Question

Recent trends in globalization have forced businesses around the world to more keenly focus on profitability. This trend is also present in Japan, where historical links between banks and businesses have traditionally blurred the goals of firms. For example, the Japanese business engineering firm, Mitsui & Co. Ltd., recently launched “Challenge 21”. A plan directed at helping the company emerge as Japan’s leading business engineering group. According to a spokesperson for the company.” [ This plan permits us to] create new value and maximize profitability by taking steps such as renewing our management framework and prioritizing the allocation of our resources into strategic areas. We are committed to maximizing shareholder value through business conduct that balances the pursuit of earnings with socially responsible behavior.” Ultimately, the goal of any continuing company must be to maximize the value of the firm. This goal is often achieved by trying to hit intermediate targets, such as minimizing costs or increasing market share. If you as a manager- do not maximize your firm’s value over time, you will be in danger of either going out of business, being taken over by other owners (as in a leveraged buyout), or having stockholders elect to replace you and other managers. Source: “Mitsui & Co., Ltd. UK Regulatory Announcement: Final Results.” Business Wire, May 13, 2004.

Questions

1. What is (Challenge 21 ) plan of Mitsui & Co., Ltd.

2. What were the objectives of the management of Mitsui & Co., Ltd .

3. What are the threats of not maximizing a firm’s value.

Answer 1

1. What is (Challenge 21) plan of Mitsui & Co., Ltd.

The Challenge 21 plan of Mitsui & Co., Ltd. is a strategic move which will be opted by the company to emerge as Japan’s leading business engineering group. This will help Mitsui & Co., Ltd. in increasing their profit and creating and maintaining the dominant player in the market. The Challenge 21 plan is designed to help the company achieve sustainable growth.

2. What were the objectives of the management of Mitsui & Co., Ltd .

The objectives of the management of Mitsui & Co., Ltd .were:

• Renewal of management framework.
• Prioritizing the allocation of scarce resources to most strategic areas.
• Maximizing the shareholder value.
• Conducting the business ethically.
• Maximizing the value of the firm.
• Maximizing the market share.
• Minimizing the total costs of production and operation.

3. What are the threats of not maximizing a firm’s value.

If a firm’s value is not maximized over time the firm will become vulnerable to competition, the investors will start taking out their money and the sales will be hit which will inturn bring losses to the firm.

This can lead to a firm getting closed or being sold to some other player as nobody likes to operate a loss making enterprise if they are unable to generate profit from it.

The managers of such a firm may loose their jobs as the board will see them as inefficient employees and thus replacing them.