Balance of trade is a measure of a nations monetary value of imports and exports within a specified period of time. It is also defined as the difference between the value of payments and receipts involving two trading countries. A country experiences surplus trade when value of exports exceeds value of imports. Conversely, a country is said to experience deficit trade if the value of imports exceeds that of exports. It is rare for any country to experience an absolute balanced trade.
Most countries attempt to improve their economy in order to avoid negative growth that always leads to trade gaps. It is apparent that a few factors frequently emerge, which consequently affect the level of trade balance either negatively or positively. These factors include cost of production, which merely depends on a number of aspects including capital, labor, taxes and land. Other factors affecting balance of trade include exchange rates, tariffs and taxes imposed on exports and imports, trade restrictions, availability of raw materials and other inputs required in production as well as availability of foreign currency to pay for the foreign goods and services (Thompson, 2006).
Merchant trade balance is majorly concerned about the measure of visible trade such as sale and purchase of vehicles and computers. In most cases, international trade involves trading in physical goods. A country can measure merchant trade balance by subtracting services from the total goods and services. When value of goods sold by a given country exceeds the value of purchases then the economy of a country is said to experience growth. Having a growth is beneficial considering that the value of currency of a specified country would have great demand, hence enabling its currency to appreciate. If a currency appreciates, it would mean that purchasing foreign goods would be much cheaper. On the other hand, a country is expected to experience negative growth if goods imported exceed the value of the goods exported. This means that a country will most likely face depreciation. Depreciation will negatively affect a countrys economy because it would need domestic currencies to purchase foreign goods.
Balance of services refers to measurement of payment and receipts for services, which include consultant services, patent services and tourism among other services. If a country acquires much of these services from a trading partner than it is offering then it stands a higher chance of plunging into a deficit trade. However, it may experience surplus if it would be able to offer more services to trading partners than it would be acquiring them. Surplus trade in services most probably helps a country to grow economically while deficit trade may interfere with a countrys resources. A country will as well have a surplus economy if the total income on exports ensuing from the sale of both goods and services surpasses the value of imports within a given period of time (Thompson, 2006).
Balance on investment income concerns the measure of income earned by residents from property owned by foreigners in the domestic economy. The term also covers income earned by foreigners from properties invested in their countries by a trading partner. Investment income includes both dividends earned from shares and interest paid on debts. If income earned by residents from foreign investments in the domestic economy exceeds that of income from properties invested abroad, one would say a country is facing surplus trade. A surplus trade in terms of investment income would mean that an economy is susceptible to expansion. It is therefore advisable that residents should be encouraged to invest in shares owned by foreign companies. If one considers balance on goods, services and income, it would mean that if interests and dividends received from both foreign bonds, shares, interests and dividends made to foreigners, and value of exports received from goods and services, a country would be said to have a surplus economy. This would be more beneficial to a country considering that its economy will most likely expand without struggles (Thompson, 2006).
Balance on current account pertains to the measure of the sum of balance of trade, the net factor income and the net transfer payments. The balance of trade is calculated as exports less imports of goods and services. The net factor income covers dividends and interests while transfer payments will include remittances made by individuals to family members overseas as well as government grants and charities received or made to other countries. Current account always involves goods and services that are currently utilized. If the sum of current account results to a positive value, a country would be facing growth while it would be suffering negative growth if the sum of the current account turns out to be negative.
Unlike current account, which considers only income earned from either foreign ownership of domestic assets or domestic ownership of foreign assets, capital account incorporates the change in value of assets ensuing from the sale or borrowing of assets. Perhaps, capital account can be broken down to include direct foreign investment, reserve account, portfolio investment and other investments. Direct foreign investment refers to investing in long term assets such as buildings. Portfolio account includes purchasing shares and bonds. On the other hand, reserve accounts refer to sell and purchase of foreign currencies while other investments would include deposits into bank accounts over and above loans granted by banks. The flowing of income into a country resulting from the sale of assets leads to surplus trade while the outflow of money ensuing from the sale of assets results to deficit trade (Thompson, 2006).
Reference
Thompson, H. (2006). International Economics: Global Markets and Competition. Hackensack: World Scientific Publishing.
Monopolistic competition is a situation in the market where there are multiple sellers with similar but differentiated products. These products are substitutes as they perform similar functions with the point of difference manifested in terms of branding, packaging, or any other form of differentiation capable of attracting consumers.
This type of competition in the market is also characterized by easier market entry and exit for operators. The existing operators have cut their own niches and do not resort to restrict new market entries as they in no way present challenges to their market shares. The operators are also free to set the prices of their products irrespective of the competitors moves or reaction as the competition is based on non-price related factors (Deneckere and Michael, 1992).
Monopolistic competition is best represented by the motor vehicle market. In a situation where there are many manufacturer selling cars, they will each have their own market segments depending on the nature of the differentiating factors they have incorporated into their products. The basic function performed by these cars is to move the users from one point to another. However, there are users who will prefer either fast, comfortable, four wheel drive, or even different colors for their cars. The manufacturers will differentiate the cars according to these factors in order to gain competitive edges to attract particular customers.
Figure 1
In figure one above; the operator is initially experiencing high demand which is represented by the average revenue curve. As more competitors gain market entry, they will offer substitutes to the operators goods. Assuming the operators product is not differentiated further the new demand will now be at the marginal revenue curve showing a decrease in demand due to loss of customers to competitors.
External costs and benefits
These are the third party effects that arise in the course of production and consumption of output and which are not accounted for. This is simply because they are felt by individuals outside the market in terms of the spill over effects. External costs are those that are incurred by parties outside the market for which they are not compensated for. On the other hand external benefits are those that are enjoyed by parties outside market and for which they do not pay for (Murty and Robert, 2005).
External costs can take the form of pollution by an industry caused by emission of toxic gases into the atmosphere. When this happens, there are various consequences that are felt by third parties. The toxic gases lead to acidic rain which corrodes iron roofs as well as destroying forests. Furthermore they also harm the ozone layer which leads to exposure to direct sun rays that can result in skin cancer. These costs are incurred by parties that did not participate in the initial activity that caused them (Pannell, 2008).
On the other hand, external benefits can best be explained by the effects that research and development programs have on peoples lives. Normally very few people engage in or contribute to research programs. In the event that these programs yield quality innovations, the effects will be felt by the entire market should the researchers chose to make them public or decide to capitalize on them. A research program that introduces an energy saving electrical appliance presents benefits to third parties that were not involved in the program.
In the above diagram, the price of the commodity in the market is represented by P1 and quantity consumed is Q1. at this level, the market mechanism fails to recognize the extra costs that are not charged to consumers but passed to society in terms of pollution. The optimal price should be at P2 to acknowledge these costs to society. At this level the quantity consumed ought to be Q2 which is less than what is consumed. The shaded region represents the total loss to society.
A mixed economic system
Mixed economies also known as dual economies are those that have blended the functioning of private enterprise with control by the government. The private entrepreneurs are free to engage in activities in the market at their own discretion. Their actions are however controlled, and not coerced, by the government to ensure the efficient functioning of the system in the form of regulations and taxes (Mixed economy a failure, 2011). In such economies the government might also have the monopoly in some areas that are essential for the public good but not profitable for private entrepreneurs such as conventional education, health care, and postal services.
Like many other developed economies, the US is a perfect example of a mixed economy system. There is the spirit of free enterprise with many multinationals such as Apple Inc, the Coca Cola Company, PepsiCo, and Intel based in the country. The production capacities are mainly owned by the private sector individuals. Furthermore these individuals activities are governed by the government through its various agencies that are concerned with upholding regulations and collecting taxes.
Figure 3
In fig. 3 the government is represented by the central circle. This shows its regulatory efforts to the other activities such as infrastructure, transport, health, education, and house market which are undertaken by the private entrepreneurs. The government oversees all these activities are well undertaken to ensure that they are functioning well.
Price elasticity of demand and supply
Price elasticity of demand and supply can generally be defined as the market reactions to the changes in commodity prices. It is categorized mainly into two price elasticity of demand and price elasticity of supply.
Price elasticity of demand is the buyers reaction to changes in the price of commodities. Generally price of commodities and demand are inversely related except for luxuries and necessities. When the percentage changes in demand are larger than the changes in price the demand is elastic (Graves and Robert, 2006). When they are less that the percentage change in price, the demand is inelastic. The nature of the buyers reactions or changes in demand will mainly depend on the type of good in question. Luxurious items have inelastic demand simply because their consumers have high disposable income which can accommodate the changes. Necessities also have inelastic demand as they are crucial in life and consumers cannot do without them, changes in prices cannot deter their consumption. On the other hand normal goods have elastic demand as they are not important for survival and consumers can do without them if not seek substitutes.
