Core issues * The majority stake of IskraEMECO is held by the firm’s employees. The problem that arises from this structure is any potential changes to business operations may be opposed by the firm’s employees. * Long-term market demand trends favor production of the electronic meter. Production of the electronic meter represents only 10 percent of total production. * Roughly 87 percent of the firm’s sales are made in foreign markets. Of those foreign sales, 50 percent are made in Germany. As the Tolar strengthens against other currencies, those countries will seek electricity meters from more cost effective sources.
Short-term solutions * IskraEMECO should invest in forward contracts with the German Mark to lock in the exchange rate. The forward contract will act as a hedge against any price negative price movements in the German Mark against the Tolar.
Long-term solutions * Initiate a share buy-back program where the firm’s management looks to gain the majority stake in the company. Since IskraEMECO is publicly traded, management can purchase these shares in the open market. The first portion of the program should focus on retired/former employees because they have no vested interest in the company. If management is still a minority holder, they could offer to buy-back at a price higher than the market in order to attract sellers. * Increase the production of electronic meters and reduce production of classical meters. The change in production ratio will essentially pay for itself. The reduction of labor cost associated with the classical meter can be allocated to the cost of producing the electronic meters. With the increasing amount of demand for electronic meters will lead to increased sales for the firm.
Assumptions
* IskraEMECO is a publicly traded company * Major changes in operations require employee consent * The