Virtual Organization Strategy Paper: Riordan Manufacturing

Riordan Manufacturing is a global plastics injection molding company, employing 550 people with estimated annual earnings of $46 million. Dr. Riordan, a professor of chemistry, who had obtained several patents relative to processing polymers into high tensile strength plastic substrates, was also the founder of Riordan Manufacturing. Sensing the commercial applications for his patents, Dr. Riordan started Riordan Plastics, Inc. in 1991. Owned by Riordan Industries, which is a fortune 1000 company that has revenue of over $1 billion. They have three production plants; a plastic beverage container facility located in Albany, Georgia; a custom plastic parts division located in Pontiac, Michigan; and a plastic fan parts facility in Hangzhou, China. The San Jose, California is corporate headquarters and houses Riordan’s research and development department. Some of the products Riordan specializes in are fans, plastic bottles, heart valves, medical stents and custom plastic parts.

Riordan Manufacturing’s Current Assets are at $14,555,092 although the current liabilities stand at $6,974,094. The Net profit after taxes stood at $2,038,547 and out of that the cash on hand is at 1,938,354. The company’s focus in on Six Sigma, leading edge R&D and exceeding ISO 9000 standards defining the attitude and abilities of Riordan Manufacturing. Riordan is an industry leader in polymer materials and provides solutions to the customer’s challenges. The R&D department can be the foremost in the industry.

IPO ApproachThe Riordan Manufacturing must consider installing an enterprise system that will improve the company financial accounting system. Selling of shares using the IPO and going public opens the company to increased observation. The Securities and Exchange Commission (SEC), state regulators, and the financial community, such as brokerage houses. The Riordan Manufacturing will need to make regular reports to the shareholders and to the security regulators. Presently, the financial reporting is performed inaccurately and inefficient which could result in fines and loss of revenue.

The Riordan Manufacturing needs investors to increase the capital to purchase more equipment and increase production. The company has a reputable record with the products produced and this allows marketing to expand. The IPO’s would give Riordan strength by increasing the capital needed to expand the business and production. The company would need to invest in outside auditors and internal auditors to review the financials investments are handled properly. The purchase of an enterprise system to monitor financial reporting, line efficiency, and expansion of products could take the company to the next level.

The weakness Riordan to use IPO’s would be not to comply with the Sarbanes-Oxley due to documentation and auditing a business to standards. The SOX compliance focuses on corporate officers, financial reporting, and verification of data. Riordan will need to change the IT programs and improve compliance performance immediately. The Management staff will need to review all expenses and to determine the direction for the company.

Acquiring another organization in the same industryAn acquisition is known as a takeover or a buyout. An acquisition is the buying of one company by another. Riordan Manufacturing can acquire a related company to raise capital and public awareness. Acquiring another company that operates in the same industry can have numerous advantages. Through an acquisition, a company can grow faster and it reduces competition in that industry. Another advantage for Riordan Manufacturing to acquire another company can also give them control over other company’s products and services and establish itself as the new owner. By acquiring another company, Riordan Manufacturing can have the advantage of becoming larger and have additional market share. This will also strengthen the company’s internal structure and grow in size. Another advantage for Riordan Manufacturing acquiring the purchase of a company in the same industry is also to find companies in different geographic areas that way this move can increase in the volume of business in different locations and provide a gain in profit.

With all the advantages of acquisitions, there is also some disadvantages and weaknesses of acquiring other companies. One disadvantage of Riordan Manufacturing can face while acquiring another company in the same industry is the clash in culture and ethics differences among the different type of businesses. When two separate companies come together as one, there can be many differences in how each business handles things, which can cause weakness in the general transition. By acquiring another organization in the same field, Riordan Manufacturing must carefully weigh the weaknesses as well as the strengths of an acquisition.

Riordan and MergersAn important initiative expressed by Riordan Manufacturing is to establish and co-design/collaborate with world class medical facility. The initiative is based on the strategy to become a leader in delivering quality products for the next generation heart valves, medical stints, and other medical devices. In order for this specific initiative to become, realized Riordan Manufacturing could consider a merge with a medical facility. Riordan Manufacturing must perform a SWOT analysis in order to determine if a merger is in the best interest of the organization.

Riordan Manufacturing had a large amount of strengths for the approach of merging with a medical facility. Most significantly, strength for this approach is Riordan is a successful firm with a long history of producing good quality products. Just as important is that Riordan has in the past and is currently developing medical products. In addition, Riordan has a research and development team established. Working alongside a medical facility will provide resources, which Riordan currently does not have and could potentially save time and capital. The general wealth of both Riordan Manufacturing and merging of the medical facility can increase can increase through synergies. Common synergies are tax benefits, unused debt potential, increase in market power, and economies of scale.

According to Keown, (2009) “Economies of scale and the ability to produce at a below competition can effectively deter new entrants to the market and thereby reduce competition.”Many opportunities a merger can provide for Riordan Manufacturing. Riordan has strategic goals for working with a medical facility; a merger would assist in achieving this long- run strategic goal. In addition, a merger would allow Riordan to acquire capabilities in a new industry. The combination of Research and Development between two organizations could make available innovative results, which could result in higher profitability for the organization. A merger could also result in global success in medical parts.

A weakness in the approach of a merger can be determining the value of the other organization. When determining the value of another organization there is a large amount of estimating of future financial performance. Future performance, financial advantage, return expectation, and cash flow all have to be considered. Even with the financial calculations done prior to a merge the results still can or cannot be determined. Overall, mergers have high failure rates, so the risk has to be considered.

StrategyThe financial strategy chosen for Riordan Manufacturing is to take the IPO approach. The benefits of going public outweigh the risk. According to Keown, (2005) “Being a publicly traded firm may benefit the firm’s business. Public firms tend to enjoy a higher profile than their privately held counterparts. This may make it easier to make sales and attract vendor to supply goods and services to the firm.” (Keown,2005). The IPO process is expensive: however, Riordan is financially capable at this time to move forward with this strategy.

ConclusionRiordan Manufacturing has established itself as a leader within the polymer industry. This essay analyzed the options for a future financial strategy. The advantages and disadvantages of IPO’s, mergers, and acquisitions been discussed and a financial strategy has been determined. Riordan Manufacturing will go forward with the initial public offering process to improve their financial position, which will then provide the necessary capital to take on new initiatives.

References

Riordan Manufacturing (2009). Riordan Manufacturing Intranet. Retrieved November 15, 2009from https://ecampus.phoenix.edu/secure/aapd/cist/VOP/Business/Riordan/RioMfgHome002.htmKeown, A., Martin, J., Petty J. and Scott, D. (2005). Financial management: Principles and application( 10th ed.) New Jersey. Prentice Hall.

Ideacafe, Retrieved on November 15, 2009 from www.businessownersideacafe.com