Revenue Generation in MNCs

This article discusses revenue generation strategies in MNCs through a case study analysis. It covers the advantages and disadvantages of activity-based costing and the impact of inventory accounting method on gross profit. The article also highlights the issues faced by companies while making and establishing budget systems.

Running head: REVENUE GENERATION IN MNCS
Revenue Generation in MNCs
Name of the Student:
Name of the University:
Author Note:

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REVENUE GENERATION IN MNCS
Answer 1:
The members of the senior management of General Productions (GP) who presented their
at the management meeting were the chief marketing officer, head of research and development,
the vice president, finance and production director. General Production was a mobile phone
component manufacturing company which supplied parts to small and medium scale companies
and multinational companies. One can infer from its range of customers that the firm was
financially stable. The meeting revolved around the new business decision of the apex
management which was entry of the company into mobile phone manufacturing market, though
it had little knowledge in the area. Moreover, the sales managers often distorted their business
generation figures to earn more incentives which only added to the salary expenditure of GP
(Vahlne & Johanson, 2017).
The chief marketing officer put forward the view that the General Productions should
promote its new product, mobile phones using social media. He also put the second idea that the
company must tie up with local celebrities as brand ambassadors to endorse the product of the
company, mobile phones. It is clear from his views that these strategies were aimed at early
market penetration by employing aggressive promotional tactics to acquire customer base to buy
mobile phones (Conrado et al., 2016).
The head of research and development opined that GP should invest in incorporating
attractive features in the mobile handset models. He had the opinion that the mobile phone
models with new features would enable the company to create more demand. This demand
would enable the company use premium pricing to enter the market and generate huge revenue
(Rao & Tilt, 2016).
The vice president of finance contradicted with of research and development on the
heavy investments to develop attractive features in the mobile phones. He regarded this
investments as risks which would not contribute towards increasing the revenue generation of the
company. He instead predicted that the investment would be unprofitable because new
technological investments would render the existing technology redundant. He further added that
this investment would only result in unprofitable cash flow (Teubner, 2017).

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The production director agreed with the vice of president of finance on the unprofitable
outcomes of product line extension and investments towards adding new features to the mobile
phones. He put forward the suggestion that the company should consider future business moves
like product line extensions strategically since they attract expenditure towards research.
General Product’s apex management should incorporate the opinion of the chief
marketing officer, the head of R&D, vice president, finance and production director to achieve
growth in revenue and profits. The opinion of the vice president finance and production director
may seem to be contradictory but the company can incorporate them in its new production plan
revolving around mobile phone launch. The chief marketing officer was of the opinion that
General Productions should use social media to promote its new products, the line of mobile
phones. He also proposed that the company should sign in local celebrities to endorse the mobile
phones. The company should use this promotional strategy because the strategy would enable it
to create huge demand in the market. Endorsement of the mobile phones by celebrities would
allow the company to position the phones as premium products (Petkova et al., 2014). This
would enable the mobile phones attract upper and middle class customers which would generate
huge revenue right after launch. Continuous celebrity endorsements would enable the mobile
phones attract more customers to generate more revenue. The company as a result be able to use
premium pricing strategy to generate maximum revenue in its initial stage during there would no
close competitor, since it is a new product. The company would channelize a portion of this
immense revenue to continue celebrity promotions of its mobile phones, thus gaining product
differentiation. This product differentiation would set the mobile phones of GP apart from their
emerging competing mobile phone models with more advanced technology. The company can
channelize another portion of its revenue towards bringing about more advanced versions of its
mobile phones. This would enable the company to counteract the threats from newer
technological advancements and prevent its technology from, becoming redundant
(Romiszowski, 2016). Thus this revenue would enable the company to manage the risks or
threats new technological advancements, the concern expressed by the vice president, finance.
The above analysis shows that strong promotion at through the launch and growth stages would
enable the mobile phone business earn immense revenue. This immense revenue would enable
the company to diversify its risk management and new product development research, the

