Lester Electronics Gap Analysis: Merger with Shang-Wa

Lester Electronics Gap Analysis: Merger with Shang-Wa

  • Submitted By: KeithTodd
  • Date Submitted: 02/09/2009 4:45 PM
  • Category: Business
  • Words: 2706
  • Page: 11
  • Views: 603


Gap Analysis: Lester Electronics
Keith Todd
University of Phoenix Online
December 27, 2008
Instructor: William Mellett

Gap Analysis: Lester Electronics

As the economy becomes increasingly globalized, many firms are engaged in international activities such as exports, cross-border sourcing, and joint ventures with foreign partners, and establishing production and sales affiliates abroad. The cash flows of such firms can be quite sensitive to exchange rate changes. The objective of managing operating exposure is to stabilize cash flows in the face of fluctuating exchange rates. Since a firm is exposed to exchange risk mainly through the effect of exchange rate changes on its competitive position, it is important to consider exchange exposure management in the context of the firm’s long-term strategic planning (Eun-Resnick 2004, pg.299).

Approving the merger with Shang-wa will open up new opportunities for Lester Electronics (LEI). However, LEI has never marketed domestic made products outside of the United States. In analyzing which decision to make, LEI must consider the operating exposure that is probable when a merger with Shang-wa takes place. To manage operating exposure, the firm can use various strategies, such as (a) choosing low-cost production sites, (b) maintaining flexible sourcing policy, (c) diversification of the market, (d) product differentiation, and (e) financial hedging using currency options and forward contracts (Eun-Resnick 2004, pg.299).

Lester Electronics (LEI) is at a vital crossroads concerning the continued growth and success of the firm. Bernard Lester must change his management style to incorporate the merger with Shang-wa. A merger between LEI and Shang-wa will enable both entities to meet growing demands for products. John Lin of Shang-wa also feels pressured to sell to Transnational Electronics Corporation (TEC) if Shang-wa fails to...

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