Today, competition is an inherent aspect in a majority of the business organizations in the world. After the discovery of a business idea and the implementation of a strategic plan to set up the business in the market, other individuals, and organization develop an interest in the nature and scope of the business. As such, there are new entrants in the market who may have better strategies than the firms that have been in the market over the years. The level of competition depends on how lucrative a particular industry and can be in terms of the amount of revenue that the industry players can generate in the market. Industries with higher returns attract more market players, making it hard to operate and maximize the generation of revenue. The RIM Company is a good example of a company that has excelled in the telecommunication industry. Recently, the company has been the victim of intense competition, which has had an effect on its performance in the market.
The RIM Company takes the credit for the manufacture of the renowned Blackberry brand that commands a significant of the market share in the telecommunication industry due to the quality of its products. The company manufactures infrared display boards (LED) for the General Electric Company besides the production of the Blackberry mobile phones. In the recent past, the company has been the victim of intense market competition due to the influx of well-established market players in the telecommunication and the electronics industry. It is important for the management of RIM Company to address the issue of competition due to the diminishing market share of the company and the decline in revenues. The company’s management must address the negative effects caused by the increase in the level of competition. Due to the company’s on standing in the market, a majority of the stakeholders have invested heavily over the years. They expect the highest possible returns from the company. Taking their interests into account is primary for the company to mitigate the possibility of extreme losses and maintain the reputation of the company.
Given its past success in the market, the management at RIM has adequate experience and expertise to recover and deal with the competition affecting its performance in the market. In this context, the management has to consider the option available and decide the best option that will enable the company deal with the high level of competition. In the first option, the company will consider the option of a merger with another company in the industry, which matches the scope and nature of the business of RIM. Secondly, the management can expand the range of the products manufactured in the market to utilize all the opportunities available for the generation of revenue. In my capacity as the external auditor of the company, I will evaluate the implications of both alternatives extensively and determine the best option available for the management. In the end, a recommendation will follow the evaluation citing the best alternative available for the company in light of the growing competition.
Alternative Approaches of Dealing with Competition against RIM Company
Alternative 1: Formation of a Merger with another Company
A business merger refers to the combination of two companies or more companies into one entity. The stakeholders who have an interest in the company being acquired receive an offer from the proposing company to give up their stock in the current and acquire new ones in the acquiring firm. A merger is primarily the consolidation of the assets and the liabilities of two or more firms into one. The terms merger is often used alongside acquisition in a business. It is important for the management of the RIM Company to differentiate the implications and conditions in the two terminologies. An acquisition refers to a situation in which the assets and the liabilities of a firm are acquired by another firm in full. They do not share the liabilities and the assets. The management must understand the definition to ensure that it does not give up more than a certain percentage of the value of the firm to the acquiring company. The management will use the terms and condition provided on the merger to manage the escalating level of competition.
Merging with another will help to deal with the level of competition by increasing the asset base of RIM Company. The management should target the most competitive companies in the market, those offering the highest level of competition. A merger implies that RIM will also acquire part of the market share of its business partner. In this light, the company will have achieved its objective of expanding and growing its market(Carletti, Hartmann, and Spagnolo 31). It will have dealt with the problem of a diminishing, and the adoption of new strategies in the market by the new firm may guarantee a further increase in the market. In addition, the increase in the market share of RIM Company resulting from the merger implies that there will be higher sales after the formation of the merger. As such, the company will also manage the decline in revenue through the incremental profits generated through the acquired clientele.
The Risk Element of a Merger
When designing a strategy to deal with competition, the management has to make critical decisions that have a significant effect on the welfare of the stakeholders. Entering into a merger with another company is an example of such a decision. The consequences of the decision and the expected effects that it will have on the stakeholders makes it risky. It is important to note that the venture may not lead to the results expected. As such, the first element of creating mergers is the management of risk.
Merger arbitrage refers to the management of risk after two entities decide to merge their businesses. A merger refers to a strategy in which a hedge fund is used to buy the stocks of the merging companies simultaneously and create profit free of risk. The merger arbitrageur evaluates the fact that the deal to merge the two companies may not close at the time forecasted by the parties, leading to a worse scenario for the firm being acquired. Prior to the decision to merge the firm, the merger arbitrageur assess all the possible scenarios that could heighten the risk in terms of the deal’s failure. Such scenarios include the lack of adequate capital to pay the expected price for the stock, changes in the legal framework, and a resistance by a majority of the shareholders to approve of the deal to merge the companies.
