Lester Electronics Benchmarking

Introduction

Lester Electronics is a company that is facing financial decisions for short and long-term goals. A company such as Lester Electronics began by the sole proprietor Bernard Lester who entered an agreement with Shang-wa to distribute products within the United States. Both companies are being approached by two different companies (TEC and Avral) that may separate the bond between Lester Electronics and Shang-wa. Both companies are seeking to continue their long-term investments to their employees, customers and shareholders.

Benchmarking strategies are an excellent resource to evaluate the decision these two companies must face. Lester Electronics will decide alternative solutions based on benchmarking companies such as Google, Inc., Microsoft Corporation, Ford and General Motors, Thermal Fisher Scientific and others. The companies benchmarked in this paper will demonstrate the challenges they endured and the outcomes that will create the alternative solutions for both Lester Electronics and Shang-wa.

Net Working Capital Management

Capital can be defined as “the money, property, and other valuables which collectively represent the wealth or an individual or business” (Investorwords, 2007). Net working capital, or the amount of resources available to an organization for use in sustaining and growing business levels, is calculated by subtracting current liabilities from current assets (Ross, Westerfield, & Jaffe, 2004, p. 26). Stephen Payne, president of Hackett-REL, a well-respected capital management consulting firm, points to the emphasis placed on capital management by financial analysts as having impact on an organizations cost of borrowing. Research by Hackett-REL indicates that as much as $450 billion may be unnecessarily tied up within the United States’ top 1,000 corporations (Myers, 2006).

Any negative change in Lester Electronic’s net working capital may subject the organization to increased scrutiny by lenders and investors. LEI may be compared against industry leaders in the distribution marketplace such as Brightpoint with its 13.1 Days Working Capital (DWC), the industry median of 49.9, or the industry’s worst performer, MSC Industrial Direct of 106.6 days (Myers, 2006). Preliminary analysis of the individual and combined Current Ratios of LEI and Shang-Wa indicate that Shang-Wa has a higher Current Ratio but lower net working capital. LEI can best manage its net working capital by emulating Brightpoint’s system of managing credit for decreased Days Sales Outstanding through effective collections and credit-granting processes within its domestic operations and extending those mature processes to any new international operations that result from mergers, acquisitions, or joint ventures. Thermo Fisher’s process of spinning-off emerging technologies through an initial public offering of minority shares may also help LEI and Shang-Wa insulate themselves from the early losses incident with starting operations in a new country. TFS’s method of placing well experienced insiders on the boards of spin-offs and keeping majority interest may help LEI maintain continuity between past management practices and the new operations’ early development (Wayland, 1992).

Growth Opportunity and Partnerships

The issues that are affecting Lester Electronics and Shang-wa are the potential for growth opportunities and partnerships. Many firms have growth opportunities to invest in profitable projects. (Ross, Westerfield, & Jaffe, 2005, Chp. 5 pg. 18). Both companies have the potential to expand their clientele outside their international boundaries if the two companies merge with each other or with the competing companies TEC and Avral.

Google, Inc merging with Double-Click is an example of growth opportunities for both companies. The combined entity could control up to 85% of the online advertising market, which is a high percentage unless someone happened to sell desktop operating systems (Anderson, 2007). A larger company merging with smaller company has increased the revenues to create a partnership. These companies demonstrate the potential of joining two separate companies to benefit each other. Lester Electronics will benefit merging with a company that has an increased shareholder investment therefore both companies will gain in the end. As a final result, Google corporate management and the Double-Click shareholders win. Double-Click shareholders succeeded in being the first to pry open the cash acquisition purse strings of Google netting in billions in capital gains.

The other major issues are the partnerships between Lester Electronics and Shang-wa. Both of