FROM: Paralegal Office Manager
RE: Outsourcing Legal Research
Although it is cheaper to buy than to make the tennis balls, the deal would benefit Serve-It more than the company. The company’s product might be altered in terms of quality and economically empower the competitor which would lead to reduced demand and revenue from tennis balls.
The Serve-It company products will increase popularity among some of the company’s customer, if the public becomes aware of the deal and they are of superior qualities. In addition, the deal will economically empower the competitor who has he additional advantage of being able to sell at an even lower price than the company, which may escalate into a price war.
Tennis balls and rackets are complementary products that can be promoted and sold together, which reduces the selling costs. UTO manufactures the balls at a lower cost and sells to the company at a profit it can sell its products at a lower price, which would lead to a shift in the company’s tennis ball demand in the market. Additionally, the company may be inclined to share trade secret with Serve-it so that the balls are similar to those they manufacture. This would also mean that the company would produce more rackets, which increases supply in the market andmay lead to reduced prices in a competitive market. Therefore, the company should explore other business strategies to lower the cost of producing, as this strategy does not guarantee that the increase in profit margin resulting from buying cheaply is sustainable in the long run.
The company should explore long-term solutions to increase its capacity so that it can enjoy more economies of scale and reduced marginal production costs.