Given that shareholders own companies, any decision to merge with another company is determined by putting it to the vote of the shareholders. The management of both companies has to convince a majority of the shareholders that the deal is viable for the company. Failure to do so implies that the management will have to take longer before they close. Such risks is eliminated prior to the onset of the transaction as the merger arbitrageur conducts a background check on the stakeholders and advice both sides of the management regarding proposals that will elicit the support of a majority of the shareholders. The arbitrageur must also derive some profit from the closure if the deal, enabled by the difference of selling the stocks of one of the companies at a discount. The fact that the risk involved can be managed makes merging the best possible option of increasing the asset base of the company and raise its competitive advantages.
The Legalities Surrounding the Decision to merge the Companies
If RIM Company intends to manage competition by merging with another company in the market, it is important to pay attention to the legalities involved after the closure of the deal. In most countries, Company law governs the conduct and operations of the company. One of the most lucrative companies that RIM can collaborate with is Samsung, established and based in the Korean market. Company law applies given that the firm is supposed to pay taxes to the relevant government. Such elements affect the cost factors of the merger such that the tax levied by the relevant government may be higher its current rate(Davies and Lyons 27). Taxes should be considered because they affect the income of the company and its ability to counter the competitors in terms of the acquisition of capital assets for production.
Considering the law of the host country is also important because some governments of the world are inflexible when it comes to direct foreign investment. For instance, there may be regulations prohibiting the acquiring company to buy more than a certain percentage of the company. Such prohibitions will affect the ability of the company to generate the profits because the acquiring company may not be able to access all the assets it needs to maximize the operations. The management must assess all the legal implications of the host country and assess the ways in which it affects the ability of the firm to perform in the market by limiting the independence of the firm after the merger. Stringent regulations imply that the merger with RIM will be limited to operate freely in the market and unable to beat the competition challenging the firm.
Davies and Lyons (2007) assert that the law has a variety of effects on the ability of a company to perform in the market (13). The authors assume that tax is the most significant effect imposed on companies by the implementation of the law. They argue that countries with lower rates of tax offer a better condition to firms in the market such that they can maintain high levels of competition if the other factors in the market are kept constant. They insist that the competitive advantage of the company will increase the rate of taxes decrease. The authors plot a graph of competitive advantage against the rate of taxes levied by a hypothetical government, indicating the manner in which the effects can accrue to a company in a merger.
The rate of taxation and the competitive advantage of the firm have an inverse relationship. A decline in taxation results into an inverse increase in the competitive advantage of the firm.
Effect of the Merger on the Employee base at RIM
The human resources are the most important assets of the organization. RIM has a skilled base of employee tasked with the manufacture of the products of the company and marketing them to the consumers. They are responsible for most of the variables associated with the firm because of the role they play in the output of the company. The creation of a merger with another company affects the human resources at RIM. There will be additional skill and expertise given that the merger will enable the free exchange of ideas and information between the two firms. However, the human resources have a wider application and scope regarding a company. It also applies to the other stakeholders who have a responsibility of influencing the output of the firm(Davies and Lyons 12).
As RIM enters a merger with a new company, there will be additional stakeholders in the picture, bound to have an effect on the organization. The management should consider a company with experienced personnel and better skill that can add a competitive advantage to RIM. Carletti, Hartmann, and Spagnolo (2003) argue that the efficiency of production methods in an organization has a direct relationship with the competence and expertise of the individuals using them. They argue that employees account for the largest percentage of the efficiency of the production cycle. They use the following pie chart to advance this idea.
Merging with another company will help RIM by improving the technical expertise of its employees and enabling the company to handle high volumes of production. A vertical merger emphasizes the need to increase the revenues of a company by focusing on the reduction of costs and making the process of production more efficient.
Alternative 2: Expanding the Product Line
Expanding the product line is elemental for the company because it acts to serve as a strategy to increase the market share or the revenue. The product line is the group of services or products in the same category. In this case, the product line of the Company is only on the mobile phones. As such, the expansion of the product line can take a variety of forms, including new versions of the existing products, upgrades to the existing products or new products. In this case, the Company can extend the product line to include the manufacture of other electronics as well with the LED components such as television sets. Other products in line with the product extension include music systems, iron boxes, refrigerators, and microwaves. Therefore, it will be elemental for the company to extend the product line based on a variety of issues (Kadiyali, Vilcassim, and Chintagunta 13).
