Guillermo_Furniture_Store_Concepts

Guillermo Furniture Store Concepts For Guillermo Navallez of Guillermo Furniture Store, making furniture was not about competition, but about the handcrafted quality that he was able to supply to his customers. In the late 1990s, there was a competitive and economical change that made him start to rethink how he ran his company in order to grow his company’s profit margin. Guillermo is aware that he needs to make a change for his company to succeed, but how to go about that change is the problem. Reviewing and learning what his competitors are accomplishing is just one step in the direction of change. There are risks involved in making changes, but if those changes can give a high return in exchange then the risk is waived in the company’s eyes. Concept of the Competitive Economic Advantage Based on the Behavioral Principle, Guillermo Navallez is looking at what his competitors are doing for guidance of how he should move forward (Emery, Finnerty, & Stowe, 2007, p. 23). His newest competitor is an overseas company that is technologically advanced compared to the Guillermo Furniture Store. This company uses computer technology to cut wood for furniture to the exact measurements and specifications needed and they sold their product at lower prices. If Guillermo moved for this option he would increase his capital expenses, but would reduce production costs and in the long run make money on this change. Depending on the life span of the equipment the costs can be depreciated over time. Another idea that Guillermo had was to become a representative for a manufacturer and coordinate distribution with his existing network. This would reduce the cost of making furniture, but would completely change his business model by merging or contracting with other companies. Concept of the Value and Economic Efficiency In order to create economic efficiency Guillermo must look beyond at what they do best, which is creating quality furniture. Guillermo has to think of what he does have as a furniture company that the others do not have to create a competitive advantage. One product Guillermo does have is a patented process for the coating on his furniture. There is a market for the flame retardant that is created for the finished furniture coating. By taking advantage of the resources he has available, which is the knowledge of the current technology available, the area that he is in, and of his business. Concept of Observing Financial Transactions The Principle of Risk-Return Trade-Off states that “in a financial transaction, we assume that when all else is equal, people prefer higher return and lower risk (Emery, Finnerty, & Stowe, 2007, p. 28). Going back to the Behavioral Principle, which is in essence based on the Self-Interest Principle, the Risk-Return Trade-Off Principle is completely in the self-interest that any human prefers a higher return. On reviewing the finances for Guillermo’s current state or if he chose to install the computer technology the net income would increase from $46,408 to $214,396, which is approximately a 362% increase. The change would lead to higher margin and overhead, but the return on investment would be enough to make Guillermo choose this the high-tech option. Conclusion Guillermo Navallez has to make a choice on how he will continue his business, while it is purely self-interest there are risks associated with each decision. He needs to continue to think about how he will generate more revenue, especially with rising labor costs. The options laid out before him have their advantages and a high-tech approach, if he wants to continue being a furniture maker is a valid option that will give him a high return in revenue even though overhead and variable costs will increase as well. References Douglas R. Emery, John D. Finnerty, and John D. Stowe (2007) Corporate Financial Management, (3rd ed.). New Jersey: Pearson-Prentice Hall University of Phoenix (2010), Guillermo Furniture Store Scenario and Data