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concerns voiced by the vice president and the production director respectively. This would make
the mobile phone segment of GP more profitable in the future as shown in the diagram below:
Figure 1. Strategy incorporating concern of all the four upper level management
managers
(Source: Author)
Answer 2:
Companies encounter several issues which making and establishing budget systems.
They are as follows:
Aggressive
promotion on social
media websites and
celebrity
endorsements at
product launch stage
Huge creation of
demand
GP uses premium
pricing
Huge revenue
generation
Supporting research
and sdevelopment,
rsik management
More revenue
generation and
product
differentiation at
growth stage and
afterwards

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REVENUE GENERATION IN MNCS
Issue 1: Bureaucratic control:
Bureaucratic control poses a great issue when it comes to making and implementation of
budgets. The upper level executives often suffer from ego problems which prevents smooth
preparation of the budget. For example, it is evident from the case study that chief marketing
officer and the R&D head are in favour of launching mobile phone using advanced technological
features. The vice president, finance and the production director were not in favour of such
investments. It is evident from the discussion that VP and the production director would oppose
the acceptance of the budget towards manufacture of mobile phones. Thus, bureaucratic control
poses a serious issue in financial budget establishment (Ferry & Ahrens, 2017).
Issue 2: Unrealistic assumptions:
The budgets are based on forecasts and assumptions which may not materialize, thus only
resulting in wastage of time and money spent to make them. The apex management of companies
have to invest funds and resources towards making of the budget. For example, as per the case
study, the chief marketing officer emphasized on promotion of upcoming mobile phones on
social networking websites and use of celebrity endorsements, both of which are expensive and
require immense allocation of funds. Now, if an established mobile company introduces a new
and more innovative model of mobile phone, the entire expenditure towards R&D becomes
useless and the company suffers a great loss. Hence, the unrealistic assumption on which budgets
stand often prove faulty and lead to immense losses to companies (Rajput, 2015).
Issue 3: Negative impact on the actual operations of the business organizations:
The formation of budget often requires allocation of funds and human resources. The
companies make budgets to forecast future businesses which means that those business at the
time of making the budget have no actual revenue income. This means that the companies
actually have to allocate funds from present sources, thus depriving a part of the present
operations. For example, as per the case study, the CMO has suggested online promotions and
celebrity promotions of the mobile phones. General Productions has to allocate funds towards
these new areas without any actual income. The company in order to bear the increased
marketing expenditure may have to render some sales staffs redundant to reduce salary
expenditure (Wanyama, Burton & Helliar, 2017).

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Utility 1: Helps in launching of new products:
GP can use the budget despite these issues the company can use the budget towards the
new mobile phone launch. The company must take into account the different expenditure like
resources and employees to the extent possible for making more accurate budget and control its
new business venture of mobile phone launching (Kearney & Morris, 2015).
Utility 2: Helps in administration of costs:
New product launches require management bodies to monitor the costs on regular basis.
The budget formation as pointed out in the issues can time consuming and expensive. However,
there is no doubt that budget enable the management bodies of companies like GP form
estimates of the costs like the expenditures and losses they are like to face. They can also make
an estimate about the sources of revenue which they can earn from different sources. Thus,
though budget cannot give accurate figures, they can to a certain enable the management of the
costs in organizations (Rajput, 2015).
Utility 3: Setting of business targets:
The management can use to budget to take rough business targets like the sales figures
they want to achieve to cover the estimated costs. The CMOs of the companies like GP can set
targets and form strategies which they would tale to achieve the target sales. One can point out
without, this target would not be possible to take. Thus, budget helps companies to form sales
targets to generate revenue to support initial costs of the new businesses (Romiszowski, 2016).
Answer 3:
The first advantage of activity based costing which GP can enjoy is accuracy in setting
product cost. The system recognizes the activities which contribute to the costs which help in
more accurate cost calculation. For example, the marketing activity proposed by the chief
marketing activities are categorized under two broad heads, online marketing and celebrity
endorsements. The expenditure required for the can be considered as follows:
1. Marketing staffs to design the ways the mobile phones are to be promoted online.
2. Technical who would design and maintain the software of the company.
3. Hiring of services of social networking sites like Youtube.

