through extensive training programs. Fewer job classifications and multi-functional employees contribute to productivity improvements and enhanced labor flexibility.

Furthermore, risks spreading economies of production mean that plants are able to produce a wide variety of products. For example, in a modern confectionery plant run by Cadbury Schweppes, it is possible to switch part of factory capacity from lines where demand is falling, to lines where demand is rising through well organized production management. Similarly, electronic/electricity goods industry must be able to identify their risks and appropriately mitigate them to avoid more damage to company.

 

Disadvantages of Economies of Scale on Consumers

However, in spite of numerous advantages which economies of scale have mentioned, there are still disadvantages. The first disadvantage would be that the products of the same type could virtually all be the same. Consumers would be hard pressed to find unique items either for gifts, personal pleasure or to fulfill a unique need.

A second and related is that the possible low cost of such mass-produced items might diminish the market for new and competing items. Eventually, this could lead to a virtual monopoly on some products, which may lead to higher future costs and even less innovation in that area.

Moreover, according to (1999), “the disadvantages to the customers is clear cut.” He commented that the greater the imbalance of the power between seller and buyer, the less responsive the market will be with the demand. For example, when a company has one hundred customers, it listens carefully to what each of them wants. However, when it has one million, it responds to the lowest common denominator (1999).

Inappropriateness of Economies of Scale

According to  (2003), the theory of economies of scale was set off by the British economist which includes and . These economists had suggested that larger companies would have likely to achieve economies of scale due to greater opportunities for division of labor.

Technically, a scale curve measures production costs as a function of facility capacity (2003). Plotted on a logarithmic scale, the slope of the curve shows the fixed percentage reduction in cost for each doubling of capacity. Businesses with operations that offer significant economies of scale, such as wafer fabrication for integrated circuits, have steep scale curves where costs drop significantly when facility capacity increases which is why the Intel Corporation and other chip makers regularly invest upward of a billion dollars in new higher-capacity facilities.

However, other businesses, such as apparel-producing plants, exhibit very limited scale economies. Since there is little opportunity to automate the process of sewing a dress or shirt, a larger apparel plant simply contains more sewing machines. A plant with 200 sewing machines run by individual operators doesn’t produce shirts and dresses much more cheaply than one with only 100 machines. There is little value in having a bigger apparel factory.

Firms achieve economies of scale when their operating costs increase at a lower rate than their output. In manufacturing operations, plant volumes must reach a certain minimum level for a firm to achieve economies of scale. In industries, such as aircraft, automobile, chemical production and petroleum refining, plant volumes needed to achieve economies of scale are so high that only a few firms can attain them without foreign sales (1990).

 (1989) suggests that multinational service firms, like manufacturing firms, can benefit from global economies of scale in personnel specialization, financial management, and common governance.  (1994) propose that service firms can achieve global economies of scale in marketing or image-building. Furthermore,  (1996) theorize that information-based service firms, such as insurers, can achieve global economies of scale by providing global customers with standardized insurance products and by centralizing upstream value chain activities.

However, firms still incur fixed costs in their operations that do not increase with output. For example, computer systems and software cost the same whether they process ten or ten thousand dollars in premiums each day.

In addition, with the response to opportunities in the foreign market and globalization, there has been increasing number of companies expanding internationally. Most of these companies believe that only very large firms will have economies of scale to remain competitive. However, expanding internationally may offset the advantages of economies of scale by the higher costs of foreign operations.  Buckley and  (1976), and  (1981), commented that costs for firms in the foreign markets may be higher than in home markets.

Moreover, as firms increase their size through internationalization, they increase the complexity of their operations and the cost of coordinating those operations. This may cause diseconomies as scale increases (1985). In addition, a firm must manage all aspects of its value chain and the interaction between them to achieve low costs ( 1985). The firm must take care that actions in one area do not create barriers to economies of scale in another area (1985). For example, geographic differentiation as opposed to concentration of activities and product differentiation as opposed to standardization, while creating market advantages, may hinder economies of scale in services (1996).

