Answer to Question #143359 in Economics of Enterprise for Abdul Hadi

Question

a. The shareholder of Al-Karam wants to maximize his profits by selling his goods in the larger quantities. In order to achieve his target (s) he hired a manager to look after his business. However, the manager instead of maximizing business profits started maximizing his own interest by selling the designs in black to the competitor’s designers. Analyze the above situation and explain the possible problem that might occur for Al-Karam.

Answer 1

The situation involved in this case is one that involves building a sustainable business; hence, one whose principal productive asset is not just the shareholder's skills, contacts, and efforts. Nonetheless, this often entails making risky long-term bets. Unlike a solo consulting practice, which generates cash from the start - durable ventures, such as Al-Karam that produce branded consumer goods, need continued investments to build sustainable advantages.