The demand for normal goods such as televisions can be used to show this relationship. When the prices of televisions decrease consumers will increase their levels of consumption while on the other hand they will decrease their consumption when the prices increase. The demand for food which is a necessity will remain unchanged when the prices change which signals their inelasticity.
Price elasticity of supply shows the reaction of output to the changes in prices of commodities (Tom, n.d.). The level of output and price of commodities are directly related as suppliers often increase their output level in the market when the commodity prices are high. Therefore price elasticity of supply is elastic as the price changes lead to changes in output level. When the prices of cars increase in the market, motor companies such as Toyota and General Motors will increase their supply in the market in order to satisfy this high level of demand as well as make higher profits. On the other hand when the prices decrease, they will reduce their supplies into the market as the demand can be satisfied by the available if not less supply.
Figure 4
In fig. 4, D1 represents the P1Q1 which are the price and quantity respectively at the initial price level. When the price drops to P2 the quantity demanded on the resultant demand curve increases to Q2. At the initial demand curve the quantity consumed could have been Q3 which represents equal percentage change in demanded. But at Q2 the change in price has caused less change in quantity which shows inelastic demand for the product.
Opportunity cost
Opportunity cost in economics refers to the value of the foregone alternative (Magni, 2009). It is not regarded in the financial statement but is used in the decision making process. In a majority of cases relating to choice, there are often numerous alternatives that can be selected. In the event that they are mutually exclusive one has to settle on only one of them. By selecting a particular alternative, one has to let go of the others that are available. Therefore a rationale decision maker is one who will reduce the value of opportunity costs when settling on an alternative.
This can be shown in a farmer who has one acre of land and has two crops in mind; wheat and corn. The one acre of land can produce 500 sacks of wheat or 700 sacks of corn if he decided to grow the latter. Assuming that the price of a sack of wheat and that of corn is same, the farmer will rely on opportunity cost to make a decision. His profits will be much higher when he decides to grow corn as opposed to wheat. A decision to grow corn will have a low opportunity cost which is the value of wheat whereas a decision to grow wheat will have a high opportunity cost which is the price of corn.
Figure 5
Fig. 5 shows the relationship between two commodities, food and clothing. Their consumption is mutually inclusive which implies a trade off between the two products. When the consumer settles for point B, the food is 80 units whereas clothing is 120 units. In the event that the consumer could have instead opted to choose point C he would have consumed 115 units of food and 95 units of clothing. The difference between these two points is 35 units for and 25 units of clothing. This shows a 7:5 trade off respectively. The opportunity cost for increasing food consumption is therefore 7/5 whereas that of clothing is 5/7. It is therefore more economical to consume more clothing than food as the opportunity cost is less.
Bibliography
Deneckere, Raymond, and Michael Rothschild. Monopolistic Competition and Preference Diversity. Review of Economic Studies 59.199 (1992): 361. Business Source Complete. EBSCO.
Graves, Philip E., and Robert L. Sexton. Demand and Supply Curves: Rotations versus Shifts. Atlantic Economic Journal 34.3 (2006): 361-364. Business Source Complete. EBSCO.
Magni, Carlo Alberto. Opportunity Cost, Excess Profit, and Counterfactual Conditionals. Frontiers in Finance & Economics 6.1 (2009): 118-154. Business Source Complete. EBSCO.
Mixed economy a failure. Gale: Opposing Viewpoints in Context. EBSCO.
Murty, Sushama, and R. Robert Russell. Externality Policy Reform: A General Equilibrium Analysis. Journal of Public Economic Theory 7.1 (2005): 117- 150. EconLit with Full Text. EBSCO.
Pannell, David J. Public Benefits, Private Benefits, and Policy Mechanism Choice for Land-Use Change for Environmental Benefits. Land Economics 84.2 (2008): 225-240. EconLit with Full Text. EBSCO.
Tom, Finkbiner. Supply, Demand and Price Elasticity. Journal of Commerce (n.d.): ProQuest: ABI/INFORM Complete (XML Gateway). EBSCO.
In economic theory, market failure is the insufficiency by the free market to allocate goods and services, which is caused by individual pursuit. There are several factors that are linked with market failure. These factors are lack of competition in the markets, public goods, asymmetries in information, problems in principle agents and externalities. In Germany, it is the role of the competition authorities to correct market failures and facilitate competition (Griffiths & Wall 2011, p. 235-67).
Lack of competition is one of the factors that affect the market, and when there is poor competition in the market the result is market failure. It has been said that competition has effect on everybody in the market, which include the businesses, customers and the general economy. It is thus very important for the competition authorities in Germany to facilitate competition in the markets (George 2000, p. 70). The competition authorities in Germany include the federal cartel office, European commission and the federal network agency.
Correcting market failure
There are different views at to the causes of market failure. However, whichever the cause of market failure, the competitive authorities in Germany come in as bodies that correct it to boost competiveness (Steven 2007, p. 331-358). When significant market power is held by small group businesses as seen in the case of German Lufthansa airlines, allocation of resources becomes ineffective. On the other hand, the goods and services should not be public goods (Francis 1998, p. 351-79).
An effective market is that which has efficiency in the allocation of its resources. Failure to this results in market failure. The Germany competitive authorities strive and have an effective market where the values of the individuals are reflected by their own choices. In this kind of market, firms are able to maximize their profits through their own choices. In order to correct market failure, competitive authorities make sure that the exchange in the market is not affected by the individual businesses, and market exists for all goods and services. Having made sure that exchange prices at the market are not affected by the individual businesses and that are markets for all goods, there is competitive in the market, markets are complete and resources are efficiently allocated (Gregory, Kneebone, McKenzie & Row 2002, p. 157-58).
Uncompetitive mergers are blocked by the competitive authorities through the Germany European commission and FCO merger laws that regulate the way and conditions in which firms merge with each other. This is a competition law that controls the acquisition of market power by the firms on the free markets in the country. To regulate mergers and acquisition, competition laws are used to avoid the concentration of economic powers in a few parties (Piris 2010, P.12). This objective is achieved through prediction of the conditions of the potential market that would occur after the merger to find out whether the merger would hinder effective competition (Mankiw 2009, p. 10-12). The authorities therefore review the merger, dominance and block anti-competitive activities by businesses (Ronald 2007, p. 386-405). The policies have both antitrust policy, and policies to impact business behaviour, performance of the economy and the structure of the market (Rouse and Barrow 2008, p. 2-16).
Competitive laws put in place by the competitive FCO correct market failure by preventing misuse of markets power. The policies make sure that competitors increase to prevent a few firms from controlling the prices. The authority also makes sure that market transactions are not reduced by asymmetrical flow of information between the sellers and the buyers. To correct market failure further, the competitive authority enacts laws that will prevent negative externality like in the case where a firm causes costs to the society through its production. Policies are aimed at creating equal opportunities and redistribution of wealth to realize wealth distribution without having to alter markets (Joseph 1989, p. 197-203). More importantly, the authorities inform the public about competition issues for the public to act. Policies are well designed to interact effectively with trade, and enacted to reduce externalities by giving correct prices to the producers and consumers. The Germany European commission for example, ensure that trade measures is put in place to reduce negative externalities (John 2008, p. 1-9). Therefore, the competition authorities set rules within which the markets operate. The interest of the authority is on the outcomes of the market, and how the resources are distributed in the different firms in the market. The distribution of goods and services should benefit the wider society. All products in the market that cause negative effects to the market are discouraged.
The office of fair trade in Germany has a role in making consumers satisfied by the practices in the markets. To achieve this goal, it ensures that the companies are in a competitive environment openly. It tackles behaviors that are anticompetitive, and makes sure that the companies are not restricted from competing with each other. The FCO advises the government continually on what it needs to do when faced with competitive issues along side those of the consumers. There is an advocacy team whose role is to strengthen the relationship between the government and stakeholders, and make sure that there is sustained competition in the market and promote it (Kenneth 1999, p. 1-16).
