Ongko_Furniture_Scenario

Ongko Furniture Scenario In reading the Ongko furniture scenario, I am going to discuss and identify the finance concepts I understood such as the competitive economic environment, principle of value, self-interested behavior, two-sided transactions, behavioral, and valuable ideas and how they relate to this scenario to better help Ongko understand his dilemma. A competitive economical market place creates many principals that shape how businesses behave. When Ongko’s furniture was established, Jaya Ongko understood that as an owner it is imperative for him to make decisions that reflect his own financial self interest. Therefore, he leveraged the amble supply of timber and low cost labor market to manufacture furniture and sell them at a premium price. This comparative advantage helped Ongko’s Furniture expand their business with ease to more than 20 countries globally. This expansion yielded incremental benefits- incremental costs and benefits are those that occur with a particular action, minus those that occur without the action (Emery, Finnerty, & Stowe, 2007). He also understood his opportunity cost so he took the most advantageous course of action and forgone other possible business opportunities. Jaya business model did not hinge on the fact that he was taking advantage of his customers; every financial transaction has at least two sides. Jaya customers paid for his products because they saw a value and acted in their own self interest as well. This type of behavior created a zero-sum financial transaction- a situation in which one person gain only at the expense of another (Emery, Finnerty, & Stowe, 2007). As economic market conditions started to change in the late 1990s, Ongko was faced with challenging decisions. Competition entered is market space and leveraged their comparative advantage by using high-tech manufacturing approach to compete with him and offer lower prices at the same level of quality. So Ongko looked at what others in his situation are doing for guidance and following the behavioral principal while being aware that he needs not to just follow the direction exactly without further research-case of the blind leading the blind. Facing these challenges Ongko examined several options, keeping his opportunity cost, comparative advantage, and risk-return trade off in mind. One option was to diversify his business model by becoming a distributor as well to one of his competitor who did not operate furniture outlets while keeping some of his high end custom work. This diversification can help Ongko reduce is risk without decreasing the overall return (Emery, Finnerty, & Stowe, 2007). Another option was to leverage his patented process for creating a coating for his furniture, mainly the flame retardant part. Applying the principal of valuable idea, extraordinary returns are achievable (Emery, Finnerty, & Stowe, 2007) and could help Ongko’s furniture create a new revenue stream by either selling or licensing the process to other manufacturers. Even if Ongko’s furniture overcomes the current challenges it is facing, there will be many to come. In order for Jaya to continue his business venture with prosperity, he needs to have an overall understanding of his financial management system to include but not limited to his current and future financial and economical environment, accounting, cash flows and taxes, time value of money, cost of capital and business investment rules, and working capital management (Emery, Finnerty, & Stowe, 2007)