The expansion of the product line is elemental to the company management from an external audit viewpoint, especially since the product of the company is at the late stages of the life cycle. Products of a company or an organization often move through four distinct stages, including the introduction, the growth, the maturity, and the decline. From the trend in the company, its product is in the final decline stage because it seems that it no longer meets the needs of the customers. In addition, the performance of this product, the BlackBerry, seems to be inferior to other products in the market, which have taken advantage of the newer technologies or materials (Kadiyali, Vilcassim, and Chintagunta 19). In order for the company to avoid losing business to the competitors through products of higher performance, the company needs to upgrade the existent product, the BlackBerry phones, or develop other products such as electronic appliances, music systems, and television sets that can create effective competition.
The expansion of the product line of the company will enable it to take advantage of the opportunities in various market sectors. The company can expand its products by customizing the existing product that matches the needs of the customers in different target sectors. Market opportunities encompass performing research on the potential or target market sectors to identify the different customer needs. For the Company, the management can instigate the collection of various public views on the preferences of the BlackBerry phone models. From these views and constant surveys, the company through the management can implement the measures to promote and increase the sales as well as its market shares. The Company can improve its products by developing its operating systems.
Introducing products that meet the varying customer needs is also essential to the company in its products line extension. As such, the encouraging of the feedback through monitoring of the customer comments or surveys on the social networks can provide valuable insight into the preferences and needs of the customers. High-level favorable comments on the product of the company or its features, which the competitors offer is important in the indication of the opportunities for the line expansion. Identifying the customer needs can encompass the inviting of the customers to contribute or collaborate to the development of the product line.
Evaluation of the Concepts of Product-Line Extensions
The extension of the products involves a variety of concepts some of which include the concept conjunction and the dominant concept. The principles of the concept conjunction explain which attributes of the existent attributes or a combination of the two will be significant for the emergent product line extension as regards the perception of the consumers. As such, this model would be elemental for the management of RIM Company in providing knowledge on the emergent concepts of product line extension or the combination of both the product line extension and the merging with other companies. According to the concept conjunction, necessary attributes for either of the two alternatives, merging with other companies and extending the product line, will also be significant for the new strategies of handling the issues facing RIM Company as regards the reducing market share and the reducing sales. Second, impossible attributes for either of the alternatives will also be impossible for the recommended alternative to solving the problem. For instance, good quality phones are necessary for the RIM concept. For this reason, the attribute of phone quality will also be elemental for RIM Company’s extension into music systems, electronic appliances, and television sets. Nevertheless, the attribute of LED lights is impossible some music systems or electronic appliances such as refrigerators (Kadiyali, Vilcassim, and Chintagunta 33). Therefore, LED inclusion is not going to be elemental for the new extension of RIM Company into electronic appliances and music systems. If one of the alternatives is necessary for handling of the declining sales but impossible for the market shares, then it is posited that the alternative would not be recommended for the implementation. The relative significance of the product extension will be dependent on the importance, effectiveness, and efficiency of the line extension in handling the issues of declining market shares and sales in the BlackBerry phones. For instance, product m improvement through the production of high quality and durable products is more significant than the LED inclusion in RIM Company’s product expansion into the music systems and other electronic appliances.
The model of product line extension, which includes the two concepts, is different from other forms and models of product line extension in distinct ways. First, the existent models of the product line extension consider only the initiatory stage of the matching between the existent forms of the product and the emergent concepts of the product line extension. On the other hand, the proposed model that RIM Company can employ takes one more process of matching into account. That is, between the expected emergent product extension, and the existent concept of the product line extension. The second stage is elemental because despite the consistency between the concepts of the product extension and the old forms or types of the product, and if the actual performance of the product line extension is not according to the expectations of the consumers, the emergent products from the product line extension is likely to be rejected. Second, the model identifies a variety of factors that can moderate the identified processes of matching (Prakash 11). These moderating factors can increase or decrease the significance of the available processes of matching the products’ forms concerning the extension. For instance, the expert consumers can give more weight to the processes of matching than the novice consumers because the experts may need to maintain the coherence of the knowledge of the products. In addition, the model takes into account the models and the differences between the individual product line extension for every concept.
