Response Hyundai Cut Cost
All organizations should look for ways of cutting costs when they experience a decrease in profit. However, in implementing cost-cutting measures, it is important to start by establishing budget variances. This helps to identify the costs that have adverse variances. After identification, the management should look at the reasons behind the variances and establish how to rectify the variances. At this stage, the management comes up with methods of reducing the variances. These are the cost cutting measures that the organization should adopt. Another measure of cutting cost is adopting zero-based budgeting approach. In this approach, every expenditure item must justify its inclusion in the budget. This makes sure that departments do not keep increasing cost based on previous year budget and blame the increase on inflation. The other method that many companies adopt to cut cost is reducing labor costs. The method is implemented trough either laying off some workers or encouraging them to accept a pay cut. Laying off workers requires the management to incur the layoff costs i.e. sendoff package of the workers (Greenwood, (2002).
In case the drop in profitability is caused by a decline in sales as the case of Hyundai. It is important to look at the reasons behind the decrease. The reasons may be redundancy in the products manufactured, changing consumer preferences or entrant of competitors. The fortunes of the organization cannot change even after adopting cost cutting measures if the fall in profit is attributable to the redundancy of company’s products. Besides, decreasing profit attributed to increased competition should be handled by enhancing advertising and marketing strategies. This can even lead to increased cost. However, the cost will likely be covered by an increase in sales revenue (Greenwood, (2002).
Samsung Case Response
Samsung relies on economies of scale to reduce its cost of production and sell its product at lower cost than its main competitor Apple. In some cases, Production of various models makes it difficult to lower the cost beyond a given point. This is because every model has some specifications that attract unique costs (Mafoua, 2002).
The idea of continuously decreasing cost reaches a bottom end, and diseconomies of scale start increasing the average production costs. It takes long to reach this point when an organization produces products that complement each other. However, increasing differences in models and products can affect the ability to reduce average production costs negatively. This calls for Samsung to invest more funds in research and development and come up with just a few models that can serve a majority of the firm's customers. The company should also try to penetrate the market share of its competitor by producing highly efficient phones. The company will, however, have some advantage over its competitor Apple because of its diversification. According to Mafoua (2002), sharing capital resources and labor is the main source of cost saving for companies that have embraced product diversification. All the product lines of Samsung exhibit some economies of scale. However, the magnitude of the economies of scale varies with respect to product utilization of fixed costs. According to Mafoua (2002), there are two conditions that lead to economies of scale for multi-product firm. The first one is the joint utilization of quasi-fixed costs and the second condition is complementarily between products. Thus, the company should enhance the ability of using same fixed assets in the production of different electronics.
References
Mafoua, E. (2002). Economies of Scope and Scale of Multi-Product U.S. Cash Retrieved
Greenwood, R. P. (2002). Handbook of financial planning and control. Aldershot, Hants,
England: Gower.