European commission in Germany is an institution representing the interests of the European Union, and sets proposals to formulate European laws. This institution implements the policies and assesses them later. The European commission also controls merger through enforcement of regulations and prevents power abuse that may result from dominance position by Germany businesses. Germany is a European member state where European competition laws apply. In 2003 for example, the European Union commission determined the issues in the Germany economy (Peterson & Michael 2006, p. 152). Sometimes, in the Germany markets there could be illegal unilateral conducts described by the European commission. Such practices such as unfair purchase and other unfair trading activities are prevented. This is done to defend a very strong competition in the Germany markets. Abuse of market power is known to affect the Germany markets since it reduced the market competition. Through European commission, the policies are passed to ensure that competition is maintained in the single markets. In its role as a competitor regulator, the commission prevents antitrust, approves mergers and breaks up cartels (Posner 2001, p. 68).
The framework created by the authorities makes sure that the markets have fair and open competition. It sets rules and regulation that govern the conduct of each firm and individuals. The rules are therefore enforced to make sure that the market operates effectively. Firms are prevented from exploiting market power through a framework for competition and consumer laws. This further makes sure that there is protection for the consumers from unfair business practices in the market. There is proper regulation of the markets to protect the consumers through creation of effective regulations to generate positive outcomes.
The competitive laws put in place make sure that firms do not make anti competitive agreements. They also prevent the dominant firms from using their strengths to hinder the outcomes of the markets. For example, unlike the case of Lufthansa airlines, there are firms that enter into the market and charge higher than the competitive prices. Those mergers predicted to lessen competition are also prohibited by the laws. The consumer laws put in place makes sure that the consumers are free from scams and that abusive and bad practice does not exist to affect the consumers. The consumers have rights that guarantee them security from the acts of traders thereby making the traders to act honestly (Joseph 1998, p. 3-22).
Facilitating competition
The federal cartel office is responsible for regulating competition in Germany. To achieve the objective of maintaining competitiveness in the market, the body enforces competition law available in Germany. These laws maintain competition in the markets by making sure there are no anti competitive practices by the companies. The office scrutinizes the business practices always. The competitive laws are put in place to maintain competition in the markets with Germany.
Through competition, the firms improve their efficiency internally and reduce costs. This is very beneficial to the consumers since they are at a position to get the goods and services at a lower price. Through reduction of prices, more consumers are attracted making the firm gets access to a large market share. Competition makes firms get incentives and adopt new technologies thereby minimizing their costs.
Organizations invest in innovation through the provision of incentives brought about by competition. Through innovation, firms improve the quality of their products, which are either existing or even create new products that suits the needs and requirements of the consumers. A competitive economy also prevents inefficiency in management since as a result of competitive pressures the firms look for more efficient ways they can manage their businesses (Clark, 1990, 241-56).
The German federal cartel office (FCO) also makes sure that mergers are substantive, and will enhance competition in the market. For example, in July 2011, the FCO came up with a substantive merger control paper that would be used for consultations Draft Guidance on Substantive Merger Control . The FCO has shown very strong records in enforcement of control measures. The draft by the FCO guides on how the office will assess mergers. The new approach in the draft is more inclined to the analysis of the economy. The FCO focuses on whether the merger will bring about competition in the market (Richard 2003, p. 53-7).
In the draft guidance, the office had distinguished between the different mergers; vertical, horizontal and conglomerate mergers. The merger control is to make sure that competition is effectively controlled to protect the long-term interest of the consumers. When competition is controlled, competitors are also protected since mergers may affect the competition functioning. More specifically, the draft guidance favours vertical merger because they are less pronounced and do not affect competition since the competitors number is maintained.
In its role to maintain competition, FCO has for example started investigation into the contracts the corporate clients were offered by Lufthansa (a Germany leading airline), and whether these contracts has forced the clients to give out information on pricing of the competitors to get negotiated discounts. This was an anti competitive practice that the competitive authority had to investigate and put an end to for the Germany markets to remain competitive. The countrys largest airline wanted to introduce low pricing in the market to remain the only one in the market. The situation created in this scenario shows abuse of powers that Lufthansa had since it dominated the market. Their prices do not meet the standards of the available operating costs. The FCO had to come in and ban the low price strategy by Lufthansa. However, there was a guarantee of competition in the market since Germania and Lufthansa airline fought for the prices and clients, and customers benefited a lot (Cohen 2011).
The authority sets a framework followed by the market to influence the outcomes of the market, and competition in the market is protected to let consumers exercise their choices (MacKenzie 2002, p. 157-8). Hardcore cartels offences such as price fixing, limiting production and market allocations are protected by competition laws (Helm 2006, p. 169-185).
The federal network agency is also competition authority body in Germany that enforces rules and regulations that protect market powers from abuse. This authority is involved in telecommunication sector, the energy and railway, and the postal services sectors. This agency creates market economy and economic freedom in the country. In a market where there is abuse of market power, the economy of the country is at risk, and this needs to be controlled. To prevent this, the federal network agency takes into account the anti- cartel actions to make sure there is no full monopoly, and consumers are not manipulated. The agency regulates telecommunication markets, and manages the radio frequency spectrum in radio communication. The agency has set rules put in place in tendering of minute control reverse to facilitate the control reverse market access for the new entrants in the markets. This will make it flexible to gain access, and improve competition in turn. The agency wants to implement the new rules by December 2011 while other regulations that concern automatic activation of block offers will be done in 2012.
Competition policies are put in place with an aim of increasing efficiency in the allocation of resources, there by correcting market failure. Through the policies, the country specializes in the production of goods and services they have comparative advantage in. The competitive authorities cooperate with others in other countries to come to an understanding involving mergers from across borders where competition frameworks could be different.
The Germany government wants to achieve social and economic outcomes in markets through effective measures. This guarantees consumer protection. The Germany government has established agencies that are responsible in controlling market power for the country to grow economically. The country had focused on maximizing the welfare of people through competition to benefit the consumers.
Conclusion
The Germany government wants to achieve social and economic outcomes in markets through effective measures. This guarantees consumer protection. The Germany government has established agencies that are responsible in controlling market power for the country to grow economically. The country had focused on maximizing the welfare of people through competition to benefit the consumers.
Market failure has been prevented to allow efficient provision of goods and services as per the demands of the consumers. As previously discussed, there are factors that lead to market failure, and these factors are public goods, market power, externalities and problems in the dissemination of information on competition and consumer issues to the government and the general public. There is an agreement that free markets will not be responsible for the production of certain public goods and services since once a good has been produced, the general public benefits from it making it difficult for the individuals to pay for it. In adherence to the policies set, the wider cost of goods or services is not included in the cost of production of an individual firm, or in the individuals cost of consumption. For example, firms are not responsible for pollution and end up producing at the expense of the society. The information problems should be avoided by making the consumers certain about the products in the markets and their quality. The competitive authorities in Germany therefore empower the consumers in their decision-making about a product by for ensuring that goods are well labeled. The competition law present prevents the suppliers from abusing the market power to harm the consumers.
While correcting market failure, the competitive authority assesses the impact of the interventions on competition in the markets. It looks at whether the interventions put in place affect the likelihood of the entry or exit from the market. It also looks at how the interventions affect the competition directly through regulation of prices and products or indirectly by reducing firms incentives. Additionally the authority determines whether its intervention will affect the ability of the consumer to exercise choice. To attain its goal of increasing competition in the market, the competitive authority assesses its intervention strategies before it implements during the development of policies. This way the ultimate policies help the authority to realize their goal thereby benefiting everyone in the markets; the firms and the consumers.
Recommendations
The competitive authorities in Germany should enforce strict laws for the markets to better utilize the market powers without causing any harm to the consumers. The merging of firms should also be more assessed to only allow merging of businesses that will increase market competitiveness and consumer satisfaction. This will also manage the use of market powers. Continual dissemination of information to the government and consumers about the consumer and competition issues is fundamental in making sure that there will be correction of market failures, and lead to facilitation of competition in the markets. Always, it is important to assess an intervention to correct market failure and facilitate competition. This will allow for alternative options that will see to it that competition is not affected. Ways that influence the behavior of the consumers and instrument that change the behavior of the business should be considered by the policy makers. The effectiveness of an intervention to correct market failure and facilitate competition should be evaluated using progress checks done in a timely manner. It is important to be creative in finding other alternative interventions that will not restrict competitions like others.
References
Clark, M. (1990) Towards a Concept of Workable Competition. American Economic Review, 30 (2): 241256.
Francis, M. (1998) The Anatomy of Market Failure. Quarterly Journal of Economics, 72(3) pp. 351-379.
George, D. (2000) Global economy, global justice. ND: Routledge. P.70.
Gregory, M., Kneebone, R. McKenzie, K. &, Row, R. (2002) Principles of Microeconomics: Second Canadian Edition. United States: Thomson-Nelson.
Griffiths, A. & Wall, S. (2011) Economics for Business and Management, (3rd ed). Financial Times, Prentice Hall.
