Abstract Guillermo’s Furniture Store Scenario provides the expedient case study for studying the concept of financial principle in the competitive economic environment. The current paper discusses the approach of financial management with correct application of ideas to create value and economic efficiency through analysis of financial transactions to establish the position of Guillermo in market. The Finance Concepts found in the Context of the Scenario Financial principles, financial markets, and business ethics form a foundation for the financial decisions that managers routinely make.
Guillermo’s case study shows that the arrival of new competitor from oversees have put unexpected challenges on the financial condition of the company. The principles of finance describe typical behavior in financial transactions and provide guidance for decision making in the case of Guillermo. Competitors have advantage of applying the new technology to produce customized product with precise measurement to meet the demands of customer. Guillermo is also seeing the issue of rise in labor cost due to economic prosperity of the city.
Since financial self-interest guides rational decision making, Guillermo has to reestablish its position to meet the challenges from foreign competitors in Sonora. Many financial decisions must consider the time value of money. The availability of local labor on cheap price, market condition and brand value has given economic advantage to the Guillermo from the competitors till the sudden change happened as mention in the discussion. Guillermo has three alternatives to approach the business with new insight and action.
Incremental costs and benefits are the basis for choices among alternatives where transactions have at least two sides, with each party considering their self-interest. Concept of an opportunity cost can be applied to differentiate between the value of one action and the value of the best alternative. He can invest in new technology and make furniture automatically, accurately and with almost no labor costs. So, developing expertise can create value. Other option is to become a broker for a Norway firm and coordinate the distribution channels for that firm. Also, he can apply third alternative of continuing with his urrent business and use the new patented technique of coating furniture. In this way, diversification can reduce risk and extraordinary returns are possible with new ideas. The ways of creating value and economic efficiency in the market happens through increasing the customer service and launching better products to satisfy the need of customer at lowest cost. In the present case study related to Guillermo, foreign competitors are able to create the products according to the requirement of customer at prices which is much lower in comparison to Guillermo furniture store’s product.
Customer is getting greater value for money in Mexico. Market prices in an efficient market reflect publicly available information. Guillermo is trying to match competitor’ market presence by increasing the customer value through their patented process of creating a coating for his furniture. Still competitors have advantage in the form of efficiently using the resources to create greater value. Economic efficiency can also be evaluated through the cumulative assessment of consumer surplus and producer surplus which reflects in the favor foreign company.
Guillermo can follow the competitor’s strategy as in the case of the free-rider problem mentioned the corporate finance where followers adopt the successful strategies of leader which is corollary of behavioral principle. Analysis of financial transaction is important aspect of business decision to choose the best alternative and its impact on the market with respect to competitors. Guillermo has focused on the effect of low selling price from competitors as well as influence of developmental activities in Sonora.
They have also evaluated the scenario of acquisition by larger corporate or acquiring other companies to mitigate the effect of competitors in the market. Adopting the high-technology to create better furniture items and providing the 24/7 service is also considered. The concept of financial transaction creates the foundation for preparing business strategy on the basis of sound assumption and logical factors to choose the right alternatives. Also, Business ethics, standards of conduct, and moral judgment are central to the operations and profitability of many businesses.
Conclusion The financial concepts with wealth of experience in dealing with business process provides the managers sufficient insight to incorporate the different elements of competitive environment for preparing the combat strategy to encounter the challenges of reviving the financial condition of Guillermo Furniture Store. References R. Emery, Douglas; D. Finnerty, John & John D. Stowe. (2007). Corporate Financial Management (3rd ed. ). Chapter 2: The Financial Environment: Concepts and Principles. Prentice Hall, Inc: A Pearson Education Company: