Fin 571 - Guillermo Furniture Store Concepts

Guillermo Furniture Store Concepts

Student

FIN/571

September 26, 2011

Teacher

Guillermo Furniture Store Concepts

Guillermo Furniture is a large furniture manufacturing company located in North America. For many years, Guillermo Navallez, the owner, hand-crafted his furniture in Sonora, Mexico using timber resources in the area, inexpensive labor, and charging premium prices for his custom pieces. In the late 1990s, a foreign competitor entered the furniture market using technology in the production of its furniture enabling mass production at reduced cost. The retail headquarters, one of the largest in the nation, was near Sonora and the expansion of the business into furniture sales sparked growth opportunities in the area. Affordable housing, favorable weather, uncongested roads, an international airport, and job opportunities were attracting new residents to the area. The growth in the area prompted increased labor cost and competitor's low pricing that was taking a toll on Guillermo's profit margin (University of Phoenix, n.d.). Guillermo had to evolve his business to stay competitive with the new company looking at various options that could be associated with the principles of finance. The behavior principle, the principle of self-interested behavior, the principle of risk-return trade-off, the principle of valuable ideas, the principle of diversification, and the principle of incremental benefits are expressed in the options that Guillermo considered in re-branding his business.

The Behavior Principle and the Principle of Self-interested behavior

Guillermo researched how his competitors were reacting to the transformation of the area and the impact of the foreign company's economic influence in lower prices, increased labor cost, and available inventory. Many of his competitors were merging into or bought by larger corporations. Guillermo was applying the behavior principle that simply stated is seeing how others are reacting to change.

Guillermo was independent managing his own company and did not like the thought of his company being controlled by a larger company nor did he relish the thought of purchasing another business. This would mean more time would have to be devoted to the business and less personal time. The principle of self-interested behavior expresses people will usually look at the financial benefit for themselves before the business. Guillermo wants to improve his financial interest without sacrificing his time with his family.

The Principle of Risk-Return Trade-off

The next step that Guillermo investigated was the technology of the foreign competition. Guillermo found that he could improve his production output by investing in the same technology. Although this would prove to be expensive, labor cost would be reduced whereas production quantities increased. The principle of risk-return trade-off expresses that one has to spend money to make money. Although Guillermo would have to invest in changing his production processes, he would benefit