 

Minimum Efficient Scale

            Minimum efficient scale is the output for a business in the long run where the internal economies of scale have been fully exploited. It corresponds to the lowest point on the long run average total cost curve. The minimum efficient scale varies from industry to industry depending on the nature of cost structure in a particular sector of the economy. When the ration of fixed to variable costs is very high, there is a great potential for reducing the average cost of production.

In industries with monopolistic bottlenecks, like network industries, the question arises whether and how to regulate these essential facilities. Electronic and electricity goods are vital for the health of the European economy. This industry increases productivity throughout the economy, generates new consumer services and creates jobs for the European work force.

In connection with this,  (2005) points out the importance to establish regulation right after liberalizing the market. Nevertheless, by designing the regulation authority it is important to keep in mind whether regulation serves as a precondition of competition or rather as a substitute of competition. If regulation is a precondition and the final goal is the competitive market, one should probably strive in the very long run for replacing sector regulation by general competition rules.

Based on the experience, policy makers believe that extending competition and ensuring opportunity and reward for innovative companies is the key to promoting technological advance.

Generally, the difficulty of the regulatory authorities has originated in state-run monopolies, leaving a legacy of imperfect competitive conditions. Continued regulation is therefore essential for as long as these former monopolists have market power, to ensure a level playing field for new market entrants.

In addition, another reason is that market forces alone may lead to the exclusion of some social groups from essential public services. The regulatory system therefore recognizes a universal service obligation to ensure basic services at affordable prices to all in cases where the market alone does not provide.

Regulatory authorities has pursued it s regulation on competition in order to regulate the state run monopoly which has been happening as experienced. A general authorization procedure for operators to enter new markets replaces individual licenses. This drastically cuts red tape for enterprises, which no longer face frustrating delays as national regulators check compliance with license conditions.

In addition the regulators applies light regulations which is the framework that builds upon general concepts of competition law, as applied to normally functioning markets.

Regulation is seen as essentially a temporary phenomenon, required to make the transition from the monopolistic industry to a fully functioning market system. To develop in the short term, new market entrants need regulatory support to gain access to the networks of incumbent operators and to provide the benefits to end users which the market would offer if it were effectively competitive.

However, as the sector evolves, operators will increasingly build their own infrastructures and compete more effectively. As normal market conditions develop, regulation can be rolled back, and competition law, as applied to industry in general, will replace sector-specific intervention.

Moreover the regulatory authorities are concerned with the technological authorities. The primary principle is to apply the same principles regardless of which kind of existing or potentially new technology is involved. This “technological neutrality” is essential to provide the necessary flexibility to deal with emerging technologies and their convergence in fields such as media, internet and mobile communications.

Furthermore, concerns are also pointed to the consistency in the market. Operators need to be assured that their investments can be planned in a regulatory environment that is stable, consistent and predictable throughout the market. Such a regime allows companies to operate on a scale.

The regulatory framework establishes new processes permitting collaboration among the national regulatory authorities of the Member States and between national authorities and the Commission. This extensive collaboration plays a key role in achieving the necessary coherence within the regulatory process at European level. In key areas, each Member State submits its draft national measures to the Commission and to other national authorities for consideration, and discusses common approaches in the European Regulators Group, established by the Commission in 2002. In this way, a consistent approach is developed throughout the single market while permitting maximum flexibility to deal with national markets and conditions.

The framework explicitly recognizes the need for regulators to allow adequate cost recovery on existing assets, and to properly reward innovation and new, risky investments.

Regulatory intervention is required for a variety of reasons. Regulatory intervention is required in the success of the transformation of a monopolistic market into a competitive market. Without it, viable competition is not likely to emerge. Typically, regulators must authorize or license new operators. They must remove the barriers to market entry of new operators. In addition, regulators may also be required to ensure competitive markets do not fail to serve high cost areas or low income subscribers. Where competitive markets do not exist or fail, there would be abuses of market power such as pricing and anti-competitive behavior by dominant firms.

