Question

Please write the below answers in an 2-3 essay paraghraphs.

How can a business stop growing to improve its profitability?

a. Give at least 2 actual examples of organizations that STOPPED growth in one or all of its units

b. How has this decision benefited these firms?

Answer 1

The profitability of business is largely depends on the ability of its product which it produced and sell in the market. The products features are the key things which set the demand of the products. Its every important for every organization to have an control on its cost which they spend on the production of the products. If an organization think that by stopping the production of any of its firm will enable them to earn more profits. then there are certain areas are there in which the organization have to take some crucial decision like:

1. Which unit has be to stopped ?

2. How much cost will be involve on this type of decision ?

3. What they will do with the staff, plant & machinery of the units?

4. Whether they will used their existing property or they have have to purchase new things for production ?

5. Can they re-launch the product after modification?

6. What possible impact it will have on the market value of firm and its shares?

Company can increase its profitability by controlling its cost. There are two major category of costs exist known as fixed cost and variable cost. Variable cost are those cost which change in direct proportion with the change in the level of production. And fixed cost is a cost which remained fixed irrespective of change in the level of production. So, fixed cost is ot considered for the purpose of decision making.

There are few ways by which an organization can increase the profitability of the product:

1. By increasing the selling price of the product.

2. By reducing the variable and other cost of the products.

3. By shifting to the production of those products whose profitability is very high.

Practical Example Company 1: Bombay Dyeing Company, Mumbai, India based company turned it self into textiles business only after suffering loss in early 1990s. Because the Indian Merchant stopped importing clothes from China so company find there exists ample amount of scope in the textiles business rather than staying to dyeing business only and company is earning pretty well since then. It has help them in this way:

1. The become the core and main supplier of textiles for the Bombay for a longer period of time.

2. It has also help them to develop competitive advantage over others.

Practical Example Company 2: Shalimar paints, India Based company is another example of those companies which have stopped the production of its one unit but still earning good profit. It is the oldest paint company in South East Asia had decided to stop the production of ubiquitous distempers to emulsion paints production of paints only. And that are still earning good amount of profit. It has help them in this way:

1. No other company was there which was producting water proof paint. So they occupy the market.

2. They started producing water based and decorative colors which was unique in the market. It created huge demand in the market.