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Black and Decker Firm Case

Introduction

Black and Decker is an International Corporation that has been in existence since its inception in 1910. The corporation deals with power tools for house use, accessories, and hardware. The organization has global reputation in production of excellent products that meet the needs of their customers effectively. However, just like other business ventures Black and Decker faces stiff competition from other metalwork producers, who do everything to eat into its share market. Therefore, the organization has developed some strategies to contain the escalating competitive pressure. This report is a critical analysis of firm’s strategic plan and its effectiveness in dealing with international market requirements.

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Objectives

Black and Decker Corp have several objectives that govern its international operations. The most outstanding objectives are, to enhance continuous development in production of superior quality and sustained success. The second objective is to use direct marketing in product recall. Third objective is to institute public relations in product recalls, which is to manage product recalls on product brands. Finally, the organization strives to develop good customer understanding and mutual relationship.

Strategic Plan

Strategic planning is a means through which organizations meet their intended goals and obligations. The future of Black & Decker Corp is anchored on a strategic plan, which is evaluated on a regular basis. The strategic plan has been designed to provide a clear guideline on how to achieve the organizational objectives. Mainly, the strategic plan provides room for more franchises to strengthen the brand name; this is based on the firm’s principle of investing in innovation and research to produce better and quality products.

The Corp is willing to consolidate acquisition to augment its economic performances. Apart from solidifying its economic performances, the organization is also aspiring to increase its output margins due to increased capital base. In order to increase its performance on different planes, the firm aims at reinvesting at least two thirds of its profits into creative acquisitions while they allot remaining third to the shareholders. Since 2004, this strategic plan has had positive outcome; it has facilitated the firm to enhance rapid infrastructure investment as well as replacing outdated machinery with ultra-modern facilities. The firm is also carrying out research on identifying customers’ needs as well as developing modalities of strengthening the business-customers relationship.

Business Model

Being an international organization, Black and Decker Corp has invested heavily in streamlining its management to improve on its productions. Since the organization appeals to an international market, the organization assumes a geographical management structure with regional offices to serve the local branches. The many regional offices are situated in Europe, with some in Asia and Latin America (Black & Decker, 2010). All these branches work in harmony with the head office in New York.

Black and Decker have a wide range of products and assortments in offer such as; home appliances, power tools, electronic accessories as well as security devices. The wide product mix has done magnificently well in providing a stable revenue throughout the year. Apart from increasing its product assortment, the firm is also doing well in ensuring that the organization has diversified its production to increase their coverage. This venture has not only generated new revenues but it has also made it possible for the organization to popularize its brand name.

The organization sells its products to home and wholesale distributors in the U.S. and Europe (Black & Decker, 2010). Records reveal that its products are increasingly becoming popular in other continents such as Asia and Latin America. While the retail sales in U.S. have recorded decreasing sales margin from 2002 to 2010 from 40 per cent to 14 per cent, the electronics, security and engineering appliances have recorded increased growth in sales.

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Black & Decker Corp has a well-organized internal operation mechanism that has fostered smooth allocation of resources (Black & Decker, 2010). The management is guided by the strategic plan to allot resources in all departments in the organization. As indicated above, two third of the total cash flow balance is reinvested in the business while the remaining third is distributed as dividends. The amount that is reinvested is usually subdivided and channeled to the different departments to meet their operation cost. However, the largest proportion is usually allocated to the Research & Development department to cater for research, innovation and development of superior products

The firm has not single handedly managed the rigorous requirements of the international market. The management has committed itself to a number of franchise agreements, takeover bids and mergers. Recently the organization announced a joint venture arrangement with Shaghai-based GMT. Mergers are essential tools to increase competitive edge for an international business. This venture not only provides substantial revenues of over $ 40 million but it allows the Black & Decker to venture in one of the most lucrative markets in the world. All these have been vital decisions made to guarantee the desired performance outcomes by the organization.

Ideally, all these ventures have helped the organization to expand its geographical portfolio as well as increasing its performances. Generally, the firm’s mergers and acquisitions have given the organization new impetus to achieve its objectives and goals.

Strategic Risks

All business ventures strive to be risk averse. However, since businesses operate in a risky environment, management is vulnerable and could easily fall victim to these risks. On the other side, it should be understood that risks provide a host of opportunities when they are exploited successfully. In the case of Black & Decker, the management faces both business risks and non-business risks. One business risk that the firm faces is rapid geographical expansion.

When the firm expands rapidly in terms of physical capital, the management may have a problem in management of cash flows. This often happens due to high amount of capital expenditure that may make it impossible for the firm to meet its short-term obligations. Secondly, the Black & Decker is facing the risk of negative political interference. Operating in a new country is restricted to many registration regulation and lengthy bureaucratic structures. All these make it difficult for the firm to go about its internal operations with ease.

