The application of economic concepts and evaluation of organizational issues to come up with goal oriented managerial decisions is known as managerial economics. It focuses on curbing expenses in an organization.
Ericsson Company in this regard made a decision on cost cutting outsourcing the manufacture of its products to another company (Flextronics), with a purpose of saving on its production and remaining competitive in the market. The decision was a great step to guaranteeing its clients of innovative and high quality products. It was also because Flextronics would be responsible for cell phones manufacturing and accountable for any low quality product production.
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Even so, the company’s decision on outsourcing also offered a guarantee of a flexible product volume and increased capacity, meaning it would have to sell a lot and make huge profits. Due to new technologies in the market, Flextronics also had a great responsibility of employing the technologies on the products as a way of enhancing reliability and quality of handsets.
It is a move that made Ericsson to introduce advanced technologies which was also costly. It however gave the company hope to sell more of its products and attract new clients by the end of the next financial year, as it was not the case as it had expected in terms of sales. Flextronics, dealing with manufacture of different products for other companies for example Siemens and Nokia, Flextronics confidentiality for either of the companies based on product quality and what makes other products exceptional is relatively low.
The company as a result, lost its knowledge on what clients want as well as the improvements they wish to be made on the products for maximum satisfaction. The company in the end closed down because of loss of knowledge of customer needs and it also led to loss of production expertise (Soderman, 2012, p. 214).
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Soderman, S. (2013). Football and management: Comparisons between sport and enterprise. Houndmills, Basingstoke: Palgrave Macmillan.