Primarily the main objectives of the regulators is to foster competitive markets to promote efficient supply of goods and services, supply of good quality of goods and services, and efficient prices.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project 2 Human resource enviroment

What human resource issues should managers in the automobile industry be prepared for in the future?

 

Resistance of human resources due to their gradual displacement in automobile manufacturing businesses comprises the encompassing issue in the industry in the future. Human resource displacement results from two economic trends. One is increasing outsourcing 1998;  2003) of manufacturing activities to developing countries offering more competitive labor prices and plan establishment costs. The other is technological innovations in manufacturing processes (2001) such as the development of highly intelligent computer systems to operate plan equipment minimizing the number of needed human labor and shifting labor demand to highly skilled workers for highly technical work. These developments in the industry are likely to heighten resistance of employees and workers to displacement in the industry particularly due to the lifetime employment agreements with manufacturing companies.  

 

How might the employee skills, management practices, and automobile manufacturing companies change in the future?

 

            Employee skill requirements for the industry would likely shift to high level of knowledge and skills in information technology and allied applications specifically developed for the automobile industry. This means that demand for manual labor would decrease while demand for technically knowledgeable and skilled people would increase in the mother company in the US. Demand for manual labor will shift to competitive labor markets in developing countries. This change in labor demand means that management practices would also shift towards addressing the resistance from current human resources faced with the possibility of displacement. In the future, automobile manufacturing companies would be highly fragmented, geographically, in their operations but highly efficient by taking advantage of competitive labor markets and technological innovations.

 

How would you expect the managerial trends to affect human resources practices and policies in future automobile manufacturing?

 

            Due to the necessary shift in human resource management towards resistance to displacement responsive practices, human resource practices and policies in the future in the automobile industry would likely result to two general changes. One is the shift from unionized collective bargaining to individual labor contracting. The lesser number of employees and workers and the shift from manual to technologically skilled labor justify the shift to individual labor contracting. For new employees, the employer-employee relations is governed by employment contracts. The other is negotiation of the lifetime employment agreement between the company and employees through the offering acceptable incentives to employees who might be displaced in the future.     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Analysis of Hewlett Packard

Risk Analysis of Hewlett Packard

 

Risk Management: An Overview

Risk management started out as an indemnity management purpose. The cost of indemnity had restricted management's alternatives in dealing with the hazards faced by the organization. One of the foremost problems was that insurers rated firms according to business in such a way that a fine run firm that had few losses were required to pay for the claims of poorly run firms within the same industry. With this, the role of risk management appeared. Management began to make out that abridged losses intended reduced cost of risk. If risk managers reduced losses they could hold them themselves without resorting to indemnity. However, it took some time for industries to settle in risk management.

The delicate inquisitiveness in risk management is the result of a number of instantaneous drifts. Globalization of trade and production has augmented financial and direct investment in unstable up-and-coming markets. Risk management has also ensnared consideration as a result of the recurring and well-publicized breakdowns linked with its execution. Regardless of the amplified academic and specialized concentration paid to risk management, common instances still occur when classy investors or firms experience abrupt, unexpected, and devastating losses.

To an economist, risk is described as the survival of ambiguity about potential upshots. Risk is a mean reason in economic existence for the reason that individuals and firms create immutable reserves in research and product improvement, inventory, plant and equipment and human capital, without knowing whether the potential cash flows from these funds will be adequate to pay off both debt and equity holders. If such genuine investments do not engender their necessary returns, then the financial claims on these returns will turn down in worth.