Moderating factors are also other important aspects of the product extension. It encompasses a variety of factors that shape and define the effectiveness of the processes, especially for business organizations, such as the RIM Company, which are seeking to revive the market shares and the sales for its products. These moderating factors encompass two distinct categories, including individually related factors, which encompass the management of the RIM Company, and the product related, which constitutes the BlackBerry phones. For the individual elements, the first moderating factor is expertise. Expertise, especially from the management of RIM Company is fundamental when extending the product line. Experts have complex and detailed structures of knowledge of the category of the target product extension (Prakash 19). These knowledge structures enable them to understand the relationships between the varying attributes of the intended categories of extension. As such, in the context of the product line extension, the experts are likely to detect inconsistencies between the concept of the product and the new product line extension concept. Since there are possibilities of the extensions of the products of the RIM Company being rejected by the customers if they detect inconsistencies, the experts are likely to accept a lesser number of the product line extensions than the novices.
The model of the categorization used in the formation and determination of the product extension is also another elemental aspect of the issues of the extension the product. The model of categorization encompasses a variety of types. All instances of the categories for the product extension share properties, which are sufficient and essential conditions for the declining category, which is the case of RIM Company, is the product sales and market shares. Any of the products that do not satisfy the customers in terms of quality issues can be reviewed by the management of the RIM Company to make sure that they are in conditions that will be beneficial for the company. The in a group or out-group members are also elemental in terms of the extensive interpersonal contact that occurs with the members of the in-group, which, in this case, is the stakeholders of the RIM Company (Prakash 23). There are also other factors related to the product line extension. One of these factors is the degree of the product differentiation. The differentiation of the product extension refers to the variation in the products of the RIM Company. As such, the company can formulate elemental differentiation categories that will increase the sales and market shares of the products to annihilate the existent state of the company. Differentiation can encompass such issues as the formulation of subcategory levels, which include the essential.
For the RIM Company, alternative one on merging with other companies already established in the product diversification and extension like Samsung. The RIM Company can capitalize on these mergers to handle the stiff competition from other mobile phone companies. In addition, product extension may be costly to the RIM Company in terms of extensive research, investment in production of other products, distributing and marketing the emergent products. Nevertheless, the RIM Company should consider adopting the first alternative because it is less expensive than the product line extension and has a variety of significant contributions to the Company. First, the merging can lead to reduced costs. RIM Company can reduce its expenses by merging with other companies. That is; the company can trim the budgets for aspects such as marketing. In addition, the new and larger company realizes the greater purchasing power that lowers the costs of the raw materials, as well as other necessities. The merger of RIM Company can result in the layoffs of the staff as some of the positions in the company become redundant in the new and single entity. In addition, with the merged companies, RIM Company can share the office spaces and eliminate the duplicate facilities of manufacturing. Market penetration is another benefit of the company mergers, which makes the first alternative, fit for the company. By merging, RIM Company can be theoretically given the access to customers. This element is successful and plausible if the companies that RIM Company intends to merge with had demonstrated successful trends in the separate markets. Another significance of the company mergers is diversification. The merged companies with the RIM Company can offer a range of services and products. Since the offering of services and products through diversification can be complementary, the RIM Company together with the other merged companies can capture more customers than they would while operating as individual entities. For these reasons and benefits of the company mergers, the RIM Company should adopt and implement this alternative in its operations. It will be elemental because it will assist the company to overcome its challenges and handle the issues of failing market shares and the sale of the products. In addition, they will be essential for the success of the company.
Carletti, Elena, Philipp Hartmann, and Giancarlo Spagnolo. Bank Mergers, Competition and Liquidity. Frankfurt am Main: Europ. Central Bank, 2003. Print.
Davies, Stephen, and Bruce Lyons. Mergers and Merger Remedies in the Eu: Assessing the Consequences for Competition. Cheltenham: Edward Elgar, 2007. Print.
Kadiyali, Vrinda, Naufel Vilcassim, and Pradeep Chintagunta. "Product Line Extensions and Competitive Market Interactions: An Empirical Analysis." Journal of Econometrics (2010): n. pag. Print.
Prakash, Charu. Optimal Product Line Extension in an Oligopolistic Market: A Conjoint Based Decision Support System. N.p., 2009. Print.