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Managerial Economics Essay

1150 words - 5 pages

. Product design
The product design is the basis for the success or failure of the product and it does not focus on the design only but also the safety and efficiency of the product. A product holds the image of the company and is directly correlated with the market performance of a company in terms of increased market share and profitability.
Dawlance always aims to provide its consumer highly reliable, high performance, affordable and energy efficient home appliances. For this purpose the company has its in-house R & D department which provides the company the complete ownership over the product design and innovation by keeping pace with the technological changes and advancement .It ...view middle of the document...

Moreover, due to the competition in the market, component manufacturing firms are not in a position to exploit the company by charging higher prices. Hence it is cost effective for the company to buy some components from the market rather than manufacturing in-house.
The company owns manufacturing plants in Pakistan. It provides control and coordination throughout the company value chain by timely meeting the requirements of the market and responding to changing customer’s trends and demands. If the company outsources its manufacturing and assembly, it could be exposed to the risk of expropriation of information by others. Moreover the specificity of assets involved in the manufacturing and assembly of the products could lead to the holdup problem for the company. Trust, strong relationship and rigid contractual agreements could have incurred a high transaction cost. Also the incompleteness of contracts inherent due to bounded rationality, difficulties in measuring performance and asymmetric information makes it unfeasible for the company to opt for outsourcing .In- house manufacturing has avoided all these complexities.
The company is achieving economies of scale by producing its products by using the most cost effective technologies which allows the company to achieve cost effectiveness and enable to utilize its reserved capacity to create higher demands of its product.
3. Distribution
The company owns its own independent distribution network including its wholly owned warehouses and transportation system. The main purpose is to ensure smooth delivery of the products from its manufacturing base to its wholesale and retail location and warehouses. It enables the company to fully control its distribution process and avoid time delays which potentially could arise if it is outsourced.
Since there are large numbers of transactions including shipment from manufacturing plant to different warehouses and directly to retail and wholesale outlets, if the process is outsourced, variable cost per transaction would be high. This is avoided by the company to keep this process vertically integrated.
The vertical integration of distribution process involves large administrative cost due to increased staffing and coordination cost, but since the main objective of the company is to ensure timely and accurate delivery of its product to the market with adherence to the internal quality and safety policies of the company and to maintain good relationship with its retailers and wholesalers, vertical integration is feasible. Moreover the cost effectiveness of high scale of distribution also provides economic benefit to the company for being...

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