Furniture Store Scenario Week 1
Mr. Guillermo owns a custom furniture business in Sonoran, Mexico. Supply and labor were relatively inexpensive in that area. Guillermo suffered a large decrease in business in the late nineties due to two new competitors entering the market and the local economy rapidly growing causing a spike in the cost of labor. To help with his loss, Guillermo research his competitors both foreign and domestic to see how he could help alleviate rising costs.
Concept from Week’s 1 reading
Guillermo applied different financial concepts in assessing his situation and while developing a variety of solutions to sustain the future of his business. Noticing the decrease in his sales, he thought to first look at his competition to see how they were handling the changes to the economy. Looking from guidance from other companies in the similar situations is referred as the behavioral concept. Using the information gathered from his research, Guillermo acknowledges what the competition is doing but also looking at the opportunity costs associated for his business and him personally if he decides to go in the same direction. His competitors are consolidating into larger companies which could result in higher overhead costs and more managerial responsibility. The opportunity cost is he stays independent than his overhead costs will not change as much and it will not interfere with his time personal.
Guillermo also researched foreign competitors for additional ideas. He found that a foreign competitor used a computer to produce craved furniture with a laser. The technology is expensive but the opportunity costs associated with implementing the technology needed to be considered. This technology allows for more custom design orders, reduces labor immensely and can produce more daily due to the technology ability to run 24 hour basis. Also, another foreign