Case Study: Jewell Company
- How might JC’s diversification strategy create value (regardless of the Plastico acquisition)?
JC’s diversification strategy could create value in two ways. First is that it would help JC increase the value of their products. Second is that it could help decrease the cost of production of different items. In other words, they can utilize economics of scale and economics of scope. As we know from the economics of scale, an increase in the production of different products can reduce the average per-product cost. Hence diversification could let JC exploit economics of scale. JC would also utilize the economics of scope as they would be spending less finances on producing in bulks than spending on the production of each item.
With diversification, JC would potentially increase the return on their investments on their core competencies.
- Why might the acquisition of Plastico be good for JC?
Following are some of the ways in which JC can benefit from the acquisition of Plastico.
- Acquisition provides a synergy to organizations. JC would be able to increase their customer base and market share by acquiring Plastico as Plastico already hs a customer base.
- Plastico is reported to have issues in controlling their finances. Especially their cost are getting out of control. On the other hand JC has an efficient financial and accounting system. JC can utilize their financial and accounting expertise to manage the financial issues of Plastico.
- Plastico acquisition would allow JC to benefit from its existing competencies. Plastico has strong production experience. They utilize innovative techniques in their production processes. JC can benefit from the innovative knowledge set of Plastico to improve their production capabilities.
- JC would also be able to leverage its existing customer base by offering contracts and distribution systems to the existing customers of Plastico.
- What difficulties might you expect JC to encounter related to its acquisition of Plastico?
Acquisition may be a good step that JC could be taking but it does come with its shortcomings. Following are some of them:
- JC’s other competitors are also interested in acquiring Plastico. There is a bidding situation in which the highest bidder wins. This could mean JC over spends on the acquisition process and end up in debts and financial difficulties.
- Acquisition does not always mean a success. The two firms may have different organizational constraints that could make the acquisition a failure. JS may concede a net loss instead of a gain.
- JC is looking forward to benefiting from the R&D expertise of Plastico. To get these benefits, the R&D staff would need to be intact after the acquisition. If all or some of the R&D staff decides to quit, JC won’t get their desired benefits.