In addition to altering the extent of equity and debt in their capital composition, firms/business organizations can also influence their chance of liquidation by extenuating the risk disclosures they countenance. Firms/Business organizations come out to prefer between the types and degrees of disclosures, assuming those that they consider have an aggressive gain in supervision and laying others off into the capital markets ( 1996). Other features of the firm's processes such as the convexity of its tax lists, can also influence the amount to which administrators challenge to alleviate risks (1996). Apparently, , (1996) believes that economists and strategic planners view risk management as being related to the issue of the boundaries of the firm. In this structure, the pronouncement to alleviate meticulous risks is comparable to the verdict to outsource a particular purpose. Thus, risk management, like technology, allocation, or level, is a basis of economical plus. As part of risk management, this paper aim to analyze risk in Hewlett-Packard Co.

 

The Company: Hewlett-Packard

Headquarters for Hewlett Packard Company are in Palo Alto, California.  The Company is a global provider of computing and imaging solutions and services for business and home.  Its focus is on taking advantage opportunities arising due to the Internet and the proliferation of electronic services.  The number-two company worldwide has operations in the United States, Europe, Asia, and the Pacific Rim, Africa, Latin America, Canada and the Middle East.  The company is decentralized and prides itself on giving its 104 divisions decision-making authority.  The number of employees around the globe totals about 123,500.  Six hundred sales and support offices and distributor ships, resellers and retailers handle distribution for the company’s products.  The majority of revenues come from computers plus peripherals and services.  Fifty-four percent of HP’s business is derived outside the United States, and two thirds of that comes from Europe.  The company also lunches the Agilent Technologies as an independent corporation, which includes test and measurement, semiconductor products, chemical analysis, and health solution businesses.  The company also restructured itself as an Internet specialist to stimulate growth.  It provides Web hardware, software, and support to customers.  Basically, the future outlook is positive, and the company plans to remain a major player in the computer industry.

From this preview, this paper attempts to evaluate the risk management of Hewlett Packard. Actually, risk management is a task similar to the other management functions such as marketing, purchasing or finance. Thus, if we look at economic development from a functional viewpoint risk management is somewhat every countries do which directs to the realisation of its overall economic objectives.

 

Risk and Return: Analysis for the Firm

Estimating Historical Risk Parameters (Top-Down Betas)

Stock Price History

Beta:

1.62

52-Week Change3:

23.09%

S&P500 52-Week Change3:

12.56%

52-Week High (12-Jan-07)3:

43.72

52-Week Low (08-Jun-06)3:

29.00

50-Day Moving Average3:

40.20

200-Day Moving Average3:

40.36

 

From the company Hewlett Packard, the regression of the individual stocks monthly prices against the S&P 500 index as of April 18 was conducted. The results of the regression on which we strenuous were the intercept (to calculate the Jensen’s alpha), the slope (beta/risk), the R-squared (to understand how much of the risk is diversifiable) and the standard error of the Beta (to assess the validity of the top down prediction). The results are presented in the following table.

 

 

 

 

a) Intercept: The intercepts of the regressions for the data gathered from Hewlett-Packard and S&P 500 are shown in coefficients table (i.e. 1330.821). Since the value is positive, then we may say that the stock performed better than expected by the market.

Our Jensen’s alpha figure (12.56%) indicates that in S&P 500, the companies’ stocks performed better than expected during the period of the regression. This reveals that the Hewlett-Packard is in positive track and the market underrates the returns on these stocks.

b) Slope: The slope of the regressions gave us the beta of Hewlett-Packard. The figures reveal that the Hewlett-Packard analyzed are below average risk (Beta = 0.873). This is most probably due to steady earnings and low debt ratios of the company.

c) R2: The R2 indicates that the greatest part of the risk faced by Hewlett-Packard comes from specific sources. This is somehow surprising as the fortunes of the company depend on factors such as prices and general macroeconomics trends. It is also arguable however that the company’s operations involve high levels of risk of catastrophes (which is intrinsic to each firm’s safety policies). The computed R2 is 0.762.

d) Standard Error: Since the standard errors of the betas are adequate, then it also allow us to consider these figures reliable.

