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Project description : Case: Tork Corporation: Competitive Cost Analysis, UVA-OM-1171, (2005)
Darden Business Publishing, Laseter and Hammer
1. What are the primary cost drivers for room air conditioning? How do the drivers differ between LG and Tork?
2. Is LG’s cost advantage in the small room air conditioning unit sustainable? What are the key risks
only answer this two questions for this case study. from now I have 9 hours to submit this answer
4. How should Tork respond to the LG offer? Why?
Answer 1
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Place Your Order1. When the cost elements of both the companies were grouped together, and the basic accounting elements were also considered. It can be seen that the cost saving of LG per unit varies by approximately $10 for calculation of both. Further, from the case study and the appendix provided below it is clear that there is a significant difference between the material costs for both the companies when broken down on the basis of the component vs. the material cost. The cost was broken down into four components i.e. design, facility, geography, and execution.The cost advantage for Tork can be seen as considerably low as compared to LG. Hence buying the small room air-conditioning unit from LG would be more cost effective and sustainable as compared to the Tork. This sustainability in the market can be beneficial owing to the low competition in the market resulting in the higher sale. This way LG can make a place in the US market efficiently. The primary risk associated with the model can the high probability of facing legal dumping charges as their low-cost advantage can be as opposed to the fair charges policy.
Answer 2
2. Tork should accept LG’s offer as the acceptance of offer reflects the underlying cost advantage of the company and not much focus would be laid on the anticompetitive dumping. As Tork was further burdened by dilemma owing to the continuation of production of low-end units or either buying from LG. Further, there is a dilemma owing to the persuasion of a legal battle against LG for selling their products below the cost. Thus, acceptance of the offer would in turn benefits Tork in reducing the costs as well as increasing their margins. Further, it would also help LG for gaining a direct entry to the territory of Northern American market as Tork is an already established brand there.
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