While there are more opportunities in the international market, Black & Decker’s management has had to employ a number to strategies to deal with many presenting problems. To tackle with the challenge of maintaining a positive cash flow balance, the management has engaged qualified accountants and auditors to evaluate business performance to avoid negative cash flow. The problem of rapid expansion can be solved by adopting low cost capital as well as improving on capital allocation mechanisms. To deal with negative political interference in the different nations, the organization engages in mergers and acquisition of players in host countries to circumvent negative trade control mechanism in host countries. These easing mechanisms are bound to help the organization to reap substantially in the international market.

Accounting Risks

Participation in international mergers and joint ventures has subjected Black & Decker into accounting risks. This is because some organizations employ different concepts in preparation of their financial statements. Apart from this, another issue that emerges is the use of different currencies whose value varies often compared to dollar. Such factors provide room for financial misstatement, which makes it difficult for accountant to harmonies the mess. For instance, the accountant Shaghai-based GMT joint venture may use a higher value of dollar compared to the Chinese currency. This would imply that the amount received by Black & Decker would be relative less than the actual amount that was earned.

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Although the firm uses the weighted-average exchange rates, any erroneous calculation means that the firm will receive a wrong figure (Black & Decker, 2010). However, adoption of the weighted-average exchange rate complies with the international accounting standards. The other risk that face Black & Decker may involve subjecting non-inventory items such as inventory and property usually valued at a historical cost in on a current currency exchange rates rather than the rates when the transaction took place. Currencies should be translated to have a similar base as the home currency, failure to which would lead to erroneous figure (Financial accounting standard 2011). Accounting requirements in the Financial Reporting Manual (2011), call for the all-international transactions to be reconciled with the US dollars. This makes its straight forward for the accountants to have a uniform base.

In case of merger, the organization will face some challenges in harmonizing their accounts. This will require application of a carryover method, which requires combination and liabilities. Assets should be disclosed while all issue should be recorded accordingly (Financial Accounting Standards, 2009).

Treatment of Good Will and Other Intangibles

Black & Decker Corp does not amortize the goodwill and intangible assets, which have indefinite life span. Such assets are tested at the end of the year for impairment; however, such assets require a fair determination of the long-term value. This process requires determination of the future growth prospects. Indefinite-lived assets value is compared with the current fair market, which is done by comparing the cost of leasing to third parties.

On the other hand, intangible assets are amortized over their full life. However, according to the new amendment that was affected by Financial Accounting Standards (2010), Goodwill and other intangible assets are not amortized. In its place, good will shall be tested for impairment during report period reporting. According to the definition impairment is the condition of that prevalence when the goodwill surpasses the implied fair value. Goodwill fair value is measured as the residual of but not directly.

Corporate governance

Black & Decker has adopted a geographical leadership structure with officers that are in charge of regional branches. Mr. Lundgren John is the president and CEO of the organization. He is given stable leadership backing by the board of directors that help him in decision-making and implementation of the strategic plan. The board of directors constitutes of several committees, which forms the basis for stable financial control to ensure production of reliable financial records.

The main committees formed are the finance committee that oversees all financial transactions and decisions. There is management committee that focuses on management issues as well as deliberating on merger and acquisition negotiations. This committee also supervises development and innovations processes. Finally, the board of directors forms the technological committee that enhances compliance with the latest state-of-the-art in all its operations. Effective executive and the board of director’s reinforcement have provided a steady foundation for the future achievement of the organization goals.

Conclusion

The Black & Decker brand has been in existence long enough; it thus enjoys rich historical advantage or brand salience. However, the firm has not relented in improving its performance through continuous innovation. This zest has made the firm to merge with bigger firms as well as forming joint ventures to augment its revenues as well as penetrate new markets. Despite the demanding nature and challenges of operating in the international market, Black & Decker is committed to and complies with international accounting standards to avert any accounting risks.

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Furthermore, the CEO and the board of directors have played a critical role in ensuring Black and Decker has a competitive advantage over competitors. They have formulated a practical strategic plan that is helping the firm to move forward. With all the efforts displayed, Black & Decker is likely to continue enjoying dominance in the international market.

Reference List

Black & Decker. (2010). The 2010 Annual Report. New York: Black & Decker.

Financial accounting Series. (2010). IntangiblesGoodwill and Other (Topic 350). Web.

Financial Accounting Series. (2009). Statement of financial accounting standards No. 164. Web.

Financial Accounting Series. (2011). Summary of Statement No. 133. Web.

Financial Reporting Manual. (2011). Division of Corporation Finance. Web.

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