 

Comparing to Sector Betas (Bottom-Up Betas)

To understand the importance and role that financial leverage we calculated the value of the company’s unlevered betas. For the calculation we used the market value of debt and equity in order to come up with the D/E ratio to apply in the formula:

 

Unlevered Beta = Levered Beta/[1+(1-marginal tax rate) x D/E]

The marginal tax rate of 40% was used. The values are:

 

Hewlett-Packard

Unlevered Beta

1.66

Market value D/E

0.152

Beta

1.81

 

As shown in the table, there is significant difference between the unlevered beta and levered beta of Hewlett-Packard. The difference between the unlevered and the levered betas shows that debt does not play an important role. Actually, the Hewlett-Packard risks are due to business-related factors and only a smaller portion to financial leverage.

 

Choosing Between Betas

Although the betas resulting from the regression are on average good estimates, because of the low standard errors we also calculated the betas using the bottom-up method. Most companies in S&P 500 are not solely involved in the exploration and production of computers, and marketing.

 

 

HPQ

Industry

Market Cap:

110.30B

438.98M

Employ­ees:

156,000

5.50K

Qtrly Rev Growth (yoy):

10.70%

9.90%

Revenue (ttm):

94.08B

450.80M

Gross Margin (ttm):

24.51%

32.85%

EBITDA (ttm):

10.16B

38.71M

Oper Margins (ttm):

7.62%

3.34%

Net Income (ttm):

6.52B

11.47M

EPS (ttm):

2.306

0.4

P/E (ttm):

17.87

33.57

PEG (5 yr expected):

1.23

1.41

P/S (ttm):

1.17

1.53

 

As shown in the comparison estimates, the industry is much higher than HP. The production of computers and other operations represent a growing part of the overall businesses of these companies. The presentation below shows the direct comparison of HP to the overall industry with respect to their Betas.

 

 

Estimating Earnings and Cash Flows

Typical Investment

            Hewlett Packard is the world's leading producer of test and measurement instruments and one of the world's largest computer company. It has become a major player in the personal computer market, and at the time of our research was the sixth biggest in terms of market share, having moved up from fourteenth largest in 1992. It is also the second largest player in the computer workstations market, and holds the dominant position in the laser printer business. The company was the only major computer manufacturer which remained profitable during the recession. Underpinning the Hewlett Packard culture is the HP Way, developed by founders Bill Hewlett and Dave Packard, which emphasizes clearly stated and agreed overall objectives but gives people the freedom to work towards these goals in ways they determine best for their own areas of responsibility. Other pillars of the HP Way include an emphasis on selecting individuals on the basis of their creativity and their enthusiasm, and the need for cooperation between organizational levels. A sophisticated performance management process and clear organizational values, together with a single status culture, has brought strong identification with the company on the part of employees. The organization has traditionally had a decentralized structure, but with the growth of the computer business, a more centralized approach was taken to reflect the systems nature of the business.

 

 

Earnings and Cash Flows

            From the website the following table presents the earnings and cash flows of Hewlett-Packard from April 2006 to January 2007.

PERIOD ENDING

31-Jan-07

31-Oct-06

31-Jul-06

30-Apr-06

Net Income

1,547,000  

1,697,000  

1,375,000  

1,899,000  

 

Operating Activities, Cash Flows Provided By or Used In

Depreciation

643,000  

596,000  

598,000  

596,000  

Adjustments To Net Income

335,000  

587,000  

171,000  

314,000  

Changes In Accounts Receivables

548,000  

(1,246,000)

226,000  

(1,055,000)

Changes In Liabilities

(909,000)

563,000  

657,000  

861,000  

Changes In Inventories

(698,000)

(381,000)

(732,000)

(85,000)

Changes In Other Operating Activities

(1,488,000)

1,428,000  

334,000  

1,104,000  

 

Total Cash Flow From Operating Activities

(22,000)

3,244,000  

2,629,000  

3,634,000  

 

Investing Activities, Cash Flows Provided By or Used In

Capital Expenditures

(718,000)

(965,000)

(623,000)

(521,000)

Investments

79,000  

19,000  

11,000  

10,000  

Other Cashflows from Investing Activities

(4,325,000)