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4. The company can also approach third party technology consultants to maintain and
update software.
5. Cost of acquiring software to advertise products on social networking sites
6. Interest to be paid on loans taken from banks for the new promotional tactics.
7. Advertisement expenditures on these websites based slots.
This means the apex management of GP can monitor the expenses related to their promotion
more effectively. This would also enable them to supervise the quotation of costs by the
marketing managers.
The second advantage of ABC method is that it makes costing easier because it tracks each
item to arrive at the final costs. ABC or activity based costing is a costing method which breaks
down the activities of a company into several parts and allocates costs to each parts. The parts
are broken down into resources like human resources and material resources. Now if cost is
allocated to these activities, they can be divided into fixed, variable and semi variable. The salary
of the marketing staff would include basic salary and incentives. Hence, it is semi-variable in
nature. The salary of the technical staff does not include incentives and hence is fixed in nature,
if one assumes that the number of staff remains the same.
The third advantage of the ABC costing is better decision making the apex management. The
apex management of GP would be able to break down the cost associated with the launching of
mobile phones would be able to break down the expenditure, thus able to take more accurate
decision regarding the launch.
The three disadvantages of ABC which GP should consider are:
The ABC system is very expensive because it requires the accounts department to break the
entire expenditure into cost centers. For example, GP needs to break down the cost of promoting
the new mobile phone into cost centers would require the company allocate human resources and
material resources like computers and software towards the process. This shows that ABC is
expensive.
The second disadvantage of ABC model is that it is very difficult to measure to exact
cost of the different cost centers. As far as GP is concerned, the company is about to enter the

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mobile phone market. The company require to measure the cost of each component but due to its
lack of actual knowledge about the product, it would be difficult for it to judge the actual costs.
The third disadvantage of ABC system is that it is time consuming besides being
expensive. The above explanation clearly shows that companies like GP have to allocate funds
and resources to break down the entire expenditure into units. Though it is not always possible
practically to break dowm all expenditure, following this system takes a lot of time. Thus, ABC
system of accounting is extremely time consuming and may not prove profitable for companies.
This shows that ABC method would enable the company to monitor its marketing costs by
breaking them entire activities into variable, fixed and semi-variable costs. This control would
enable the apex management make better estimates and make more accurate budget. Moreover, it
would also prevent unethical marketing managers present distorted sales figure before the
management to earn undeserved incentives. This also enable the company quote accurately to its
clients and earn more revenue.
Answer 4:
Change of inventory accounting method would be adverse impact on the gross profit.
This is because change in inventory accounting method would impact the budget. For example,
the If the inventory accounting method is shifted from FIFO to weighted average method, the
value of the closing stock would change, thus changing the gross profits. Again fall in sales
prices would result result in fall in gross profit on account of increasing prime costs. Failure to
introduce a market centric product mix results in decrease in sales and increase in cost, thus
shooting up the budget. GP must consider these facts while launching the mobile phone and
promote them before finally launching them in the market. The company must ensure that the
sale price it fixes for mobile phones are able to meet the expenditure like tax and complicated
cost structure. The company before forming the budget must conduct extensive market research
to gain information like recent trends in the mobile phone market, tentative technological trends
in the market which leading companies are likely to introduce and probable ranges of the mobile
phones. General Productions can use the social media as per the recommendations of the CMO
to gain knowledge and then form strategies on research and development. The company while
ordering parts of mobile phones from suppliers must consider the same. This would enable it to
minimize or at least control the prime costs to maximize its gross profits. It would also be able to

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minimize closing stock and consequent opening stock, thus maximizing gross profits. The
companies should also use software to manage their stocks of inventory more accurately. This
shows that adopting appropriate inventory accounting methods and maintaining inventory
efficiently would enabling in boosting gross profits. The companies should incorporate market
information to achieve these two targets.

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Ferry, L., & Ahrens, T. (2017). Using management control to understand public sector corporate
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on public sector performance. Small Business Economics, 45(2), 425-445.
Petkova, A. P., Wadhwa, A., Yao, X., & Jain, S. (2014). Reputation and decision making under
ambiguity: a study of US venture capital firms' investments in the emerging clean energy
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Rajput, N. (2015). Shareholder types, corporate governance and firm performance: An anecdote
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Romiszowski, A. J. (2016). Designing instructional systems: Decision making in course
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Wanyama, S., Burton, B. M., & Helliar, C. V. (2017). Corporate governance and accountability
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