NooneyBSKS7000-7 Barbara A. Nooney Northcentral University NooneyBSKS7000-7 XYZ Construction, Inc. (XYZ) is expanding into Canada, Mexico and Asia prior to its initial public offering, which it would like to make in twelve months. Considering microeconomic and macroeconomic factors, legal and contractual issues, and employment and labor issues will assist XYZ in developing a strategic plan to successfully launch its IPO. Microeconomics is basically the study of supply and demand in the marketplace (Wikipedia, 2010).
Being a horizontal construction company, XYZ needs to consider its competition, the demand for its services and the amount of those services that they can supply utilizing their current capacity and resources. My research identified a few competitors that XYZ should be watching. Of particular interest is Tetra Tech, Inc. a public company in the horizontal construction industry that launched its initial public offering in December 1991. Tetra Tech would probably be the strongest competitor of XYZ.
In order for XYZ to compete with Tetra Tech and other suppliers of horizontal construction services, XYZ should develop an in depth understanding of supply, demand and balance in the market place. Consumer demand is the amount that all consumers are willing to purchase at different price levels (Engage, 2009). This definition assumes that all other product or service features (like quality) among suppliers are equal (Cengage, 2009). From XYZ’s perspective, the pricing of their construction services would influence the demand. The higher the rates that XYZ charges the lower the demand will be for its services.
A similar concept exists for supply. Demand is representative of all consumers in the market; supply is representative of all suppliers (Cengage, 2009). This time we view the concept in reverse, the price the consumer is willing to pay influences the amount the sellers are willing to supply. Balance or equilibrium is represented by the price point where the amount consumers are willing to buy equals the amount that suppliers are willing to provide (Cengage, 2009). At prices above the equilibrium point there will be a surplus of services and at prices below the equilibrium price there will be a shortage of services.
For the horizontal construction industry, economic growth and the prices of related goods and services will influence demand. Supply will be affected by technology, the costs of providing services, and competitors pricing models. As XYZ expands it should develop expectations on how its own expansion will affect supply, pricing and demand. In an open economy (an economy that interacts with other economies) there are many variables (exports, imports, the trade balance, and exchange rates) that play a role in economics (Cengage, 2009).
XYZ will participate in an open market that buys and sells good and services. Macroeconomic factors that influence the operations of the company include exports, imports, the trade balance and exchange rates (Cengage, 2009). As XYZ expands into international markets, the aforementioned variables will affect the supply and demand equilibriums of those markets. Trade balance is achieved when a nation’s exports equal its imports (Cengage, 2009). Like supply surplus and demand surplus, trade surplus is created when a country’s exports exceeds its imports.
A trade deficit is created when a country’s imports exceeds its exports (Cengage, 2009). XYZ may participate in an open market on several levels including raw materials, transportation, labor, and construction services. These levels may be performed domestically, internationally or as a combination of both. Trade balance is affected by prices of goods in domestic or foreign markets, exchange rates, cost of transporting goods, labor relations and government policies (Cengage, 2009). Exchange rates are measured in both currency and goods and services (Cengage, 2009).
The nominal exchange rate is used for currency and the real exchange rate is used for goods (Cengage, 2009). XYZ will be exchanging its goods and services in one country with that of another. Exchange rates will affect the cost of raw materials, transportation of goods, and labor costs. These costs also affected by government budget deficits, trade policies and political instability (Cengage, 2009). Government budget deficits have a direct effect on interest rates (Cengage, 2009). Interest rates affect the amount of loanable funds and the costs of these funds (Cengage, 2009).
XYZ will need to consider the cost of various government deficits on the financing costs of equipment and facilities when expanding into different foreign and domestic markets. Another effect of government policies is trade policy. Trade policies are developed by foreign and domestic governments in an effort to influence net imports or net exports (Cengage, 2009). Two common policies are the use of tariffs and import quotas. As XYZ expands into Asia, Mexico and Canada it will want to factor the costs of tariffs and the possible effects of the limitations of import quotas.
