Ongko_Furniture_Store_Concept_Paper

Ongko Furniture Store Concepts Paper Jaya Ongko built hand-crafted premium furniture in Bali, Indonesia because of the island’s effective supply of timber, inexpensive labor, and proximity to his home. Ongko priced his furniture at a slight premium for the quality they represented and supplied furniture to more than 20 countries worldwide. In the late 1990s a new foreign competitor emerged in the furniture market that used high-tech approaches that provided furniture to exact specifications at rock-bottom prices. Finally, the Bali communities began to develop, which increased the cost of labor substantially. Mr. Ongko “watched his profit margins shrink as prices fell and costs rose” (University of Phoenix, n.d.). This paper will identify the financial concepts presented in the Ongko furniture scenario. Competitive Economic Environment A competitive economic environment is simply competition in the economic environment (Emery, Finnerty, & Stowe, 2007). In the Ongko furniture scenario, Mr. Ongko had enjoyed an environment that had little competition until the late 1990s. When faced with the increased competition and increased costs, Mr. Ongko was faced with the principle of self-interested behavior that states people will act in their own financial self-interest (Emery, Finnerty, & Stowe, 2007). Mr. Ongko had to choose what would be the best action to ensure his company would continue making a profit. Ongko began to make decisions on his best interest and considered what other companies were doing in his industry that could keep his business profitable. Mr. Ongko began to convey his position by looking into other ways his business could function in the current environment. Mr. Ongko was signaling to his competitors his company’s condition or what is known as the signaling principle (Emery, Finnerty, & Stowe, 2007). Value and Economic Efficiency New products or services can create value and may transform it into extraordinary positive value (Emery, Finnerty, & Stowe, 2007). The emergence competitor as well as the expansion of one of the nation’s largest retailer resulted in shrinking profit margins for the Mr. Ongko. To maintain presence, Mr. Ongko turned to a patented process served as a common flame retardant and a stain resistant coating. Mr. Ongko believes that another product can be applied to his product that would “add the same amount of value to the furniture” (University of Phoenix, n.d.). This new idea could help create profits and an economic advantage over Ongko’s competitors. Mr. Ongko was also faced with the increased costs of automating his factory to minimize labor and to improve production through automation. This would be a very expensive investment that could improve his business. Mr. Ongko used the principle of incremental benefits to determine the value derived from choosing the particular alternative of automation in determining the incremental benefit to the business (Emery, Finnerty, & Stowe, 2007). According to Emery, Finnerty, and Stowe (2007), “the incremental costs and benefits are those that would occur with a particular course of action but would not occur without that course of action” (p. 26). By determining the costs, Mr. Ongko can determine the best value from making the decision. Financial Transactions Because Mr. Ongko was experiencing a decrease in profits and market share, he had to consider the best options to improve the company’s profitability. The principle of risk-return trade-off says “that if you want to have a chance at some really great outcomes, you have to take a chance on having a really bad outcome” (Emery, Finnerty, & Stowe, 2007, p. 28). Mr. Ongko was considering making a large investment in automating his plant to better perform with his direct competition. Mr. Ongko was also considering diversification by changing form a primarily manufacturing company to a distribution company keeping his interests in manufacturing high-end furniture. Conclusion For many years Mr. Ongko made furniture near his home in Bali, Indonesia. Because of development and direct competition Mr. Ongko had to consider what he must do to improve his company’s financial outlook. Mr. Ongko based his decisions on the core principle of self-interested behavior in which people act in their own financial self-interest. Because of his determination to continue in business, Mr. Ongko has developed a plan to continue his business as shown through the financial concepts explained in week one. References Emery, R. E., Finnerty, J. D., & Stowe, J. D. (2007). Corporate financial management. Retrieved from https://ecampus.phoenix.edu/content/eBookLibrary2/content/DownloadList.aspx'assetMetaId=c0b456ce-0b58-47fd-8e6a-55ea7072a1f2&assetDataId=41076c5b-8356-4937-9ff1-cd58c02003a1. University of Phoenix. (2010). Ongko furniture scenario. Retrieved from University of Phoenix, FIN/GM571 – International Corporate Finance website.