The low-calorie frozen, microwavable food industry is a highly competitive market, and planning the expansion strategy is one of the appropriate solutions due to the prosperity of the industry. The case company is one of the significant players, but, now, it experiences the shift in costs of the ingredients required for production.
Consequently, the primary goal of the paper is to propose appropriate long-term budgeting decisions to enhance the firm’s financial stability in the recent future. In this case, these actions aim at the enhancement of cost-effectiveness and productivity while minimizing internal and external risks (Guigan, Moyer, & Harris, 2014).
Designing a plan to respond to the rising prices among competitors, assessing the governmental policies and their impact on manufacturing, and evaluating the need for additional governmental policies to assure fairness and difficulties related to the expansion with the assistance of the capital markets are the objectives of this research. Lastly, the selected company must find appropriate ways to shape convergence between managers and stockholders.
A Plan to Respond to the Price Fluctuations
As it was mentioned earlier, the microwavable food industry is associated with intensive rivalry. In this case, the price fluctuations are defined by changes in the slope of supply and demand curves (Boone & Kurtz, 2012). When analyzing the demand elasticity, it was revealed that demand for the frozen and microwavable food products tend to be elastic with the price elasticity of -1.19.
Consequently, a 1% upward or downward shift in price will be a primary reason for the decrease or increase in demand by 1.19% respectively. In this case, any changes in pricing proposed by the rivalry firms will alter the demand dramatically, as any increase in pricing will hurt the company’s revenue (Guigan et al., 2014).
Based on the factors provided above, it could be said that the firm has to focus on making the consumers less elastic to the price change. One of the first stages is to pay attention to the changes in prices of the raw materials, as the rise in production costs is one of the attributes of the price shift (Houchbaum & Wagner, 2015). In this case, defining quantity and pricing in contracts assists in minimizing risks and price fluctuations for the raw materials (Houchbaum & Wagner, 2015). This step will lead to the strategy to maintain the price at a lower level than the competitors, as it is one of the primary tools to generate revenue.
Another stage implies focusing on the products’ quality to minimize the number of substitutes. This concept focuses on decreasing supply in a particular market niche. In the context of the presented company, the manufacturer of the microwave food should focus on enhancing quality control systems and management to meet the customer’s expectations (Al-Refaie, Ghnaimat, & Ko, 2014). The appropriate price-to-quality ratio will contribute to the growth of the customer’s base and make consumers less elastic to the price changes.
Consequently, in the beginning, the company can set a low price (penetration strategy), and after acquiring the market share slowly increase it. This tactic will be appropriate, as the consumers will be less elastic to the price changes. To summarize the findings of this sections the primary activities of the action plan are
- evaluating the prices of competitors;
- assessing the prices of raw materials and changing suppliers when necessary;
- defining the pricing and quantity in the contracts; and
- focusing on the quality of operations to increase the retention of consumers.
Effects of Government Regulations on Manufacturing
At the same time, one cannot underestimate the governmental intervention in the manufacturing and recruitment processes. In this case, these policies have a critical influence on the production and employment regulations and the overall profitability of the business. For instance, it could be said that minimum wage laws define the financial resources, which have to be paid to the workers of the manufacturing plants and office clerks (United States Department of Labor, 2016).
Skilled labor is a critical part of the manufacturing process, and the workforce has an impact on the quality of the services. It remains apparent that any increase in wages of workers will shift the price of the goods respectively (Weygandt, Kimmel, & Kieso, 2010). As for the case company, it will be required to modify its budgeting strategy to optimize the production costs and make the manufacturing process cost-effective.
In turn, one cannot underestimate the impact of FDA and governmental regulations on the frozen food industry. In the first place, the FDA controls the safety and labeling of the food producers, and this procedure helps minimize the health risks (U.S. Food and Drug Administration: Food guidance documents, 2016). It underlines the fact that governmental authorities are highly concerned about the safety and health of the population and tend to design various policies to ensure the compliance of the companies with the standards.
In this case, any modifications of labeling regulations such as listing the pesticides used to cultivate the growth of raw materials will require the company to reprint its packaging and devote additional financial resources to this procedure. Speaking of controlling the frozen foods’ safety, in 2008, FDA developed a special document, which refers to the safety regulations to avoid the development of listeria monocytogenes (U.S. Food and Drug Administration: Guidance for industry, 2009).
In this case, the companies, which were operating in the industry, were required to reconsider their equipment maintenance and quality control procedures. As for the case company, it will be needed to discover the compliance with the safety regulations and allocate a substantial state of expenditure to the quality and security control systems. It will make the production processes more complicated due to the significant number of check-up points but will enhance the overall quality.
Government Regulations to Ensure Fairness
Despite the well-established governmental policies and regulations, it could be said that advancing them will help assure fairness in the selected industry by intervening in the market’s functioning. In this case, the governmental regulations will assist in protecting the domestic producers and consumers, controlling the prices, and minimizing the development of monopoly (Boettke, 2012).
