Merton Electronics Corporation Harvard Case Solution & Analysis

Merton Electronics Corporation Case Study Solution 


Merton electronics founded in  1950. Thomas Merton was the founder of the corporation, and father of  Patricia Morton, who is the current president of the company, and also have majority holding of approximately 65% holdings of the company, rest of the holding is held by her father’s  brothers and sisters and their families and long service employee.

In the beginning, the corporation was only dealing in Gec products which are large manufacturers of electrical and electronic appliances for consumer and institutional market, by the time broaden its product lines by importing consumer electronic products from Japan and after four-year they entered into an agreement with Goldstone Corporation based in Taiwan. List of products added in addition to Gec by Merton Electronicsare recorded, compact disc, and other non-competing electrical appliances.

Martin maintained efficiency in another areas like operational improvement is maintained, working capital and cash flow are in control. Although she had secured additional loan and other liabilities pushing her corporation’s credit line.

Problem statement

Company although have increased sale in the present year but at a slower pace that it can be in this fast growing market. One of the essential reason is the involvement of foreign currency. Merton previously exposes to foreign exchange risk for that the Corporation have entered into aforward contract for Japanese currency only as a prudent but later on, due to theweakening of foreign currency hedging became failed.

Summary of Financial situation

Martin Corporation has 12% growth in the current year in the highly emerging era this may be due to the incorporation of the cost effect into the price of the import products. In 1997, gross profit of the corporation was facing a decrease of 2% may be due to additional hedging cost. But net profit showing  a huge decrease due to rise in fixed and variable cost, this area also needs to be taken into account.

Merton Electronics Corporation Harvard Case Solution & Analysis




An Analysis on each of the alternative

Martin wants a brief report on cost and risk in each of alternatives, which she can apply in her business to mitigate therisk of falling margins.

If do nothing

The company here can “win some or lose some.”In consideration with aneconomic face if it had forecasted no drastic change in the currency fluctuation, the company have an option to do nothing as it is saving the hedging cost. Like Martinhad faced in past 18 months while foreign currency got weak which they bought in advance 1.5 times more expensivethan the spot date.

Invoice in home currency

One simple way is to insist Goldstone Corporation and Fuji Electronics deal withourdollar, it will divert the risk from Merton to the suppliers, although both the parties are strong and it will be difficult for the Corporation to mold their decision.................

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