Helm, D. (2006) Regulatory Reform, Capture, and the Regulatory Burden. Oxford Review of Economic Policy 22(2):169-185.
John, O. (2008) Market failure. The new Palgrave dictionary of economics, 2, 1-9.
Joseph, E. (1998) The Private Uses of Public Interests: Incentives and Institutions. Journal of Economic Perspectives, 12(2), 3-22
Joseph, E. (1989) Markets, Market Failures, and Development. American Economic Review, 79(2), 197-203.
Kenneth, J. (1999) The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Non-market Allocations. Analysis and Evaluation of Public Expenditures: The PPP System, Washington, D.C., Joint Economic Committee of Congress. PDF reprint.
MacKenzie, D. (2002) The market of failure myth. Ludwig von Mises Institute.
Mankiw, N. (2009) Brief Principles of Macroeconomics. South-Western, Cengage Learning.
Peterson, J. and Michael, S. (2006) Institutions of European Union. ND, EU Press.
Piris, J. (2010) Lisbon Treaty. Cambridge, Cambridge University Press.
Posner, R. (2001) Antitrust Law (2nd ed.). Chicago, University of Chicago Press.
Perfectly competitive markets have a large number of small firms acting independently. In addition, firms produce homogenous products, there is the ease of entry, and all market participants have perfect market information. (Layton, Robinson & Tucker, 2009). On the other hand, monopolistic competition is characterized by a large number of small firms and buyers, differentiated products, free entry and exit, and intensive advertising (Hubbard, Garnett, Lewis & OBrien, 2010). Lastly, oligopoly market structure is characterized by few but large firms, barriers to market entry or exit, strong mutual interdependencies, aggressive advertising, and undifferentiated (Hubbard, Garnett, Lewis & OBrien, 2010).
Real-life examples
The cement manufacturing industry in Australia is a good example of an oligopoly market. Companies in this industry include Adelaide Brighton Cement, Cement Australia, and Boral. They produce identical products and come together when making pricing decisions (Cement Industry Federation, 2014). The greengrocer retailers in Sydney, Australia, are good examples of a perfectly competitive market. They offer homogenous products and have no barriers to entry or exit in the market. On the other hand, the soft drinks companies in Australia are monopolistic. These companies include Schweppes, Berts Soft drinks, Coca-Cola, and Lion Pty among more others.
Long-run equilibriums
Monopolistic firms make supernormal profits in the short-run. Supernormal profits provide an incentive for new firms to enter the market. As the new entrants continue to enter the market, the quantity supplied increases as the market price decreases. This goes on until the firms start to make normal profits. This is the point where the MC=MR. It is at this point that a monopolistic market is said to have reached its long-run equilibrium. The graph below illustrates the monopolistic market long-run equilibrium (Hubbard, Garnett, Lewis & OBrien, 2010).
In a perfectly competitive market, economic profits provide an incentive for new firms to enter the market. This causes an increase in the supply of the product in the market. The increased supply causes the market price to fall. The market price falls until the firms in the market start to make economic losses. At this point, the firms are making zero economic profits. In the long-run, the economic losses make the firms to exit the market. This is the point where MR=MC=D=P. The graph below illustrates the long-run equilibrium in a perfectly competitive market. (Hubbard, Garnett, Lewis & OBrien, 2010).
The long-run equilibrium in a perfectly competitive market.
Oligopolistic firms use prices to remain competitive in the market. When a single firm increases its prices, other firms maintain their prices. The demand for goods falls after the prices are increased, and hence affects its revenue. The oligopolistic firms then decrease their prices, causing others to follow suit. An equilibrium quantity and price are achieved at the kink. This is the long-run equilibrium of an oligopolistic market (MR=MC) (Hubbard, Garnett, Lewis & OBrien, 2010).
The long-run equilibrium of an oligopolistic market (MR=MC).
Consumer outcome
The monopolistic competition offers the best outcome for consumers. First, it is associated with innovative behaviours (Gillespie, 2013). Firms have to differentiate products to gain a share of the market. The consumer benefits because high-quality products are made available at competitive prices.
Producer outcomes
A perfectly competitive market offers the best outcomes for producers (Gillespie, 2013). The free entry in the market increases the demand for inputs. Producers produce the inputs in mass. In the end, they enjoy the decreased costs of production and increased revenues.
Real GDP components
The net export component is the first real GDP component, which is discussed in the article. According to (Jackson, Mclver & Bajada, 2007), net export refers to the difference between exports and imports of an economy. In 2013, the Italian exports were forecasted to increase by an annual rate of 2.1%. This was anchored on the increase in demand for the Italian goods by the non-EU trade economies. On the other hand, net imports declined by -1% in 2013.
Private consumption is the second component of the real GDP. It refers to the market value of goods and services purchased by households and firms (Jackson, Mclver & Bajada, 2007). The annual percentage change in private consumption in Italy was expected to shrink by -2.0% in 2013 due to the declining household disposable income. Third, public consumption component of real GDP refers to the current and capital spending by a central government. In 2013, the annual percentage change in public consumption in Italy was expected to decline by -2.0% (European Commission, 2013).
The investment component of the real GDP refers to either public (government) or private (households and firms) investment in instruments within an economy (Jackson, Mclver & Bajada, 2007). The investment in Italy was expected to decline in 2013 due to the tight financing conditions that were experienced in the country. The gross capital formation that was projected to decline by -3.0% attributed to a -2.4% decline of equipment investment (European Commission, 2013).
Private and public consumption and investment determine the domestic demand for goods and services. Domestic demand was forecasted to decline by -2.0%. On the other hand, net exports were forecasted to contribute to the annual change in GDP by 0.9%. The aforementioned components resulted in -0.1% annual change in GDP.
AD/AS model
Model explanation
The model above represents a full-employment equilibrium of the Italian economy (Jackson, McLver, McConnell & Brue, 2007). The equilibrium price level is $109 billion, and the real GDP is $1000. On the other hand, the potential GDP is $1150 billion. The real GDP is less than the potential GDP. This results in a recessionary gap of $150 billion.
Fiscal policy
There will be an excess supply of labour in the economy if a fiscal policy is not pursued. This will lead to unemployment and a decline in costs and wages. To address this problem, expansionary fiscal policy tools such as transfer payments, taxes, and government purchasing can be used to close the recessionary gap (Jackson, McLver, McConnell & Brue, 2007). An increase in government purchasing and transfer payment, coupled with tax cuts, will increase disposable income within the economy. This will stimulate consumption, hence shifting the AD to the right.
Self-correction
In the long-run, there will be an economic self-correction to close the recessionary gap. Wages and other production resources will decline (Arnold, 2010). Resource market imbalance will also be eliminated. The short-run AS will increase. The intersection of SRAS, AD, and LRAS will determine the equilibrium point. The economy will be at full employment at this point. The intersection point is the long-run equilibrium. The graph below represents this scenario.
The outcomes of self-correction are good because fiscal or monetary policies can cause business cycles that may be worse than the current situation. In addition, these fiscal or monetary policies may be prone to time and variable lags, and hence destabilize the economy of a country. Therefore, there is no need for monetary or fiscal policies (Arnold, 2010).
List of references
Arnold, RA 2010, Macroeconomics, South Western Cengage Learning, Mason, OH.
Cement Industry Federation 2014, Australias Cement Industry. Web.
People are very concerned with the rise in prices. Sometimes it is difficult to control this rise and goods that were cheap yesterday may be expensive today. The rise of prices influences all economic spheres and there are certain factors that cause it.
This rise also influences the prices of tickets for Broadway Shows. The tickets have risen 31 percent since 1998. According to Hal R. Varian, there are certain dynamics of pricing tickets for Broadway Shows. The rise in prices may be caused by a great number of discounts. It should be noted that people attending Broadway Shows belong to different social classes and have different salaries. There are rich people who buy the tickets whether they cost $30 or 60$. Their visit of the show does not depend on its price. They buy expensive tickets not to queue up for the cheaper ones. There are also poor students and unemployed people who cannot afford themselves such expensive tickets and they use different discounts provided for these groups of people. It should be taken into account that tickets in a theater-like the tickets on a plane are highly perishable as far as there are not two opportunities to sell these tickets. If the tickets are not sold they cost nothing.
Sports tickets have nearly the same situation. According to Charles Stein when the supply is limited and demand increases the prices rise and people are ready to pay more than these tickets really cost. The process of reselling tickets is known as SCALPING. People who want to watch the game do not regret their money and they are ready to buy sports tickets at any price. Some people make a business from scalping. They buy tickets beforehand and sell them more expensive. In this case, the prices for the tickets cannot be controlled. This process is known as PRICE DISCRIMINATION.