65,000  

171,000  

13,000  

 

Total Cash Flows From Investing Activities

(4,964,000)

(881,000)

(441,000)

(498,000)

 

Financing Activities, Cash Flows Provided By or Used In

Dividends Paid

(218,000)

(219,000)

(222,000)

(226,000)

Sale Purchase of Stock

(1,515,000)

(194,000)

(1,758,000)

(813,000)

Net Borrowings

276,000  

(67,000)

149,000  

(57,000)

Other Cash Flows from Financing Activities

100,000  

(1,464,000)

1,592,000  

58,000  

 

Total Cash Flows From Financing Activities

(1,357,000)

(1,944,000)

(239,000)

(1,038,000)

Effect Of Exchange Rate Changes

-  

-  

-  

-  

 

Change In Cash and Cash Equivalents

($6,343,000)

$419,000  

$1,949,000  

$2,098,000  

 

 

 

From this table, the Hewlett-Packard works on a scale so awesome and has an influence so vast that it is often difficult to see. The level and diversity of technologies that it must deploy are increasing, which imposes both new investment burdens and new uncertainties and risks. Roughly a million new computer products are built around the world each week – they are easily the most complex products of their kind to be mass-produced in such volumes. The industry uses manufacturing technology that is the cutting edge of science. But still, the potential for developing coordination skills, intellectual capabilities and emotional sensitivities through electronic technologies remain far from fully exploited. There are numerous additional near-term technological opportunities to adapt the computer to changing market competitions. The possibilities suggest that Hewlett-Packard technology is unexpectedly robust and provides a powerful defense against the growing competition in the market.

 

Analyzing Existing Investments

From the discussion, Hewlett-Packard Co. is subject to numerous technical directives and regulations, as well as legislation of a more legal nature. The legislation covers areas such as competition law, intellectual property law, consumer protection and taxation. When the computer industry reached full development, accelerated technological efforts were made to create a web of local suppliers that would make it possible to meet the growing legal requirements for the national integration of production.

Other than the computer themselves, the business is intricately tied to the manufacture of a wide range of components and the extraction of precious raw materials. Indirectly, it brings cyber crimes, too many crimes in the cyber world and possibility to wave of other environmental troubles. The effect to the Hewlett-Packard Co. are that they needed to establish R&D centers to take advantage of research infrastructure and human capital, so that they can develop computer products both locally and international to satisfy the requirements of the cyber world, environmental and safety regulations more effectively.

 

Evaluating Sustainability of Competitive Strengths

HP has several core competencies which they could utilize to further gain advantage over their competitors, and if possible, overtake IBM in its market leadership in the computer industry. One core competency of the company is their brand management. The strength of their computer marketing has been such that their brand is known even in the parts of the world where computers are not the common medium of communication and advancement in technology. Another core competency is their supply chain management, which links to their ability to maintain a steady stream of computer products. Their highly coordinated logistics system handled by outsourced firms also form part of their core competencies, leading to excellent inventory management and always on schedule production activities. Another marked advantage is their ability at the moving assembly line. Being the pioneer of such mass production system, they were able to get ahead of the competitors manufacturing processes-wise and were also able to save on costs and time. Yet another advantage is HP’s focusing on its product development technology under a single product-information-management program through standardizing and incorporating them. If sustainable development is to achieve its potential, it must be integrated into the planning and measurement systems of business enterprises. And for that to happen, the concept must be articulated in terms that are familiar to business leaders. Many observers believe that more stakeholders -- investors, consumers, nongovernmental organizations and others -- will insist that companies to take environmental and social costs as seriously as they take purely financial costs. In addition, investors are expected to increasingly seek out sustainable companies and avoid firms with poor environmental performance, judging the sustainable companies as better risks over the long term. Likewise, consumers are expected to search for products that perform well environmentally. In addition, the e-marketing procedures employed by HP Co. will possibly boost their advantage in international market since they have the capabilities to innovate computer products.