Guillermo

Every company, especially in the state of this current economy, wants to have the monopoly in the market. Guillermo was no different and up until the late 1990??™s he was doing exactly that. The quiet city of Sonora, Mexico was suddenly overwhelmed with economic development and a new competitor came into play, leaving Guillermo in a situation he hadn??™t been in before. Guillermo was now faced with focusing his efforts on how to keep his company alive and using some of the common principles of finance can help assist him in with the upcoming important decisions he has to make. The behavioral principle consists of using the wealth of financial information available from thousands of other firms. Guillermo seized this opportunity to observe and use information of an overseas competitor that has become a highly automated plant. The plant??™s production is a computerized laser lathe to produce exact cuts in the wood. The cost of this technology is immense and is unsettling to Guillermo. But, he can also see financially, even though it is a large investment up front, the overall change would dramatically decrease his current production costs. No longer would he have to worry about workers not showing up, or having enough trained and knowledgeable people to work. He could produce at rates that would well exceed his current timeframe. 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. As it stands now, Guillermo has a few risky options he could take. First off, is the huge financial risk of re-structuring his whole organization to become completely automated as he observed with an overseas plant in the paragraph above. The immense cost would eventually in time pay for itself if Guillermo could establish himself in the market as a major distributor again. The second option is acting as a representative for another manufacturer and moving his company from primarily manufacturing into primarily distribution. This option isn??™t as costly and will give him more time to focus on creating higher end custom work. Lastly, is the option of changing the current coating he has on his furniture. Guillermo has patented a process for creating a coating. The first step in this process creates a common flame retardant which there is some market for that could also be possibly pursued as a side interest. But Guillermo could also just purchased another material and eliminate his patented process all together. While this change should give his furniture the same amount of value, what will any of these changes state above say about Guillermo Those changes lead to the last topic, of Signaling. Signaling can always be misinterpreted but for the most part, people will read into any decision Guillermo decides to go with. ???In some cases, new lines of business may reveal something about a firm??™s position and its belief in the venture??™s potential???(Emery, Finnety, Stowe, 2007). For example, if a vendor lets it be known that Guillermo is now purchasing a product to coat its furniture with instead of the normal process he has created, people may begin to think that Guillermo??™s quality has been compromised. It may seem that he is struggling and finding ways to cut back on costs. Guillermo also signals to others if he just becomes a distributor that he sees there is no opportunity against large competitors and may discourage other companies like him from any change. References Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). The Financial Environment : Concepts and Principles (3rd ed.). : Pearson-Prentice Hall. (Ed.). (). Guillermos Furniture Store Scenario. [University of Phoenix Custom Edition e-Text]. : . Retrieved July 5, 2010, from FIN / 571. References This is a hanging indent. To keep the hanging indent format, simply delete this line of text using the backspace key, and replace the information with your reference entry.