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Question_1b_Essay

Question_1b_Essay - Question 1 Introduction Baldwin has had...

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Question 1 Introduction Baldwin has had great success in the first five years of the company’s existence - company profits, cumulative profits and the stock price continued to increase every year. The company’s cumulative profit in year three was the highest in the industry. The major reason for this is significant investments in automation and capacity in our main focus segments, the traditional, high end and low end segments. These investments allowed the production of sensors with low labor and material costs which enabled the company to gain high contribution margins. After the initial successes the company’s profits and the stock price started to decrease, especially during the last two years of the business simulation. These trends raised questions about what caused these indicators to suddenly level off. The reasons for these trends are best explained by looking at our competitors and our actions in the market segments we operated in. High End In the high end segment our strategic intent was to maintain a high market share and to be competitive within the segment. Our strategy would allow us to make large investments in our products in this segment, with returns from these investments coming over an extended period of time, since the product would age into the traditional and low end segments. We also intended to develop a product every second or third year to develop a uniform product flow across the segments. With high initial investments in capacity in a high margin segment, very large profits were expected. The introduction of our first high end product, Badboy, was very problematic. The intention was to introduce the product into the segment by round three, but due to
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