Question

Discuss the management objectives of a firm governed by the shareholder wealth maximization. For example, in the United States, the decision to shift production from a local factory to a foreign one may be based on the change of the NPV value as a result of such move. The owners may have only minor consideration concerning the impact that such change would have on the community and/or local employees. Explain your point of view carefully.

Answer 1

Management objetive of the firm is maximum value creation but it is genrally confused with wealth maximization. This is particularly becuse n major casates value creation is wealth creation. But Value can be wealth or any equivalent that can create wealth or boost wealth cration in the future.

In general, the management decisions of outsourcing or offshoring are seeded with cost cutting in short run to maximize prfitability oor wealth creation. Also, most of the time this decision are very fruitful and achieve the goal. bt many a times it isn't so.

If outsourcing or an offfshoring activity is a commoditized produc or input or a support activity then it servess the purpose. But if the deecision is motivated by cost cutting in short run and the activity being outsource is at the core of the business then the repercurssions are irreparable.

In a nut shell any managemment decision that jeopradises the strength of the business should not be outsourced or set loose out of management's control. if we analyze management decision makking by Porter's five force model all activities that have stroong force can be considered for outsource subject to its importance to management business.