Byte Products, Inc.

, headquartered in the midwestern United States, is regarded as one of the largest

volume supplier for the production of electronic components used in personal computers. Byte Products,
Inc., was a privately owned firm that has now entered to be a publicly traded company. The majority of the
stockholders are the initial owners of Byte, when it was still privately owned. The products that Byte
produces are primarily found in computers used for business and engineering applications. Byte Products,
Inc., has been the leader in this industry for the past six year with consistent yearly revenues of 12% and
total sales of approximately $265 million. Byte also has 32% of the market share.
The Board of Directors is consisted of 11 members: James M. Elliot, the Chairman of the Board, 3 inside
members and 7 outside members. The economy is stable and profitable, but that also means a lot of
competition in the market. This poses a great opportunity for the company to grow and gain more of the
market share. The only foreseeable real threat that the company will face is new competitors in the
market.
Problem
Unfortunately for Byte the demand for these computer components have increased and Byte simply can
not meet the demands. This dramatic increase in demand has allowed many new firms to enter into the
industry and have cause an increased number of competing firms. Although Byte management and
shareholders are pleased with the profits and growth of the market, it still faces a major issue of the
increase in demand. Byte currently operates three manufacturing facilities that operate 24 hours a day,
with three shifts, and 7 days a week. This constitutes the maximum production capacity that Byte can do
and can not increase its output.
James M. Elliott, Chief Executive Officer, recognizes the severity of the problem and states that if Byte
cannot increase its productions, then the buyers will look elsewhere for products. Moreover, if the lack of
production from Byte continues, it will simply encourage other firms to enter the market.
Alternative Solutions
The Board of Directors unanimously voted for the immediate construction of a new state of the art facility
to meet the increased demands. Unfortunately, the construction of the new facility will take three years to
be completed. Jim Elliot recognizes this gap and believes that the three year gap will be too long and
suggests developing short range solution while the facility is under construction. Instability of the market
and pressure to maintain leader status are the two factors for Elliots concern and suggestion for the short
range solution.
There were several solutions presented to Jim Elliot. The first solution was to license Bytes product and
process technology to other domestic manufacturers to meet the immediate demands. The second

solution was overseas facility and licensing. The third solution was to take over an abandoned facility,
located in Plainville, and use it to meet the short term demands.
Evaluation of Alternative Solutions
The first solution was suggested to license Bytes product and process technology to other domestic
manufactures. The idea of having someone else produce the product seemed like a good idea to some of
the staff. The solution suggested that this will be for the short term or until the new facility is completed.
Even though the idea was a good one, top management, including Jim Elliot, does not approve of this
idea. The disapproval of this idea is because the manufacturer that would take this offer would also
charge a premium cost to recover from the fixed costs of producing the components for a short term. The
extra cost that would take to produce the products would then have to be passed to the customers and
that would not be sensible nor would it be acceptable. For these reasons Byte would loose market share
and would drive away customers to other competitors.
The second solution called for overseas licensing and facilities. This option was also rejected by the board
of directors and Jim Elliot. The founders of Byte Products, Inc., has always believed that the companys
manufacturing facilities will all reside as domestic and that this strategy has served the company well in
the past. The other concern that top management had with this solution was that it did not want to release
any technologies to any foreign manufacturer and Byte would have a difficult time in properly controlling
the patents. Top management also was concern about foreign licensing because it would give them
proprietary information about how Byte operates its efficient production line. The rejection of both
solutions was also due to the fact that top management believes the quality of the products will be poor
due to the fact that it was produced by someone else and that would hurt the image of the company.
The third solution was to take over an abandoned facility for three years and refit it to be able to produce
the products to meet the increased demands. The facility, located in Plainville, was primarily used to
produce electronic components before it closed eight years ago. The facility can be leased immediately
and for a reasonable price. Even though this solution seems like the best choice, there are a few
drawbacks for it. One is that it is has a poor location in terms of higher labor cost, warehousing expenses
and no direct channels or transportation to Bytes suppliers. Secondly, even with the retrofit of the facility,
it will never be as efficient as the other three current facilities that Byte has, thus this facility would
produce lower revenues. Although there are drawbacks to this solution, there are positive points to this
solution. One is that there is no need for any kind of licensing, foreign or domestic. Secondly, the
company will retain quality control on the components produced. Lastly, the cost of producing and the cost
to customer will remain the same.
The names of the organization, individuals, location and financial information for this case analysis have

been substituted to preserve the original organizations desire to be anonymous. Since this is a fictitious
company there were no information available for research, all information is based on the case study.