The revival of the Clayton Spa in Italy revolves around decisions to do with initial costs as well as welfare considerations for the long-serving employees. Additionally, the managers appear to be keen on long term profitability and not short-term considerations ("report on Clayton Industries case Peter Arnell, country manager for Italy"). Both decisions possess merits and demerits in varying measures and their success depend partly on the efficiency and partly on the due diligence of its execution. The ultimate decision by Peter Arnell will involve finding a balance between the two options he is exposed to and investing sparingly in either of the two options based on the revenue expectations from both decisions. As for option one, major steps thought to revive the plant and increase its profitability revolve around three major actions. These include mounting a massive sales and marketing campaign that will have people consume the compression chillers, a radical change in product development that will make the compression chillers the choice for most households and to employ measures that improve the plant efficiency. The second investment would be to work on Sanchez’s idea who has already asked Buis to fund the construction of a new major plant for production of absorption chillers in Spain. The investment would need to address Buis’ scepticism that the absorption chiller may never be any more of a niche market product. Sanchez however, is strongly convinced that the absorption chiller is the future of air conditioning and as such is the way to go for long-term posterity of the company. The merits and demerits of the final decision are analyzed here below:
Merits
• The layoffs will save the company on the costs that go towards employees who work in a company that is consistently making losses. The savings made can go towards offsetting the accrued debts from loans as well as fund the new investment decisions.
• By having the huge costs spread across one year for option one and three years for option two, it is possible for the proceeds of one investment option to offset the costs in the other making the entire operation smooth and avoiding excessive borrowing.
• By integrating the restructuring process, workers laid off in Italy could move to the new plant in Brescia avoiding the possible legal proceedings arising out of arbitrary layoffs.
Demerits
• The initial investment costs will eat into the savings of the company which is already struggling with revenue issues.
• There may arise legal implications in the handling of the layoffs which apart from eating into the company’s revenue, taints their commercial reputation which could complicate their expansion efforts.
• The final decision has not entirely abolished the production of compression chillers which may complicate their market penetration noting that the market is in favour of the absorption chillers.
Conclusion
The final decision for Clayton will require a further analysis of the revenue expectations for each decision to weigh against the investment cost as well as other non-financial implications of either decision. However, a surface survey of the two investment decisions indicates decision one as highly dangerous in that there may be no demand for the final product. Decision 2, while cost intensive, presents a future opportunity for Clayton Spa to compete with the market-leading rivals through production of latest technology air conditioners.
Work cited
"Report on Clayton Industries case Peter Arnell, country manager for Italy." Scribd. N.p., 2016. Web. 26 may 2016.
