Question

• Problem 4-21: Repro Corporation is a leading manufacturer and seller of office equipment that is considering diversification into the service industry. o Discuss the conflict that will result if the service division is introduced.

Answer 1

Repro Corporation is a leading manufacturer and seller of office equipment that is considering diversification into the service industry. The diversification into the service industry will result into many conflicts between operations of manufacturing and selling division with the service division on followings:

1. Heavy capital investment: The service division will require more capital investment in the fixed assets with low return on the capital employed in the service industries.
2. Investment in Spare parts and supplies: In the service division, there is always a need for investment in the spare parts and supplies for the repair and servicing purpose of sold out units.
3. Diversion of labor more towards service division: The entry into the service division will require diversion of labor force to the service division as servicing is more a labor job then technical.
4. Division of Managerial skill: The strength of the company ie. Management got divided between Manufacturing & Selling division and Servicing division. This will weaken the managerial and other technical knowhow of the company.
5. Lack of control: As the arena of the operation of the company has increased since past, so the controlling the operations would become a difficult part for the company.
6. Reduction of margins: As manufacturing and selling division has higher margins and servicing division has lower margins, so the company’s overall margin could reduce which is not liked by Stockholders of the company.

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