Sometimes, the rise of prices is caused by MONOPOLISTIC COMPETITION. Jeff Jacoby provides a good example connecting with the prices for bottled water. When tap water has become undrinkable people begin to buy bottled water. In the situation of MONOPOLY, when there is only one vendor who has stable MONOPOLYS PROFITS the prices are unchanged. With the occurrence of another vendor who increases the price for the water wanting to have more profits, the first vendor also has to increase the price and as a result, the prices rise as a result of MONOPOLISTIC COMPETITION. There is a certain rule in the rise of prices. When demand intensifies, the prices rise and as prices rise suppliers work harder to meet demand. For example, some hotels used the situation to make money when people whose houses were destroyed with Hurricane Charley needed a place for overnight stay. Taking into account that these people need shelter and they were ready to pay the last money hotels increased the prices for rooms. As a result, these hotels were blamed in price gauging.
There are certain rules that control such situations at the market. This means of control is called PRICE CONTROL. Nevertheless, these means of control may hamper economic development. For example, an anti-gauging law in North Carolina considers it illegal to sell goods at a price that is unreasonably excessive under the circumstances . This law limits price rise but it makes it unprofitable for other countries to sell goods to North Carolina.
From the above said we may conclude that there are different factors that cause the rise of prices. Sometimes the rise of prices is justified and sometimes it is illegal but people use different means to make money and even the grief of other people does not stop them.
McCormick & Company is a global company that is involved in manufacturing, marketing, as well as distribution of spices over the entire world. Also inclusive in their customer base is the retailing outlets, food production industry and organizations involved in food production.
Their scope ranges from North America and Europe. However, they also have additional services that offer their products to parts of Asia, Central America and southern Africa. The company has two segments that it operates with; the consumer segment and industrial segment.
The consumer segment is involved in selling its products while the industrial segment is involved in the production. The annual sale was about $345 million in year 2010. It is also notable that the sales are expected to increase to about 5% to 7% in year 2010 (Zacks Investment Research, 2007).
On the other hand, Unilever company is a double listed company in both the United Kingdom and Netherlands. It is also notable that both companies operate under the same directors and as a single business organization.
The scope of operation of the company ranges in different fields such as skin care, hair care products and food brands. Being involved in this came about due to their action of acquiring various organizations involved in different fields. Annuals sales revenue in 2010 was $44,262 million.
The two organizations used to control markets in different regions of the world. The action of consolidation therefore widens the market base that the two organizations had, as there are increased resources for expansion due to the knowledge of different areas each of them controlled (Bofah, 1998).
In turn, the revenue generated from the sales is likely to reduce due to the fact that only a single management body would be in existence as other managers that may be there are distributed to serve other purposes.
The synergy approach tends to be beneficial to the organization as there is a revenue enhancement as well as savings in the cost of production (Guthrie, 2000). Enjoyment and enhancement of the food sector, which both these organizations are involved in is also possible.
The revenue that was being realized by McCormick would also increase due to the fact that they would have lesser competition. In turn, even an increase in the price by McCormick would not automatically mean that they would lose sales.
The incentive of developing new products would also reduce as competition reduces, which may be seen as detrimental to the consumers. Control of the market, which is usually the dream of every organization will also take place as the combined contribution of these two organization accounts for about 80% of all the sales in the United States (Katz, 2008).
The acquisition would involve Unilever brands; Lawry and Adolph, McCormick and Morton Inc. It is however notable that the two companies that would be involved in the acquisition is McCormick and Unilever.
Morton was only meant to feature in the bid to ensure that there exist the needed competition in the market to ensure minimum exploitation of the customers in the market. Both McCormick and Unilever are involved in seasoned foods and are major competitors in the market (Katz, 2008).
On the other hand, Morton deals with salty products and was meant to improve the competition that would have been lost.
Attempts of merger between organizations are meant to reduce competition and increase control of the market. Success of the above mentioned merger would mean that the public is denied the chance to enjoy cheaper prices as well as variety of products, as there is creation of an oligopolistic system (Krugman, 2007). Such is not welcome as it only benefits the organization and not the people in general.
References
Bofah, K. (1998). What Is Industry Consolidation? Web.
Guthrie, C. (2000). The Benefits of Server Consolidation for Utilities Infrastructure. Web.
The occurrence of bottlenecks in a supply chain process is something that affects the performance of every organization. Bottlenecks are potential obstacles known to affect the integrity of a supply chain system. Some of the major infrastructure bottlenecks affecting logistic systems include social factors, people, management processes, physical infrastructures, technologies, processes, environmental forces, and policies.
Whenever such bottlenecks occur, companies should manage their employees in a professional manner in order to streamline their business processes. This research paper, therefore, gives a detailed analysis of the major bottlenecks affecting different supply chain processes. The paper also offers meaningful ideas and approaches that can be used to support the supply chain processes and logistical operations in many organizations.
Introduction
Agrawal and Choudhary (2014) define reverse logistics as the movement of finished products or services from their final destinations to the company for the purpose of disposal or capturing value (p. 15). This measure is undertaken in order to transform the situation and support the needs of the targeted customers. The presence of numerous after-sale supply chain issues should be considered carefully in every organization (Olorunniwo & Li, 2011).
The importance of reverse logistics to the competition: Businesses should eliminate bottlenecks in order to achieve cost reduction and efficiency in the management of every supply chain.
Additional challenges: whenever one challenge is eliminated, new problems tend to emerge. Such problems might not mirror the old ones.
Introduction of constraints: This concept refers to a businesss ability to utilize resources so that it can add value to its supply chain system.
Key focus: This research paper focuses on various social-bottlenecks that affect manufacturing. Methods that can be used as solutions are also presented. The paper also argues that business corporations should utilize their resources valuably and effectively in order to add value to their systems.
Thesis Statement: A proper knowledge of the gaps and infrastructural bottlenecks affecting the reverse logistics process results in effective business practices that can become potential solutions and eventually increase the level of competitiveness.
Background Literature Review
Different theories of management outline the best practices that can add value to a business. The managerial process should consider the best approaches and strategies that can improve the level of performance. Proper leadership presents new approaches such as empowerment, motivation, collaboration, encouragement, and employee support (Savitskie, 2007). A motivated worker will also be a resourceful asset thus promoting the best outcomes. Management theorists support the use of positive leadership approaches in order to ensure every business function produces the best results.
As well, business theorists believe strongly that diverse problems will always be encountered in different organizations. The best thing for organizations is to be aware of the best approaches to delivering desirable results (Naslund & Williamson, 2010). Effective management is a critical field that should support every aspect of the targeted supply chain. This move should be taken seriously if a firm is to realize its business potentials. Return management (RM) has become a meaningful concept that coordinates various practices associated with reverse logistics. This subfield of supply chain network is founded on the argument that some products will be returned to the manufacturer for disposal, refurbishing, or remanufacturing (Naslund & Williamson, 2010, p. 18).
Business theorists believe that various supply chain bottlenecks can be avoided through the continued use of effective managerial practices (Savitskie, 2007). The skills and employees competencies embraced within an organization determine the effectiveness of every business process. Disorientation and lack of motivation are some of the major malpractices known to have a bad impact on the effectiveness of a supply chain process. Khor and Udin (2012) argue that poor business practices result in inappropriate or inferior products that must go through the reverse supply chain (p. 7). The presence of infrastructural bottlenecks within the reverse supply chain is a crucial factor causing delays. Such bottlenecks also minimize the profits of the targeted company.
According to Hou et al. (2015), inappropriate employee management practices have remained a major concern in many business organizations. Such malpractices have been observed to present a major social infrastructure bottleneck. Individuals involved throughout the supply chain process should possess desirable competencies and skills in order to produce notable results. Khor and Udin (2012) observed that the use of various empowerment strategies was critical when delivering desirable results. Companies that fail to use appropriate managerial practices and human resource (HR) strategies have higher chances of facing negative outcomes (Savitskie, 2007).
Employees in a supply chain process should possess appropriate managerial competencies, that will eventually promote the best logistical operations. The employees also must possess diverse skills and knowledge (Naslund & Williamson, 2010). In order to achieve a goal, the supply chain manager (SCM) should be able to balance these differences and mentor the workers using his or her aptitudes. Successful logistical operations, therefore, depend on the professionalism and efforts of the SCM.
