Star River Electronics is a joint venture between Starlight Electronics Ltd., United Kingdom and an Asian venture-capital firm, New Era Partners. Star River Electronics is based in Singapore. It manufactures and supplies CD-ROM’s to major software companies. Due to its production of high-quality discs, Star River gained fame in the industry. Even though the volume of sales is increasing, there is a fall in the unit prices due to price competition and the growing popularity of substitute storage devices, mainly DVDs. With newly installed capacity, the company hoped to increase the proportion of revenue from DVDs.
On 5th of July 2001, Koh was appointed as the new CEO of Star River Electronics and on her first day itself she had to make several financial decisions or with outcomes that will have major financial implications for the firm. The following analysis will state the problems in Star River, analyze the situation, explain the major strategic alternatives, list the criteria for decision making, analyze the strategic alternatives and recommend a list of actions for Koh to deal with the current situation at Star River.
New Era looked at Star River as one of its promising venture-capital investments. But this optimism cannot be warranted until they get a solid understanding of the firm’s past and future performance and find out the significant positive and negative insights. Also, Koh is not sure, whether they can repay the bank loan within the reasonable period. To avoid over borrowing from bank, Star River has to request its parent companies, the New Era Partners and the Star River Electronics United Kingdom for an injection of equity. For this, the company has to offer an attractive return on equity, so that the investors will consider their request for further investment. The plant manager is requesting for a new packaging machine and Koh will have to decide when to make this investment.
Star River Electronics manufactures and supplies high quality CD-ROMs to software companies. Its growth was rapid in the mid-1990s along with the industry, but the small manufacturers proliferated creating an oversupply that pushed down the prices by 40%. The volume of sales for the past two years were high, however, the unit prices had declined because of price competition and the growth of substitute storage devices, particularly the DVDs. Star river had begun to experiment with DVD manufacturing and is hoping to increase the proportion of revenue from DVDs.
The historical performance of Star River Electronics shows the following:
• The operating profit margin has went down in 2000 and even if there is a slight increase in the 2001, they are comparatively lower than the 1998 and the 1999 profit margins. This decrease shows that, lower funds are only available to the share holder’s equity after paying up the fixed costs. The reduction in the operating profit margin is mainly due to the increase in...