Long-Term Investment Decisions Due Week 9 and worth 300 points
Assume that the low-calorie microwavable food company from Assignments 1 and 2 wants to expand and has to make some long-term capital budgeting decisions.
Use the Internet and Strayer databases to research government policies and regulation.
Write a six to eight (6-8) page paper in which you:
1.Outline a plan that managers in the low-calorie microwaveable food company could follow when selecting pricing strategies for making their products as inelastic as possible. Provide a rationale for your response. 2.Examine the major effects that government policies have on production and employment. Predict the potential effects that government policies could have on your company. 3.Determine whether or not government regulation to ensure fairness in the low-calorie microwavable food industry is needed. Cite the major reasons for government involvement in a market economy. Provide two (2) examples of government involvement in a similar market economy to support your response. 4.Examine the major complexities that would arise under expansion via capital projects. Propose key actions that the company could take in order to prevent or address these complexities. 5.Suggest the substantive manner in which the company could create a convergence between the interests of stockholders and managers. Indicate the most likely impact to profitability of such a convergence. Provide two (2) examples of instances that support your response. 6.Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource. Assignment 2
Michael Carpenter ECO 550: Managerial Economics & Globalization Prof. Bernadette West Week 9 Assignment 2 Operations Decisions March 8, 2014
As assignment provided, we can see that a regression has been run to calculate the demand function for low-calorie microwavable food. The regression equation which is been drawn out is: QD = 20,000 - 10P + 1500A + 5PX + 10 I 1) For the reason that R2 is reasonably high, the model elaborates the demand very well. The elasticity of advertisement assessed is 0.73 which shows that advertisement plays a vital role in assessing the demand. Since advertisement has no role to play in a perfectly competitive market, we can take off the possibility of the market being perfectly competitive. Also, the market is not a monopoly. This is for the reason that, even monopoly doesn't require to make advertisement expenditure. The demand function also relies on the price of some another product X which is in competition with the product that is being discussed. This totally rules out the chances that the market is a monopoly. Therefore the market might be an oligopoly or monopolistically competitive marketplace. We are aware that advertisement plays a vital role in a monopolistically competitive market. In an oligopoly market, advertisement is not very essential. Other than this, another important factor of a monopolistically competitive market is differentiation of the product. In our case, there are a lot many firms producing low calorie microwavable foods. But all of these firms practices product differentiation. They differentiate just a bit their product from their competitors to recognize their own product and thereby add the market share. Consequently, this firm is a good instance of a monopolistically competitive market. In the short run a monopolistic competitive firm can gain supernormal profits, can function at break even, or can also incur losses. If we presume that a monopolistic competitive firm is earning economic profit initially, other firms will surely be attracted. Because of this a lot of firms will enter the market, the varieties of goods available to the consumers rise. This will move the demand curve to the left. The contrary thing will happen if the firm begun with losses. This will go on until and unless all the firm will function at the BEP. So all the firms will only just earn profit in the long run. On the other hand, we know that advertisement is one of the chief feature of this market. Consequently to get more customers attracted they will rise up the cost of advertisement. Thus they shall make up the market share. At last, it will increase the normal profits. A monopolistic competitive firm takes price higher than the marginal cost which is due to its market power. Market power is explained in terms of Lerner's index, where Lerner's index is denoted as: Lerner's index (L) =-[Where, e = own price elasticity] this means, that the Lerner's index is inversely related to the elasticity of demand. We know that the higher the proportion of product differentiation, the higher would be the market power. Therefore, it is recommended for the firms to function active product differentiation to raise its profits to the maximum. This project report describes about the global business strategies that are adopted by different MNCs and TNCs with the support of fast food industry. For greater knowledge of this we shall consider the example of McDonald's and KFC (www.kfc.co.in). Global business strategy refers to the strategies that command commercial transactions that take place between entities in various countries. This project report takes analysis on opportunity and results of such strategies, with its lifecycle. There are various challenges faced by MNCs when they enter in new market in various countries, such as social and personal issues, government policies, regional competitors in that marketplace, recognition from customer and suppliers etc., strategies help them to make up these specific challenges. With the companies like McDonald's and KFC we elaborated their issues they faced as new entrants in market. All the cases we have concluded that majority of the firms in this market have to take up local strategies for their existence in the market. All these strategies are region specific in which they are approaching. International business strategy are the plans that control commercial transactions that take place amongst the firms in various countries (Varian, 2011). Basically, international business strategy relates to the plans and functions of private companies other than governments; as such, the target is augmented profit. Majority of companies of any size deal with one international partner at certain point in supply chain, and in largely well-established fields' competition is global. Since, methods of doing business differentiates largely in various countries, an understanding of society and linguistic hurdles, political and other systems, and the numerous complexities of international trade is vital to commercial accomplishments. All market values are given in Operator Buying Prices, i.e. the sum spent by food service