According to Naslund and Williamson (2010), various infrastructural bottlenecks will inevitably affect the reverse logistics system. For instance, climatic changes and rains can destroy different infrastructural resources thus affecting the integrity of the logistical process. Inadequate investment in the infrastructural aspects of the supply chain would make it impossible for many organizations to realize their potential. Poor maintenance and failure to provide adequate resources will negatively affect the targeted goals. These bottlenecks have been observed to affect the reverse logistics pursued by many companies and cause great losses. For instance, companies involved in global logistics incur expenses of around 40 billion US dollars every year (Agrawal & Choudhary, 2014, p. 16).
The nature of the resources used to support the supply chain process determines its effectiveness. For instance, labor unavailability remains a major supply chain bottleneck that affects the performance of many supply chain networks (Savitskie, 2007). Some companies create artificial barriers thus dictating the performance of the supply chain process. For instance, a company might fail to coordinate the major processes thus affecting the targeted results.
Technological failure might occur thus affecting the level of information exchange. Communication breakdown becomes a major bottleneck because it can result in delayed shipments (Olorunniwo & Li, 2011). Many experts argue that the continued use of proper leadership processes encourages more employees to promote the best logistical practices (Bozon, Spricigo, Rodriguez, de Queiroz, & Miguel, 2015). The approach will resolve various problems and cease, or at least reduce, technological breakdowns that can bring an adverse impact on the reverse logistics process.
Research Approach
This study focused on the major social infrastructure bottlenecks that make it impossible for many corporations to have successful supply chain processes (Naslund & Williamson, 2010). The research study targeted various articles, reports, and books in order to analyze the issues associated with supply chain management and reverse logistics.
Findings
a. Some factors such as illnesses, training challenges, and motivation affect the supply chain (Bouzon et al., 2015).
The completed research study observed that various barriers affect the performance of many companies, which mainly focuses on the success of their supply chain processes and logistical operations (Olorunniwo & Li, 2011). This focus is significant for it ensures every final product is delivered to the targeted consumers in a timely manner. Savitskie (2007) indicates that a firm with a proper supply chain system has higher chances of achieving its goals and gaining a competitive edge. For example, The Coca-Cola Company has always been embracing the best practices in order to attain its logistical objectives (Piotrowicz & Cuthbertson, 2014). Within the past four decades, the company attracted more customers through the proper use of its supply chain system (Piotrowicz & Cuthbertson, 2014).
Poor management of workers throughout the supply chain process is something that could ruin every possibility to accomplish a targeted objective (Naslund & Williamson, 2010). Differences in experience, personality, background, and professional qualifications of employees can influence the effectiveness of various supply chain practices. Supply Chain Managers (SCMs) should use their competencies wisely in order to obtain positive results.
b. The primary concern should revolve around the ability of businesses to manage people in order to deliver quality goods to the consumer (Bouzon et al., 2015).
Every management process should consider the uniqueness of the targeted employees (Agrawal & Choudhary, 2014). The strengths and weaknesses of the employees should be used to reduce conflicts and promote the best organizational practices. Proper management of human resources (HR) throughout the reverse logistics process is invaluable when improving the level of performance. A company that engages in poor management of its workers will end up bearing with unsustainable supply chain practices (Savitskie, 2007). This bottleneck has been observed to affect the brand image of many companies across the globe. This weakness also reduces the competitiveness of many organizations.
Various training challenges affect the performance and views of the targeted workers. The workers cannot manage to get the required resources, ideas, and skills thus failing to ensure the success of the supply chain process. Managers who are not able to motivate their employees involuntarily make room for new misbehaviors. This malpractice eventually results in poor coordination (Piotrowicz & Cuthbertson, 2014). Consequently, new challenges such as communication breakdowns and constrained relationships emerge.
The study also identified disaster preparedness and response as a powerful concept towards dealing with various infrastructural problems. Such problems include weather changes, unforeseeable events, and natural disasters. The ultimate goal should be to ensure the supply chains and reverse logistics processes are executed in a timely and effective manner. Companies embracing the power of disaster preparedness avail the right resources and finances in order to deal with every possible infrastructural problem (Savitskie, 2007). This strategy has the potential to increase the competitiveness of a particular company.
Conclusion
Organizations that take on the use of positive returns management (RM) strategies will improve their ability to compete. The first approach is to be aware of the major infrastructure bottlenecks that lead to the production of substandard products. The targeted organization will use this knowledge to introduce better HR practices such as decision-making, motivation, and provision of the most appropriate resources (Piotrowicz & Cuthbertson, 2014). The organizational process will also focus on the best ideas such as employee empowerment and collaboration. The best actions will be undertaken in order to add value to every targeted consumer.
Consumer retention is one of the most relevant issues of business practice (Piotrowicz & Cuthbertson, 2014). Firms that want to realize their potentials should constantly address the changing expectations and needs of their target audiences. The products delivered to the consumers should be of the highest quality and capable of addressing their unique needs (Piotrowicz & Cuthbertson, 2014). The same idea should be echoed throughout the entire reverse logistics process. It means that the products being returned to the company should be refurbished or remanufactured within the shortest time possible. The individuals involved in the reverse chain process should be provided with the best skills and equipment (Hou et al., 2015). The contented consumer will always support the targeted business.
Businesses can improve their internal processes through the use of integration (Hou et al., 2015). Employees should be motivated in order to promote the best practices in the manufacturing process. The use of these approaches will incomparably improve the competitiveness of the company. This study has also supported the importance of combining marketing approaches with logistics (Piotrowicz & Cuthbertson, 2014). Continued integration will ensure the external factors affecting the supply chain process are addressed.
Business organizations should, therefore, use different functions in order to meet their potentials fully. Theories of management support the power of leadership because it has the ability to mentor employees and eventually deliver considerable results. The supply chain is one of the core functions of an organization. This process supports the marketing of the product thus delivering value to the targeted consumer. A satisfied consumer will always purchase his or her favorite products from the targeted company the notion of brand loyalty is based on this fact (Piotrowicz & Cuthbertson, 2014).
Business organizations promoting the best supply chain processes realize their goals within the shortest time possible (Savitskie, 2007). As well, successful companies have a tendency of promoting the best strategies in order to eliminate the major bottlenecks affecting their supply chain networks. Under the control of effective management teams, companies can deliver quality products to their customers and improve their brand reputation at the same time.
Summary
a. Social infrastructure bottlenecks focus on the ability of management to employ qualified employees in order to support the manufacturing process and supply chain.
Social infrastructure bottlenecks arise from various human aspects fostering the effectiveness of the supply chain process. The workers within an organization should wield the necessary skills in order to promote the best outcomes (Olorunniwo & Li, 2011). Employees might encounter diverse issues negatively impacting their level of performance. This study has indicated companies that embrace the best business processes will find it easier to achieve their potentials (Piotrowicz & Cuthbertson, 2014). The first trick is to be aware of the major infrastructure bottlenecks entailing flaws in the integrity of the supply chain process (Hou et al., 2015). Disaster preparedness and response structures will ensure the supply chain remains intake in case of some undesirable situation.
b. The experience of each worker should also be taken into account since it influences every aspect of the supply chain process.
Business organizations should use the implications of the existing bottlenecks. This approach will present new practices such as effective management. The management team should also hire qualified workers who have desirable skills in supply chain management. Managers should be aware of the experiences and competencies of these workers. The important objective is to ensure every person is capable of supporting the productivity and success of the logistical system (Bouzon et al., 2015).
c. Some factors such as diseases, illnesses, vacancies, inadequate training, and hiring should be addressed in order to increase the level of competitiveness.
Managers should be ready to deal with various challenges such as communication breakdown and lack of motivation (Hou et al., 2015). In summary, organizations should be aware of every infrastructural bottleneck capable of affecting the RM process. Such bottlenecks can be reversed using appropriate business practices in order to deliver remarkable results. Such strategies can produce new solutions, support the needs of more clients, and eventually increase the level of competitiveness of a certain company (Piotrowicz & Cuthbertson, 2014).
Future Research Recommendations
This research has outlined the major infrastructure bottlenecks able to influence both the reverse logistics and the supply chain process. The study presented new practices and initiatives that can be used to improve the supply chain process. The research also emphasized the benefits of effective returns management. However, the findings did not present conclusive ideas that can be replicated by companies to streamline their reverse logistics processes.
That being the case, future researches should use specific case studies to explain how companies can benefit from effective supply chain management (Naslund & Williamson, 2010). Future scholars should also consider the implications of proper leadership and managerial theories towards reshaping the effectiveness of every supply chain network. They can examine as well how proper marketing practices support different supply chain practices. These approaches will present powerful ideas that can improve the performance of many firms across the globe.