What is interesting is that the basic premises of supply and demand, imports and exports, equilibriums and trade balances are all meant to lead to an efficient market place (Cengage, 2009). Tariffs, wage restrictions, quotas and other such policies can create inefficient markets. So XYZ will have to take the basic study of economics and then apply the effects of various trade policies and restrictions. Another factor of government that influences the economy is its political stability. At a given point in time, XYZ can determine stable countries from instable countries. Events may occur at any time that affects the stability of a country.
The sudden death of an important political figure can spin a country into political uproar. When a country is politically unstable the interest rates will rise increasing the costs associated with doing business in that country (Cengage, 2009). Once XYZ has evaluated all economics considerations it will also want to consider various legal considerations. Legal considerations relative to equipment leases and e-contracts as well as employment and labor law influence the company’s growth domestically and internationally. XYZ needs to evaluate the cost of the additional equipment and facilities.
Equipment leasing is a viable option for obtaining the equipment needed for expansion. The Uniform Commercial Code (UCC) is a body of statutory law that governs commercial transactions covering sales and lease contracts; it pertains only to tangible property not to real property (Cengage, 2009). The UCC governs the parts of contracts and leases which are not addressed by common law and it modifies some of the areas that are covered by common law (Cengage, 2009). Article 2A of the UCC is specific to lease contracts and many of the terms are the same as Article 2 which covers sales contracts (Cengage, 2009).
In order for a contract to exist there needs to be an offer, acceptance and consideration. In each of these areas there are ways in which the UCC differs from common law. Under common law, an enforceable contract contains an offer and acceptance. The definitions of what makes up an offer or acceptance are different under the UCC (Cengage, 2009). For common law, an offer must be fairly specific in its terms. The UCC allows for looser terms as long as the intent can be formed and there is some basis on which the contract can be upheld in a court of law (Cengage, 2009).
The UCC also differentiates between an individual and a merchant when making offers (Cengage, 2009). A merchant is held to a higher standard and cannot rescind an offer as easily as an individual seller (Cengage, 2009). Once an offer has been extended the next stage of contract formation would be acceptance. XYZ will be both making offers and accepting offers during its expansion. However, as far as equipment leasing XYZ will primarily act as a lessee. Equipment leases are generally written and the terms are generally pretty specific.
XYZ would exercise their acceptance of the written lease agreement by an authorizing signature and some type of consideration. The lessee and the lessor would be bound by the written terms of the signed agreement as well as by any other contract rules specified by Article 2A of the UCC. Once there is a signed agreement bound by consideration the final stage of the contract would be performance. “In the performance of a lease contract, the basic obligation of the lessor is to transfer and deliver conforming goods and the basic obligation of the lessee if to accept and pay for conforming goods” (Cengage, 2009, p. 82). XYZ (the lessee) would be obligated to accept conforming goods and make payment for those goods. If either the lessee or the lessor fails to meet any of their obligations under the contract terms or UCC there would be a breach of the contract and the injured party would be subject to remediation. For example, if the lessor failed to deliver conforming goods to XYZ, XYZ would have several remedies available to them. These remedies include, cover, specific performance, damage recovery, rejection of goods, recover damages for accepted goods or revoke their acceptance (Cengage, 2009).
Often these remedies are detailed in the terms of the contract but if not they are all still options under law. This fact has become increasingly important in the technological advances that have been made in business communications. “E-commerce is firmly established as the new way to do business in the new economy. E-contracts, internet banking and digital signatures have become standard tools of conducting business” (Cordy, 2003. p. 1). As XYZ expands domestically and internationally, the company’s use of technology to conduct business communications will expand as well.
E-contracts are one of many forms of electronic communications available to XYZ. Unfortunately, law has not expanded as quickly as technology has and it is difficult to determine jurisdiction in transactions that cross international borders (Cordy, 2003). Courts have applied the provisions of common law and the UCC to e-contracts. For example, XYZ may enter into an equipment lease via an e-contract. The contract still needs to have offer, acceptance and consideration to be a legally binding contract. Another important aspect of forming a binding contract is the signature.