In the context of the frozen food industry, the governmental authorities could introduce subsidiaries to help domestic producers to increase their market shares and elevate the level of GDP. Simultaneously, controlling unreasonable elevation in prices will have a beneficial impact on the demand. To support the rationale for the need for governmental intervention, it is critical to offer examples from the authorities’ involvement in the similar market economies such as banking and housing sectors.
One of the illustrations is governmental intervention in the big banks market. In this case, the authorities usually contribute to resolving the financial crisis (Anderson, 2009). The Nordic way of solving the situations is associated with the crisis was now viewed as one of the most successful governmental interventions in the banking economy (Anderson, 2009). During the crisis, the government wanted to ensure the protection of deposit and loan holders by controlling the interest rates (Anderson, 2009).
Despite the recession stage, it assisted in attracting additional customers to the banks. It tended to control the inflow of foreign investments and ensuring that the national banks would have their shares in the market unchanged. As for the USA, it created the Commercial Paper Funding Facility to offer additional financial resources to support the bank’s everyday activities (Aikins, 2009). This governmental intervention was critical for the consumers and banks and ensured the organizations’ functioning in the market disregarding the crisis. Simultaneously, it contributed to the positive shift of the countries’ GDP and underlined that governmental participation was critical to control the demand and supply in the industry.
Another example is a governmental intervention into the housing market. Nowadays, federal authorities tend to propose various policies to increase the percentage of house ownership (Floettoto, Kirker, & Stroebel, 2016). Nonetheless, during the economic crisis, the government-financed and controlled the mortgage firms (Aikins, 2009). Supporting this sector was critical for consumers and the national economy, as, otherwise, the potential outcome of this situation would be bankruptcy or economic default (Aikins, 2009). It could be said that introducing similar policies to the frozen food segment will contribute to fair competition and will assist in avoiding the adverse consequences of the labor crisis.
Complexities Associated with the Expansion via Capital Markets
Prioritizing the growth via capital markets might pertain to different challenges. In this case, the major complexities may be related to the mechanism of loans and bonds and conflicting interests of shareholders (Guigan et al., 2014). The primary drawbacks of using loans and bonds are the possible changes in interest rates (Weygandt, Kimmel, & Kieso, 2012).
Both of these instruments help acquire financial resources in the short-term, but the company has to consider fluctuations in the interest rates and design a sufficient schedule for the repayment. Not following these steps might be a potential cause for the low liquidity and solvency of the organization. Another risk is the fact that the shareholders might have different visions concerning the expansion strategy. Reaching an agreement might be the major challenge when determining the business units that require increased financial support.
Based on the factors highlighted above, the tactics and actions to confront these complexities can be proposed. In the first place, the management has to conduct a meeting with the shareholders to determine the core strategies and spheres that require investment. In turn, the company has to determine the sum of money, which has to be collected to meet the organizational goals.
Subsequently, the organization has to pay vehement attention to financial planning and budgeting activities and conduct continuous risk assessment analysis. Considering internal and external changes will assist in acquiring a clear image of the market and appropriate actions. It could be said that following these steps will help the case company to resolve the arising issues associated with the expansion via capital markets.
Convergence between Managers and Stockholders
Furthermore, the selected company should focus on building a trusting relationship between managers and shareholders, as these stakeholder groups define the company’s prosperity. In this instance, the main source of the conflict will be the distribution of cash in the organization, as the management will be considered the cash flow of paramount importance to maintain the company’s liquidity and attractiveness to investors (Noor, Nour, Musa, & Zorqan, 2012; Sharma & Saha, 2015).
In the meantime, the shareholders will be interested in cash and its equivalents, as it forms their return on shares and defines their profit margins (Sharma & Saha, 2015). In this case, establishing an independent auditory committee will be a suitable solution, as it will help explain to stockholders and management that the cash is distributed effectively to meet the needs of both parties.
One of the rationales to support the fact that introducing this convergence will have a positive impact on profitability is the common financial goals of both groups. In this case, the auditory committee will have a critical contribution to uniting the financial objectives of these shareholders. Highlighting the essence of profitability to both parties will have a positive impact on the cash flow and financial stability of the organization.
It could be said that aiming at the maximization of profits will help the management of the firm to expand business activities, and shareholders get a higher return on shares (Sharma & Saha, 2015). Subsequently, this convergence is vital for meeting organizational goals and complying with the firm’s projected revenue growth.
Another example is the fact that establishing a trusting relationship with the assistance of the auditory committee will help identify the appropriate sources and spheres for investment to optimize profits. At the same time, it will reduce expenses, as the resource allocation will be effective (Weygandt et al., 2012).
Alternatively, the shift in profitability will be a potential reason for attracting investors to the business and expanding its opportunities (Sharma & Saha, 2015). Subsequently, using the independent auditory committee will not only maximize the existent sources of the revenue but also will have a positive impact on selecting appropriate financial instruments.
References
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