Guillermo_Furniture_Store_Concepts

Guillermo Furniture Store Concepts Rodolfo Brewer University Of Phoenix Corporate Finance FIN/571 Rafat Abbasi August 30, 2012 Guillermo Furniture Store Concepts Guillermo’s Furniture Store is described by the scenario as a self proclaimed, strong, and well-established small furniture producing business. Located in Sonora, Mexico, Mr. Nevallez has the opportunity and advantage of having low overhead, low production costs, and low labor costs. The store’s position has been excellent also because of reduced property tax, rent, and pristine weather conditions. Guillermo Nevallez has seen rivals come and go, but has managed to stand his ground as a well-known, well liked and good quality furniture producer. A recent arrival of major furniture competitors has forced Mr. Nevallez to reevaluate his position as owner, the position of his company, and the direction in which the business will go to adjust to the immense pressure from these foreign competitors. These two competitors have caused a significant monetary dent in the company’s cash flow, not to mention the overflow of product that they can produce in a shorter amount of time, and with higher efficiency. Guillermo’s competitors use high technology production strategies, which have pushed Mr. Nevallez into thinking of possible retirement, complete business shutdown, and even selling out to the more powerful competitors. This paper will identify the financial concepts found in this furniture store scenario. Financial Concepts Mr. Nevallez is dealing with tough competitors; he needs to focus on the competitive economical benefit of this company. He needs to consider what steps he will have to take to make more income. In the scenario of Guillermo's furniture store, a number of financial principles can be applied to Mr. Nevallez business. A financial principal that was found has to deal with the competitive environment that is self-interested behavior. As the owner of the company, Mr. Nevallez has to take action for the benefit of his own financial self-interest to compete and stay above water, especially now that major foreign competitors are in town. Guillermo needs to evaluate his opportunity costs to determine what actions he needs to take to get a financial breakdown of his operation. Because his competitors are using a high technology system to produce their product, Guillermo’s furniture store will be at a loss if a quick decision is not made with regard to production and design. To underestimate the competition will mean total take-over if not complete business closure. Another concept that applies to the scenario is the signaling principal; this principle implies that a competitor believes that there is a financial opportunity in an industry. The foreign competitors have realized that the there is money to be had in this area, in the furniture business, and they will use the behavior principle to their advantage. Additional concepts that apply to the scenario deal with creating an economic efficiency system. The principle of valuable ideas and extraordinary returns are made possible with the creation of new ideas. From the scenario, it states that Guillermo patented a stain resistant, flame-retardant furniture coating process. Mr. Nevallez needs to understand that his product has to be sold generously to generate as much revenue as he can. It is ideal if Guillermo can create new ideas and additional ways to utilize his product, and develop new sales techniques. One final financial concept that can be applied to this scenario is that if of comparative advantage. This concept creates the value of expertise and emphasizes the fact that Guillermo has many years of experience. Conclusion The Guillermo furniture store scenario is a classic financial example of how big business enters an industry and begins a takeover of smaller businesses that are unable to stay afloat. In the scenario, Mr. Nevallez was intelligent and ingenious enough to realize that even though he was not able to compete with big business, he found other ways to keep his business alive by considering all financial concepts and using a new distribution technique. References Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate financial management (3rd ed.). Prentice Hall, Inc. A Pearson Education Company.