Electronic signatures (e-signatures) are an important vehicle to complete electronic agreements. XYZ should research options available for e-signatures. “Digital signatures are one of the most promising security measures available to satisfy the legal and business requirements of authenticity, integrity, nonrepudiability, and writing and signature” (Cordy, 2003, p. 405). It is critical that XYZ has proper security protocols in place to successfully conduct e-commerce. On another note, here is an area where XYZ can decide whether to outsource or produce its own digital recognition software.
There are several technologies already developed that XYZ could purchase for its purposes or they could choose to develop their own technology. Given that XYZ is a horizontal construction company and not a software technology company outsourcing is probably a wise choice. Another area in which XYZ will have to consider outsourcing is its labor force. Several employment and labor laws influence the labor choices that XYZ makes and these laws may differ from state-to-state and country-to-country. All states, except Montana, in the United States have adopted an Employment-at-will doctrine (Cengage, 2009).
Employment-at-will means just that; “either party may terminate the relationship at any time and for any reason” (Cengage, 2009, p. 410). Employment contracts will have to be complied with or the injured party can seek remedies in the courts. Actions can also be brought under tort theory or if those actions violate public policy (Cengage, 2009). XYZ will need to comply with various labor laws and employee rights in all employment relationships. Laws and employee rights include Wage and Hour Laws, Worker Health and Safety, Income Security, Family and Medical Leave, employee Privacy Rights and immigration law.
These laws basically govern legal ages for various types of work, minimum wages, hours that can be worked, safety requirements, contributions to social security and Medicare, rights of employees to be absent to care for family, protection of employees’ privacy and immigration rules. Another interesting effect that labor can have of economics that employees also have some equilibrium point; a point at which they are willing to work for a certain wage as opposed to holding out for a higher wage (Laxton, 2008). “Workers have market power and restrict their labor effort to raise their real wage” (Laxton, 2008, p. 16). Another major issue with labor is the different standards from one country to another. On the one hand, developing countries fear that labour standards could be used by developed countries as protectionist measures and on the other hand, developed countries fear competitive disadvantages to their trade and industry by the existence of lower labour standards in developing countries (Pillai, 2008, p. 106). So not only does XYZ have to comply with federal and state labor laws domestically they must also navigate successfully the various ethical, policy, and institution factors at work globally.
In conclusion, XYZ’s strategic plan should evaluate market equilibriums as it enters new markets, measure the effects of domestics and international economics and trade policies, protect XYZ by using enforceable and valid contracts and e-commerce to obtain the required equipment and facility resources for expansion, and properly allocate the human resources required to navigate new markets within domestics and international laws and ethics. ResourcesReferences Colander, D. , Gaastra, S. , & Rothschild, C. (2010). The Welfare Costs of Market Restrictions. Southern Economic Journal, 77(1), 213-223.
Everett Durante Cordy. (2003). The legal regulation of e-commerce transactions. Journal of American Academy of Business, Cambridge, 2(2), 400-407. Laxton, D. (2008). Getting to Know know the Global global Economy economy Model model and Its its Philosophyphilosophy. IMF Staff Papers, 55(2), 213-242. Mundlak, G. (2007). The right to work: Linking human rights and employment policy. International Labour Review, 146(3/4), 189-215. Pillai, R. (2008). Globalisation and Labour labour Rightsrights: The Conflict conflict between Core core Labour labour Rights rights and
International international eEconomic Law law [review of the book Kaufmann, Christine (2007) Globalisation and Labour Rights: The Conflict between Core Labour Rights and International Economic Law Hart Publishing, Oxford and Portland, Oregon, ISBN 9781841135991]. Aussenwirtschaft, 63(1), 104-108. Business Financial Systems. (2009). Cengage Learning Retrieved from http://www. tetratech. com/tetratech/annual-reports. html http://www. tteci. com/tteci What is this site??? What is the title of the document you retrieved from this site.?