Five Economic Concepts or Principles in this Scenario After reading the Guillermo’s Furniture Store scenario and Chapters 2 and 3 from the Corporate Financial Management book, it is possible to relate and analyze 5 Economic Concepts in order to determine the firm’s course of action with the goal to remain competitive, keep and attract new customers.
The Principle of Self-Interested Behavior The authors refer to this principle as “People Act in Their Own Financial Self-Interest” (Douglas, et.al., 2007). In this case, Guillermo runs his business with the main goal of making a profit. He has a comfortable life enjoying free time with his family. However, this principle also applies to anyone or any organization that has “financial self-interest”; in this case, larger organizations saw the potential that Sonora had to offer with inexpensive labor, location and available local materials. These organizations had a certain number of advantages over Guillermo’s business such as technology, infrastructure and resources. In order to remain competitive and continue doing business, Guillermo had to make some strong considerations and take immediate actions.
The Behavioral Principle “When all else fails, look at what others are doing for guidance”. The first step that Guillermo took in order to make a full assessment of the new economic reality of his furniture store was to do an environmental scan with his main competitors in order to learn what they were doing to succeed. He realized that his competitors were manufacturing furniture up to specification standards using modern manufacturing technology while minimizing labor costs at the same time. All of this resulting in a much more inexpensive final product sold to the public.
The Principle of Valuable Ideas Fortunately for Guillermo, he has a patent on a special furniture coating that can be marketed as a fire retardant. This idea along with becoming a distributor for an international furniture firm can bring his business the necessary income in order to eventually purchase the…