BUS 508 week 2 Discussion question and Journal Entry

Slide #

Narration

Slide 1

Tammy: Welcome to Contemporary Business.

This week I will be meeting with Vicky Simpson, Corporate Vice President of Walters Aeroworks, regarding the organization’s current corporate strategic position in the marketplace, and the need to make decisions regarding the company’s future.

Let’s go visit Vicky and see how we can help!

Slide 2

Tammy: Good morning, Vicky! Thank you for taking the time to speak with me this afternoon regarding the strategic position of the company. I know this is a crucial time in the company’s history, and I appreciate that you will share with us your perspective on the company’s future.

Vicky: Tammy, I am glad that you have stopped by so that I can give you the information you are seeking about our company.

Tammy: Vicky, can you give me an idea of what you envision Walters Aeroworks to be in the future?

Vicky: I certainly can! Let’s look at it from two different perspectives, the microeconomic view and the macroeconomic view.

Slide 3

Vicky: From the microeconomic view, we are concerned about small economic units, such as individual consumers, families and businesses, and how and what we do as a company impacts those units. In other words, we are concerned about consumer behavior!

The forces of supply and demand determine what each economic unit needs.

Vicky: Supply is concerned with the willingness and ability of sellers to provide goods and services, while demand is the willingness and ability of buyers to purchase goods and services. The interaction of these two factors is shown on the sample supply and demand curve shown here.

The demand curve is the part of graph that shows the amount of a product that buyers will purchase at different prices, while the supply curve shows the relationship between different prices and the quantities that sellers will offer for sale, regardless of the demand.

When we have the interaction between the two curves, we have effects on prices and the availability of products. The intersection of the two curves is called the equilibrium price, which is the prevailing market price at which you can buy an item. If the actual market price differs from the equilibrium price, buyers and sellers tend to make economic choices that restore the equilibrium level.

Slide 4

Tammy: So, how does this whole concept of supply and demand impact what Walters Aeroworks decides to manufacture and sell to its customers?

Vicky: Great question, Tammy! As you know, part of what we do is produce specialty parts of replica World War I and World War II airplanes. These builders cannot just open up a parts catalog from a company like Cessna or Piper and find the part that they need to complete the build of their planes. Instead, they need custom parts that are expensive to produce in a quantity of one or two at a time. These parts are also required to meet very exacting standards so that they can receive the airworthiness certificates required for their planes to fly. That is where we can assist them in what they need.

Tammy: Is that why Cliff Walters started this company in the first place?

Vicky: Exactly!

Since we can help many different builders of the same type of aircraft, we can use our state of the art technology to manufacture the parts of the highest quality at an affordable price that these builders would not be able to build themselves.

Tammy: That makes perfect sense. That’s a solution that really sets a company apart from anybody else.

Vicky: Very true! We, however, do not have a large stockpiles of these parts, because there are a limited number of builders of these replica aircraft. Due to this, we have to produce the parts on a “just in time” basis, so that we can keep a stockpiles of raw materials, but only make the finished products when they are actually ordered. Our prices do not change drastically over time, unless our suppliers decide to change their prices, but we buy enough of the raw materials to get bulk quantity discounts to allow us to keep our prices reasonable.

Slide 5

Tammy: Thanks for explaining how this part of supply and demand works, but how does that impact macroeconomics for this community where you are located?

Vicky: This is because we have a very successful business here in the community. We also have an impact on the overall economy here. As you will recall, macroeconomics is the study of a nation’s economic issues, such as how an economy maintains and allocates resources and how a government’s policies affect the standards of living of its citizens. A simple example of macroeconomics would be the study of U.S. employment.

Tammy: While we’re on the subject, I was kind of wondering - What kind of government regulations impact your business?

Vicky: The exacting standards that I mentioned above regarding the airworthiness of airplanes are set by the Federal Aviation Authority, or the FAA. These standards then impact all aircraft manufacturing, whether it is for what we do here to support small builders of replica aircraft, or the large plane manufacturers like Boeing or Airbus. Each part made has to follow certain standards of material type, structure and strength. If we did not have these standards, then anyone could put a part on a plane that might not stand up the forces of being flown, and could result in plane crashes. That is why we focus so heavily on being compliant with laws. Besides, as you recalled in your conversation with Bill Wright last week, we follow ethical practices and adhere to all legal guidelines.

Tammy: I totally understand. It’s definitely a challenging industry. I mean you have to align all technological aspects with safety and ethics – and at the same time move the company forward in an innovative and timely fashion.

Slide 6

Vicky: Let me take this discussion one step further by offering an interactive exercise that discussed the different types of competition that are part of macroeconomics.

Click the icons at the bottom of the screen to learn more about the different types of competition that exist.

Slide 6-1

Vicky: Pure Competition.

Pure competition is a market structure where there are buyers and sellers that exchange homogeneous products and no single participant has a significant impact on price. Instead, prices are set by the market as the forces of supply and demand interact. Firms can easily enter or leave a purely competitive market because no single company dominates, and buyers see little difference between the goods and services offered by competitors.

Slide 6-2

Vicky: Monopolistic Competition.

In monopolistic competition, there are large numbers of buyers and sellers exchanging differentiated products; therefore each participant has some control over price. Sellers can differentiate their products from competing offerings on the basis of price, quality or other features. Customers can then choose the company or brand with the lowest price, or sellers can convince them that a more expensive offering is worth more because it offers better quality, safety or some other advantage.

Slide 6-3

Vicky: Oliogopoly

In an oligopoly, there are few sellers competing and high start-up costs that form a barrier to keep out new competitors. Also, the huge investment required to enter an oligopoly market tends to discourage new competitors and the limited number of sellers also enhances the control that these firms can exercise over price. Another factor is that competing products in an oligopoly sell for very similar prices because substantial price competition would reduce profits for all firms in the industry.

Slide 6-4

Vicky: Monopoly

In a monopoly, a single seller dominates trade in a good or service for which buyers can find no close substitutes. A pure monopoly occurs when a firm possesses unique characteristics so important to competition in its industry that they form barriers to prevent entry by potential competitors. Since a monopoly market lacks the benefits of competition, many governments regulate monopolies through antitrust legislation such as the Sherman Act and the Clayton Act.

Slide 7

Tammy: So Vicky, which kind of competition would you identify with Walters Aeroworks?

Vicky: We think of Walters Aeroworks as being an oligopoly, because we see ourselves as one of few sellers in the marketplace of these aircraft specialty products. Each competitor in our market has chosen to focus on a limited number of different plane types because of the uniqueness of each type. So even though we are competitors in the replica aircraft business, we tend to offer our products at similar prices to keep ourselves whole in the marketplace. This also is what is driving us to look at how we want to expand our business; we just have not figured out yet why we might want to expand globally.

Slide 8

Tammy: So why is Walters Aeroworks thinking about expanding beyond the borders of the United States?

Vicky: Many of the replica aircraft products that we make were originally manufactured in companies such as France, Germany and England during World War I and World War II. There are not many companies in these countries that are interested in getting back into the manufacturing business to support the replica plane builders. We do, however, have a handful of aircraft builders that have contacted us from those countries, and have actually ordered products that we have shipped overseas.

Tammy: It amazes me that there is still a demand for products like these… I mean you don’t run into people everyday that build replica airplanes from that time period.

Vicky: Right! That’s one of the things I struggled to understand when I first started here. So, one of our possible business strategies going forward is to possibly open a manufacturing facility in Europe to support these builders, as there is no one in the business operating there at this time. But, we need to evaluate if this is a sound business strategy because of the start-up costs involved for finding a manufacturing facility, personnel, raw materials, and so on. We also need to consider the different barriers present within the international markets, such as whether we manufacture here and just ship, or actually build another facility overseas.

Tammy: What kind of barriers are you talking about here?

Slide 9

Vicky: Let’s look at those factors now through this engaging interaction.

Slide 9-1

Vicky: Social and Cultural Differences

Social and cultural differences among nations can range from language and customs to educational background and religious holidays. A company must understand and respect these differences to pave the way for international business success.

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Slide 9-3

Vicky: Political and Legal Differences

Political and legal differences in host countries can post barriers to international trade. To compete in the world marketplace, managers have to be versed in legislation that affects their industry regarding things, such as trade restrictions, or detailed rules that regulate how foreign companies can operate.

Slide 9-4

Vicky: Types of Trade Restrictions

The last category of barriers that we have to investigate are trade restrictions, such as tariffs like taxes, surcharges, or duties on foreign products. These trade restrictions make imports more expensive for domestic buyers but do generate income for the government. There are also non-tariff barriers that may be things like quotas that limit the amounts of particular products that countries can import during specified time periods. There are also embargos which impose a total ban on importing a specific product or even can result in a total halt to trading with a particular country.

The last kind of restriction can be exchange control, in which a central bank or government affects both exporters and importers by allowing firms to gain foreign currencies through exporting. However, these exporter and importers are required to sell the currencies to the central bank or another agency. Importers must buy foreign currencies to pay for their purchases from the same agency. The exchange control authority can then allocate, expand, or restrict foreign exchange in accordance with national policy.

So, you can see how all of these barriers could have a very positive or negative impact on our ability to enter a new marketplace in an area such as Europe.

Slide 10

Tammy: Yes, I am quite familiar with all of these factors. It’s amazing what you have to consider when you are thinking about expanding your business beyond domestic borders. I thank you for sharing this information today.