operators on the food and drink that they serve and not the quantity the consumers spend on food and drinks (Operator Selling Prices - OSPs) in these channels. The disparity is the profit margin the foodservice operator inserts in order to cover their other expenditure and produce a profit. This consequently values the market in terms of the quantity of funds for which food and drinks producer are contending. Fast food market in US raised by 10.8% in 2011 to reach a value of $10,326.8 million. The composite annual expansion rate of the market in the phase 2007-11 was 10.7%.Market volumes are grouped as the total number of visit by persons to foodservice position that engage the consumption of any food. Manifold purchases made through the same visit are reckoned as one transaction. The acquisition of drink with food in the one place in the same visit is also measured as one transaction, not 2 (Nicholson, Synder, 2012). The market is broken down in to four segments: 1. Quick Service Restaurants (QSR) 2. Takeaways 3. Mobile & Street Vendors and 4. Leisure Locations QSR's are: locations where the main function is to offer full meals but where desk service does not exist. Takeaways are: enterprise that offer freshly prepared foodstuff for instant consumption and where normally 80% or more of revenues come from customers who take the food off the premises to put away (McGuigan, Moyer, Harris, 2014). Mobile & street vendors are: Either individual movable stalls or vans that tender a narrow range of newly prepared food as well as beverages. Holiday locations are: spots serving foodstuff and drinks for instant utilization on premises within vacation outlets (such as Theatres, Cinemas, Racecourses etc.) that the Leisure operator have possession of and operates itself. General idea of challenges countenanced by fast food MNCs in Asia with the assistance of porters five forces in addition to some general difficulty faced by them. Porter's five forces: The fast food market will be examined taking operators of fast food as players. The buyers will be taken as customers, and food components providers and workers providers as the main dealers. For the fast food bazaar, the chief source of consumer power is the be deficient of switching expenses: within an agreed price range, a customer's preference of fast food provider is simply a matter of individual taste, and can diverge from one day to the next. It is essential to uphold reliable upstream system offering food of profitable quality, and in a usually low margin - high volume business, keeping food expenses down is also significant. Suppliers possibly will also have consumers in the cost foodservice division, or other segments of the earnings foodservice sector. This reduces their reliance on fast food companies, intensification supplier supremacy. Entrance to the worldwide fast food market does not need large assets outlay; setting up a sole, independent fast food opening is inside the means of a lot of individuals. Replacement for fast food comprises of other forms of income foodservice, and also food trade (ready meals for cooking at home). A lot of forms of fast food have engrossed disparagement for being harmful, while food retail offers customers larger freedom to manage their diet. Some segments of the fast food market can be concerted - for instance, the burger section is subjugated by Burger King and McDonalds - the market as a total is fairly split, with a lot of independents plus large chains, thus growing competition. Profit repatriation: In long run neither employment enhance ( capital intensive nature of MNC's) nor it enhance the GDP or GNP since whatever MNC's make they repatriate that profit back to their domicile country. We will also discuss how they adopted local environment and transform itself into company with completely different international strategies. McDonald's McDonald's business has steadily grown-up in the U.S., Asia-Pacific, Europe, the Middle East, Canada, Africa, and Latin America.
- At present 1.7 million people in 119 countries job for Brand McDonald's.
- provide 64 million clientele each day around the globe.
- Above 80 % of McDonald's 33,000 restaurants international are autonomously owned and operated (www.mcdonalds.com).
- recognized as Golden Arches globally An exclusive path: convincing both franchisees and contractor to purchase into the company's vision, working not for McDonald's, but for themselves, jointly with McDonald's. Company endorsed the slogan, "In business for yourself, but not by yourself." The company's philosophy was based on the straightforward principle of a 3-legged stool: one was McDonald's, the next, the franchisees, and the third, McDonald's supplier (www.mcdonalds.com). One of the chief motives for achievement of McDonald's is its incorporated SCM arrangement. Before entering into the any bazaar it first reinforce its suppliers by own or by franchisee. It uses both pull as well as push strategy. McDonalds E-Procurement System is basically a major reason for their triumphant supply chain management. It is so competent that it presents the backbone not only to all the logistics but the complete McDonalds supply chain management. Away from being quicker and more suitable for franchisees, the procurement site also agree to business owners to acquire supplies and materials at a economical price, eventually dropping costs for McDonald's. E-Procurement allows 85% cut in expenditure according to McDonald's chief. 1. Spreading out into foreign markets via worldwide franchising can happen rapidly. 2. It is a useful tool bankroll the entire outlay in foreign country. 3. It helps it to obtain more acquaintance about local laws, traditions and customer needs and tastes. Operational approach: It works on principle of QSC&V (Quality, Service, cleanliness and value). McDonald's has well known equipped policy of Speed of service and expediency. Every corporation in this fast food sector has one business strategy. So far we have discussed a lot of worldwide strategies adopted by the fast food service business (Baye, Jansen, Lee, 1992). In all the case subsequent to analyzing we inferred that the majority of the firms in this industry have to take on local approach if they want to stay alive in the market of cut gorge competition. These customized strategies are nation explicit. All the strategies assumed by McDonald's have materialized as McDonald's entrances into the fresh and emerging market. McDonald's also integrated its international strategies as part of their worldwide operations such as 3 legged wrought strategies. This also facilitates it to stay alive in the target nation state and long term base and top line development.