Reference List
Agrawal, A., & Choudhary, V. (2014). Reverse Logistics: Performance Measures and their Effect in Product Lifecycle. International Journal of Core Engineering and Management, 1(2), 14-22.
Bouzon, M., Spricigo, R., Rodriguez, T., de Queiroz, A., & Miguel, A. (2015). Reverse logistics drivers: empirical evidence from a case study in an emerging economy. Production Planning & Control, 26(16), 1368-1385.
Hou, H., Kataev, M., Zhang, Z., Chaudhry, S., Zhu, H., Fu, L.,&Yu, M. (2015). An Evolving Trajectory: From PD, Logistics, SCM to the Theory of Material Flow. Journal of Management Analytics, 2(2), 138153.
Khor, K., & Udin, Z. (2012). Impact of Reverse Logistics Product Disposition towards Business Performance in Malaysian E&E Companies. IBIMA Publishing, 2(1), 1-19.
Naslund, D., & Williamson, S. (2010). What is Management in Supply Chain Management: A Critical Review of Definitions, Frameworks and Terminology. Journal of Management Policy and Practice, 11(4), 11-28.
Olorunniwo, F., & Li, X. (2011). An Overview of Some Reverse Logistics Practices in the United States. Supply Chain Forum, 12(3), 2-9.
Piotrowicz, W., & Cuthbertson, R. (2014). Supply Chain Design and Management for Emerging Markets. New York, NY: Springer Shop.
Savitskie, K. (2007). Internal and External Logistics Information Technologies: The Performance Impact in an International Setting. International Journal of Physical Distribution & Logistics Management, 37(6), 454-468.
Plentyoffish.com is one of the most efficient and profitable networking sites, with $10 million in annual revenues (Cheung et al.). However, apart from its superior financial performance, its business strategy is questionable since it heavily relies on advertising and makes it the only source of revenue (Cheung et al.). Consequently, this papers primary goal is to present an analysis of the current competition, assess its strategy, and suggest the most appropriate tactics for improvement.
Nature of Competition
As it was mentioned earlier, Plentyoffish.com generated its revenues from the advertisers while the usage of the website was entirely free of charge (Cheung et al.). The company was able to attract different agencies and enterprises to use this platform as a promotion instrument due to high activity on the website (Cheung et al.). However, it was not the only website focusing on providing similar dating services. In this case, the major trigger for the constantly intensifying competition was the technological development and Web 2.0 (Cheung et al.).
These factors, along with other Internet-based features, contributed to the escalating usage of the World Wide Web and increased the popularity of online social networks. According to the case study, Frind, the CEO of Plentyoffish.com, views dating (Match.com) and listing sites (Craigslist) and other online communities (MySpace and Facebook) as the major competitors (Cheung et al.). Due to low entry barriers, a threat of new entrants is also high, and this factor implies that the competition will become even more saturated shortly. Meanwhile, the market will continue to be represented by niche service providers and widely known networks and attract customers by the user-friendly interface, constant support, and high-quality offerings.
The article published in the New York Times might be considered another trigger for the increasing competition, as this publication reveals the success of Plentyoffish.com and describes its revenue-generating tool (Cheung et al.). In this instance, the competitors will attempt to copy this strategy or implement its best features. The rapid development of technology will assist them in attracting more users to their services while decreasing the flow of customers and their activity at Plentyoffish.com. Overall, it could be said that the company has to be prepared for changes in the nature and structure of the competition and its intensity, as the rival firms will react very fast (within several months) to this announcement.
Evaluation of the Strategy
Based on the aspects indicated above, it could be said that Frind should consider revising his strategy, as having advertising as the main source of revenue is rather risky. Currently, the business model is neither sustainable nor solid because it does not have a long-term orientation or a plan that ensures business continuity. Thus, the overall idea and framework seem to be competitive. In this instance, the main strategic goals should cover continuous growth, expansion, and an introduction of various levels of services. Consequently, they can be formulated as
creating different levels of offerings such as premium and average by the end of 2009,
discovering several new markets such as the UK and Australia and occupying 20% of their market shares in 2009,
expanding a pool of employees to nine people in 2009 to enhance its working processes, and
having a 10% annual increase in revenues in 2009.
These strategies will help improve the website and attract more customers to the social network while enhancing its position in the market.
Due to fast technological progress and know-how of Internet features such as ASP.NET, Frind should continue growing his business. Its hardware and software are currently inexpensive, and this strategy helps the company minimize its costs while generating extremely high revenues (Cheung et al.). Thus, hiring staff can be viewed as a priority, as experienced employees are the companys most important assets, and they contribute to its growth and constant development. Overall, it could be said that the existent economic environment, rapid technological growth, the rising popularity of online social networks, and profound understanding of the Internet processes can be considered as critical advantages and the main reasons for aiming at continuing operations in this sphere.
The Best Model of Going Forward
Nevertheless, apart from the positive aspects mentioned above, the company should consider designing a well-developed business model for future growth. These matters would contribute to a simultaneous increase in the rivalry. In this case, there is a diversity of strategies, and one of them implies continuing to provide free services (a). The analysis of the strategy conducted previously depicts that this approach is rather risky and cost-ineffective. In this instance, the companys management has to consider offering subscriptions and proposing a certain way to divide services into levels (d). For example, it is possible to provide free services and premium subscriptions covering special features. This approach will secure the streams of revenue and help attract a different segment of users.
Thus, an alternative strategy might be expanding offerings, and the current provided service range (b). This approach could not be discovered as the most suitable one for Plentyoffish.com. It is more reasonable to rely on the existent competitive advantage by constantly improving the quality of the delivered services. Creating additional ones might saturate the business and question its competitiveness in the market. Another possible strategy is to continue expanding traffic by providing its services to more countries (c). This approach is also reasonable since it will attract additional revenues by occupying market segments in different geographical areas. To summarize, it could be said that it will be rational for Plentyoffish.com to integrate several strategies (c and d), give priority to the development of premium service, and consider its international expansion as a subsequent step. Only with a combination of these ideas, the company will be able to gain its worldwide recognition and become one of the market leaders in its area of operation.
Conclusion
This paper shows that even successful companies such as Plentyoffish.com have to enhance their strategies. It is necessary due to the rapidly escalating competition and changing economic and technological environment. Plentyoffish.com has to revise its business strategy since it has some gaps, such as using advertising as the only source of revenue. In this instance, the management of the company should consider its expansion and combine the development of different levels of subscriptions and the growth of its traffic. With the integration of these ideas, it will be possible to reach the set goals such as 10% annual revenue growth and develop a distinct competitive advantage.
Cooley is a well-known and long-established large producer of Irish whiskey. However, with the recent emergence of new competitors, who bring with them impressive competitive advantages, Cooley has found itself to have lost its position as a world-renowned organization. Urgent rebranding is needed to develop a new competitive advantage, make the company more efficient, and, thus, regain is foothold within the industry.
It is suggested that the use of the MBO tool as the primary exit strategy and the following rearrangement of the firms priorities will help Cooley re-establish itself as a globally renowned brand. Furthermore, it will be recommended that a strong emphasis should be placed on quality improvement processes, as well as the search for a brand image that would help develop a competitive advantage (Joseph, 2016). Finally, the focus on innovativeness and resourcefulness as the key assets of the organization are suggested as the ultimate means of bringing Cooley back into the target market.
Once the identified qualities are in place and used to develop a sustainable approach to costs, management, and marketing, a significant improvement can be expected. Cooley must strive towards unceasing quality improvement and hold this as its corporate philosophy.
Cooley Distillery Individual Case
Cooley Distillery has been operating in the alcoholic beverage (AB) industry for a number of years, gaining impressive recognition. The focus on using traditional recipes and natural ingredients allowed for developing a particularly strong competitive advantage, which, in turn, served as the basis for establishing a strong presence in the Irish market. However, as new companies started appearing and offering innovative products of higher quality, the company started to lose its appeal to its target customers. To reverse this new negative situation, the company should consider an MBO option with the following redesign of the firms branding strategy and the introduction of a new model of risk management so that Cooleys financial assets can be used efficiently.
Figure 1. VRIO Framework: Assessment of Cooley.
Cooley: Strengths and Weaknesses
Much to its credit, Cooley has a range of advantages that could be harnessed to make the firm more competitive. In particular, one can highlight the fact that the firm has been known for its ability to take risks in the past and adopt innovative approaches to solving various problems. Furthermore, it can be seen that Cooley has been striving to use its available resources in as rational and efficient a manner as possible. As such, it is reasonable to assume that the companys approach toward resource management is based on sustainable use and cost-efficiency.
