Guillermo_Furniture_Store_Concepts

Guillermo Furniture Store Concepts Lucille Schendel University of Phoenix Guillermo Furniture Store Concepts After reviewing the Guillermo Furniture Store scenario, the finance concepts that apply are the competitive economic environment with the principles of self-interested behavior, two-sided transactions, the signaling principle, the principle of valuable ideas, and the principle of comparative advantage (Emery, Finnerty, & Stowe, 2007). One must understand the finance concepts to make informed business decisions and explanations of these concepts and the relationship to the scenario will follow. Guillermo Furniture has to decide how the company will proceed with the new competition whether to stay independent, acquire another company with more resources, expand production with new technology, or become a distributor for another company overseas. These decisions need extensive research prior to any decision making. Self-interested behavior Self-interested behavior consists of people acting for their best financial interest. Guillermo Furniture needs to realize their best financial interest through research and acting in their best interest (University of Phoenix, 2012). Selling the business is an option however; this may not be in the best financial interest for the company. An important function that they need to realize is the agency theory. According to Emery, Finnerty, & Stowe, 2007, “Agency theory analyzes conflicts of interest and behavior in a principal-agent relationship” (Emery et al., 2007, p. 20). This type of relationship the company needs to analyze prior to making a decision about whether to become a distributor, acquiring another company, or expanding the production with the new technology. Two-sided transactions Two-sided transactions consist of a buyer and a seller. When understanding two-sided transactions this can be a simple task. However, here hubris comes into play because some companies can be egotistical concerning an acquisition of another company. In the two-sided transaction, the Guillermo Furniture Company will use this principle when deciding to become a distributor for the competitor operating only in Norway. This may increase the profitability of his company. This will require the company to make the decision to shift from a manufacturing business to a distribution business or continue to manufacture and distribute the competitors’ products. Signaling principle The signaling principle occurs when companies realistically informs another party or company some relevant information about the company so that the company could adjust their offer accordingly. In the scenario, this refers to the competitor operating only in Norway to make a decision whether to allow Guillermo Furniture Company to become a distributor for them or to counteroffer another solution (University of Phoenix, 2012). Principle of valuable ideas This principle of valuable ideas is similar to a get rich scheme with one exception, using an idea to start a business or transform a product to create new value. The way this relates to the scenario is with the transformation from manufacturing business to a distribution business with the competitor from a company overseas operating only overseas but wants to operate in North America. Guillermo Furniture Company definitely will need to research this option carefully to ensure this is a viable option for their business. Another way this relates to the scenario is with expanding the technology moving into the 21st century with the current business of manufacturing the current products. Principle of comparative advantage The principle of comparative advantage is sticking to what best suits the business and continuing to do what the company does best, which is manufacturing furniture. However, distributing is another quality that the company excels at and teaming up with the competitor overseas in Norway is a viable option. Options are the choices one must make after thorough research is complete and weighing the pros and cons of each option. Obtaining the financial statements for the foreign competitor and the financial obligations to obtaining the new technology will give Guillermo Furniture Company the information, which is necessary to make an informed decision about which way to proceed with the company. References Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate Financial Management (3rd ed.). Upper Saddle River, NJ: Pearson Prentice Hall. University of Phoenix. (2012). Retrieved from the University of Phoenix FIN/571 course website