Strategy Paper: labour intensive and capital-intensive

Question One

If I were Mr Soderberg, I would recommend that Mr Reynolds accept the Silicone-X project the on the labour intensive basis, and then on the capital-intensive basis when the market will have developed. The projected would help to improve the competitive edge of the company and enable it to respond to the demand in the market. Currently, the company earns over $ 1 billion and the additional product, the Silicone-X, would add to the company’s revenue in the short run. According to the estimates, the labour intensive method would require the initial cost of $ 900 000 whereas the capital intensive will require $ 3300000 and will take the first two years to materialize. Despite the high expected return from the capital intensive projected the 20% cost of return analysis indicates that the company would have a negative net present value of the cash flow. This means that in the short run, the labour intensive method is the best method of meeting the managers demand given the unpredictability of the market demand and expected the performance of the product in the market. Despite the fact that capital intensive is better in terms of break-even analysis and economic analysis, it is advisable to start with Labor-intensive method because the failure of the product would not result in much loss to the company.

Question Two

The effect of competition is essential to the decision-making. The use of the labour intensive method would allow the company to enter first into the market and establish its customers before others, however, this method is not effective in expanding if the demand would increase. It would also be ineffective if the competitors decide to compete on the price basis by reducing the price, reduction of………………….