Strengths:
Resourcefulness
Willingness to take risks
Innovativeness.
Weaknesses:
Poor cost management strategy
Poor risk management strategy
Lack of strategic thinking.
As the list provided above shows, it is crucial to make sure that the leaders of Cooley Distillery start to focus on introducing the principles of strategic thinking as the foundation for the decision-making processes at the managerial level. Furthermore, a more viable risk management strategy should be introduced into the companys system. It is on this solid foundation that improvements in the current situation can be built.
A closer look at the external factors that affect Cooleys performance in the target market will reveal that the company, in fact, still has potential, yet it will need to develop a very strong competitive advantage in order to measure up to the other firms that have been delivering consistently good quality products. As Porters Five Forces Analysis carried out below displays, the high purchasing power of buyers means that while Cooley cannot afford to set its prices too high, it also needs to reconsider its current approach toward marketing and HRM. A change in the management approach is required.
Table 1. Cooley: Porters Five Forces Analysis
Element
Description
Threat of new entrants
High
Given the low barriers to entry, there is a consistent threat of new competitors emerging in the AB industry, in general, and whiskey production, in particular.
Threat of substitutes
Low
At present, there are few substitute products for whiskey (i.e., brandy, premium liqueur, etc.)
Bargaining power of buyers
High
Customers have a plethora of options to choose from given the large number of organizations that produce whiskey.
Bargaining power of suppliers
Medium/Low
The product required to produce whiskey (wheat) is relatively easy to grow. However, advanced technology is needed to process it and turn it into high-quality whiskey.
Industry rivalry
Moderate/High
Due to the vast opportunities available to companies in the target industry, the competition levels are rather high, with new entries appearing on a regular basis.
Irish Whiskey Category Structure
A closer look at the Irish whiskey category structure shows the number of serious competitors is growing; a strong presence in the target market and a large portfolio are typically listed among the primary strengths of these key rivals. As the table below indicates, Cooley Distillery needs to consider managing the production and marketing-related processes in a more efficient manner in order to achieve any tangible changes.
Table 2. Cooley: Key Competitors
Companys name
Key characteristics (strengths)
Beam, Inc.
Large portfolio
Constellation Brands
Product quality
Brown Forman
Large net income
Remy Cointreau Group
Well-known brand
Vast portfolio
Bacardi Ltd.
Values and traditions
Davide Campari-Milano S. p. A.
Numerous brands
Global recognition
Based on the category structure provided above, it would be prudent for Cooley Distillery to promote consistent quality improvement as the foundation for its management processes, and emphasis must be placed on the introduction of a new quality management framework that could contribute to a rapid improvement of the selling and distribution of the product. It is strongly recommended that the Six Sigma approach be considered as the best strategy available to follow since it allows for a consistent increase in quality levels (Evans, 2016). Specifically, one should regard the adoption of the DMAIC (Define, Measure, Assess, Improve, Control) model as the basis of any new quality management approach. By using the identified tool, Cooleys managers will be able to control the quality levels more easily and, thus, more successfully. Furthermore, the basis for consistent improvement of product quality can be built upon once the DMAIC framework is introduced into the companys design (Pyzdek & Keller, 2014).
Financial Opportunities
The fact that the shareholders have little control over the situation can be viewed as another reason for concern. It is strongly recommended that the financial processes conducted in the company should be more tightly supervised. Therefore, it is recommended that the MBO strategy should be used as an exit tool. As a result, opportunities for debt financing can be created. The maturing debts that Cooley Distillery is facing currently will be addressed in a fast and efficient manner, and the financial risks associated with the specified liabilities can be avoided.
One might argue that transitioning from being a part of the companys management team to the ownership of the firm could create certain problems. Indeed, it is crucial to make sure that managers should be able to develop the relevant leadership skills that will help them lead the organization successfully. This can be addressed directly by reconsidering the existing system of values and corporate philosophy with the following change in the leadership framework, and the introduction of training sessions. Thus, managers will be able to acquire the skills that will help them guide Cooley Distillery to rise again within the AB industry.
Recommended Strategies
As the analysis carried out above has shown, Cooley Distillery has been experiencing a crisis since it has stopped using its strengths to its advantage. In order to make sure that the firm remains competitive in a market where new companies appear to offer innovative products, Cooley will have to redesign its quality management system so that it can be more improvement-oriented (Nanda, 2016). For this purpose, the DMAIC tool, as the means of updating product quality on a regular basis, is recommended.
Furthermore, Cooley Distillery will also need to reconsider its current attitude toward shareholders. The target audience will have to be provided with more opportunities and benefits; only then financial stability will become possible (Chen, 2014).
The principles of strategic management, as well as the elements of transformational and laissez-faire leadership styles, will have to be incorporated into the firms new design. The former will serve as the tool for forecasting and avoiding risk, whereas the latter will engender responsibility among staff members, encouraging them to make strategically sound company-related decisions. The transformational leadership style, in its turn, will be necessary to enable the implementation of these changes throughout the company (Nongard, 2014).
References
Chen, J. (2014). Regulating the takeover of Chinese listed companies: Divergence from the West. New York, NY: Springer.
Evans, J. R. (2016). Quality and performance excellence. Boston, MA: Cengage Learning.
Joseph, J. (2016). Financial structures of Swiss SMEs in the manufacturing industry: A mixed research approach. Berlin: GRIN Verlag.
Nanda, V. (2016). Quality management system handbook for product development companies. Chicago, IL: CRC Press.
Nongard, R. (2014). Transformational leadership how to lead from your strengths and maximize your impact. New York, NY: Lulu.com.
Pyzdek, T., & Keller, P. (2014). The Six Sigma Handbook (4th ed.). New York, NY: McGraw-Hill Education.
Strategies to effectively compete with a computer company that is using a proprietary operating system
As the computer industry is developing at geometrical rates, so does the competition. Companies protect their rights and ideas in order to stay successful within the demanding market. The proprietary operating system enables a company to own all materials and products, particularly, software, ideas, and programs with the rights of ownership and primary developers. This greatly adds to the competition between companies and others are forced to come up with alternative avenues in securing their place in the business.
The proprietary operating system creates a sort of monopoly that allows the owner to use the software or program, make any copies of it, and add modifications in a complete or partial set. Since there are legal laws and patents that protect the usage of systems by other companies, other organizations have to come up with ways to counteract the competition. Privately owned software is usually encrypted with passwords or codes, is readable on a limited amount of computers or programs, and is restricted to the use of only a particular company.
In order for competitors to succeed, they could follow a similar strategy and limit the customer in their investment and usage of the software. So, a company could provide a person with a program or software and any add-ons or extensions of the software can only be purchased from the primary company, as they will only function with the original software (Stair 158). Often, competitors use high pricing, so that the customer is discouraged to pay a large sum of money again by switching to another company.
In this case, the customer has no choice but to continue using the products and services of the company he dealt with from the beginning. This is sometimes referred to as a lock-in strategy where a person is limited in their choices by the wants of the company (Zhu and Zhou 2). But the process changes when a company competes with another business that does not have private ownership of products and services.
The most effective type of pricing strategy
The modern world has experienced a great leap forward in computer technology and other innovations. This led to a lot of companies providing software that can be used publicly. This creates serious completion for companies that do not share their programs and ideas. Customers that acquire services of proprietary vendors become dependent on the company, whereas open-source programs and distributors allow for free access, modification, distribution, and copying of software.
Comparing to the privately-owned information, the public ones have less competition with the industry and are able to have lower expenses in producing and maintaining the software. Discounts and special offers can be used to attract returning customers and thus, the equation benefits both companies and consumers (Amant 104).
In the end, the benefits of public software outweigh the privately-owned ones because the decrease in competition and costs leads to a better attitude and return rates. People are able to exchange information, copy and upgrade the software using a vast amount of programs, and the number of companies involved in the business drastically increases. It is clearly evident that public networking and sharing of information is far more beneficial for companies than private ownership.
Works Cited
Amant, Kirk. Handbook of Research on Open Source Software. Hershey, United States: Idea Group Inc., 2007. Print.
Stair, Ralph. Principles of Information Systems. Boston, United States: Cengage Learning, 2011. Print.
Zhu, Kevin and Zach Zhou. Lock-In Strategy in Software Competition: Open-Source Software vs. Proprietary Software. Articles in Advance 1110.0358 (2011): 1-10. Print.
