Benchmarking for Bernard Lester

Running Head: BENCHMARKING FOR BERNARD LESTER

Benchmarking for Bernard Lester

University of Phoenix

June 05, 2008

Abstract

A possible first step in identifying potential solutions is to find the best practices of those who have faced and solved similar problems. Investment alternatives can produce different results. LEI, Inc., is faced with a decision to partner with their leading supplier of capacitors, Shang-wa, or risk losing 43 % of its revenue over a period of five years. Team B will present several benchmarking companies that are similar to LEI, Inc. and discuss the outcomes. Team B believes that the merger of LEI, Inc. and Shang-wa would resolve several issues for both companies and would prove to be very profitable for both companies.

Investment Alternative: Benchmarking for Bernard Lester

Most corporate growth occurs by internal expansion, which takes place when organizations existing departments grow through normal capital budgeting activities. However, the most dramatic examples of growth and often the largest increases in stock prices that result from mergers. Many reasons have been proposed by financial managers to account for frequent merger activity. The primary motivation behind a merger is that it provides an opportunity for both companies and increase the value of the combined enterprise.

One commonly used research tool available to organizations is benchmarking. The purpose of benchmarking is to identify the best practices within the industry and implementing those processes into the current business. Where does a person find it? Perhaps a business should model its solution on what the best among its competitors have done in a similar situation. This is called “competitive benchmarking”, and it reflects two problems, one obvious and one subtle. The obvious shortcoming is that competitors are not likely to share and surrender a competitive advantage. Less obvious is that if the problem is more generic than specific to the industry, it may have been excluded from consideration the majority of organizations, one of which might have discovered the best answer.

Lester Bernard, founder and CEO of Lester Electronics, Inc. (LEI), currently markets its products to small- and medium-sized original equipment manufacturers as well as small local distributors throughout America and Europe. Lester Electronics, Inc., is currently the leading distributor of capacitors in the United States for Shang-wa Electronics. Additionally, LEI and Shang-wa have been in business together for over 35 years and are discussing the idea of a joint venture that could strengthen both companies within the industry and remove them from a potential acquisition. A review of wealth maximization metrics would help determine the merits of such an agreement. At the same time, Transnational Electronics Corp (TEC) has contacted Shang-wa in hopes of acquiring their business to expand globally.

One of the main issues is that if LEI loses Shang-wa as a manufacturer, it could lose over 43 % of its revenue over the next five years. Bernard Lester has requested a capital budget for the joint venture and a copy of Shang-wa’s most recent financial statements to review. According to Ross, Westerfield, and Jaffe (2005), capital budgeting describes the process of making and managing expenditures on long-lived assets. Another issue is that Peter Zack contacted Lester Bernard on behalf of a client that is interested in acquiring LEI. Mr. Lester requested that Mr. Zack forward a two-way non-disclosure agreement to him for review. “A nondisclosure agreement is a contract in which the parties promise to protect the confidentiality of secret information that is disclosed during employment or another type of business transaction” (Nolo, 2008).

Compare and Contrast with Other Companies

In corporate finance one learns that the purpose is to work to help find money to run the business, grow the business, make acquisitions, plan for the company’s financial future, and manage any cash on hand. John Lin, founder and CEO of Shang-wa Electronics, and Bernard Lester, CEO and founder of Lester Electronics, were in the process of partnering together. The new partnership would allow them to establish a new capacitor manufacturing facility in an Asian country. They both agreed the partnership would be valuable to meet the increase