Government Regulation and the Competitive Environment for Business

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Business Strategy

Introduction:

The study of government regulation and the competitive environment for business is related to/useful to all those who study business. All business candidates need to understand how the competitive environment will impact their employers and businesses.

Government rules define the edges/borders of the law-based framework within which the company conducts its business (Chou, Lee & Chung, 2004). Believability and well-supported summary four major pieces of laws (and law making) all together known as the (related to preventing one company from becoming too powerful) Laws. Oligopoly markets are seen as the concentration of power in fewer hands in the short run and the concentration of wealth in fewer hands in the long run. The market structure needs regulation for a decrease in market externalities and also a a healthy and (able to last/helping the planet) growth of its own (Chou, Lee & Chung, 2004).On the contrary in a natural Monopoly market the single largest player (monopolist) is the price setter and her actions could lead to exploitation of consumers. This is why the need for government intervention in the monopoly market is enhanced. However the economic regulations always come at a cost and there might still be a chance of market failure because regulators tend to have imperfect market information. Good regulatory intervention in the in the natural or legal monopolies must work towards developing per barriers to entry (so that a single firm can sustain scale economies) and constrain prices in a way to constrain prices ( so that the monopolist earns fairly reasonable profits only). Credible and well-supported discussion of the intended purpose of social regulation as it applies to all market structures Explain the major functions of the three primary federal and state regulatory commissions that govern industrial regulation (Chou, Lee & Chung, 2004).

Process of Strategic Planning:

The strategy business units of the company are used to focus on the market segment and the products being offered in the company. They are used to analyze the competition the company faces, the marketing plan it has adopted, as well as the level of satisfaction offered to the customers. The company has divided its SBUs on various fields, which include product based, competitor based, market based, as well as customer based. These SBUs help in ascertaining the profitability of the company, and they also help in identifying most of the factors that influence the performance of the corporation.

•All the company’s products are being placed on the matrix at their appropriate place. First, it is important to understand how a BCG matrix works. It is a tool used for evaluation of the strategic position of the portfolio of the business brand. After analyzing the products, one is able to determine whether to invest on some of the products, and by what level he should invest in those products. There are four divisions: stars, question marks, cash cows and dogs. Cash cows are those products which have very high earnings, and they are stable in the market. The cash flow experienced here is high and stable, and the best strategy for such products is investing them to maintain the current status or even harvesting. Stars are used to show products that give the company low earnings, are stable and the earnings are growing. The cash flow for stars is neutral and the strategy to be adopted is to support these products for their growth. Question marks are products which have low earnings, but they are unstable in the growing level. Their cash flows are negative, and the best strategy for such products is to invest if they have potential, but the company can as well sell them. Dogs have low earnings and are very unstable. Their cash flow is neutral, and at times negative. Such products are the reasons for low profitability or even losses. The most effective strategy to adopt here is divesting.

Formulating a New Strategy:

To formulate a new business strategy, let’s take an example.

IKEA keeps costs low by using minimal staff in the stores, however, they do offer an excellent customer service throughout the store with strategically located information towers as well as assistance in the inventory storage.

The company has several competitors, which include Argos, DFS, Habitat, Homebase, Staples, Next, B&Q, and Debenhams.

•Future investment decisions

Depending on the position the products occur in the matrix, the company will make various decisions regarding investments. Those items that fall under cash cows will trigger several investment decisions such as product diversification, product development, divestiture and retrenchment. Those products that fall under stars will include decisions such as market penetration, product development, and market development, horizontal and vertical integration. Those falling under question marks will engage decisions like market development, market penetration, divestiture, and product development. Finally, those products falling under dogs will face investment decisions such as divestiture, retrenchment of workers and liquidation.

• Assessment from the matrix

Since there are more items in the cash cow column and fewer items in the dogs’ column, the company can be viewed as strong. Despite being at its market penetration stage, it has been able to compete favorably, and this has made it make reasonable profits.

From the matrix, the following strengths and weaknesses can be deduced:

Company Strengths:

•It has a powerful brand image.

•It has a wide range of products and styles.

•Stylish Swedish designs.

•It’s cheap and affordable.

•It has a flat packaging design (reducing storage, shipping, labor and makes transportation easier.

•IKEA’s facilities have a friendly atmosphere and layout.

• IKEA’s facilities are equipped with a restaurant and daycare center.

•IKEA has long-term relationships with the suppliers.

•IKEA has a high profit margin.

Company Weaknesses:

•Assembling furniture yourself may be unattractive to certain consumers.

•There are very few locations.

•Swedish designs may not appeal to all markets.

•Advertising doesn’t appeal enough to the young target market.

•Furniture is not built to last a lifetime.

•Matrix showing the products of IKEA

STARS

Bed frames

Desks

Mirrors

Children’s IKEA (Crib mattresses, Changing tables, Children's tableware , Highchairs, Baby toys, Children's beds , Toys, and Storage system)

Bathroom storage (Sinks, Cabinets, Faucets, Bathroom storage, and Bathroom accessories) Storage furniture (Racks and stands)

QUESTION MARKS

Electronic oven

Cooking/ Eating (Cooking accessories,Knives, Mixing and measuring tools, Frying pots and pans, Bake ware ,and Kitchen utensils)

Kitchen cabinets and appliances

Lighting

TV and Media furniture

CASH COWS

Rugs

Textiles

DOGS

Bed spreads

Decoration (Vases, bowls, pictures, frames and candles).

Beds and Mattresses (Full, Queen and King Beds)

•Each SBU can be assessed in terms of sales and market share on the IKEA Company.

Product Range

There are about 10,960 products in the total IKEA product range. Each store carries a selection of these products depending on store size; however, the core range is the same world wide. The IKEA product range is wide in function and style. Customers can find everything they need to furnish their home, from plants and living room furnishings to toys and whole kitchens. No matter which style the consumer is looking for IKEA has something for everyone.

Initially, the company did not customize the services and products to local markets keeping its operations and products standardized around the world. The standardized approach of internationalizing has minimized the costs, which is a success factor for IKEA. IKEA works to ensure that products and materials are adapted to minimize any negative impact on the environment, and are safe for customers from a health perspective. IKEA strives to use renewable and recyclable materials in their products.

By 2012, IKEA had more than 24.7 billion EURO in annual sales with a growth rate of 9.5% in comparison with the prior year. This increment was experienced mainly in China, Russia, Poland, U.S., and Germany. That year, the top five selling countries were: Germany, 14%; U.S.A., 12%; France, 9%; Italy, 6%, and Russia, 6% (IKEA, 2012).

The company has 139,000 employees with more than 330 stores in 40 countries and has 27 distribution centers in 16 countries (IKEA, 2012). These distribution centers facilitate the management of the supply chain more efficiently ensuring an appropriate distribution system within suppliers, stores, and customers. In 2012, IKEA had 1,084 home furnishing suppliers in 53 countries. The IKEA website contains about 12,000 products and is the closest representation of the entire IKEA range. During 2012, IKEA introduced more than 2,000 new products and improved the quality of the merchandise. More than 690 million people visited the IKEA stores and the website had more than 1 billion visits. They opened 11 stores in 9 countries and they plan to continue expanding. InterBrand, a research firm that analyzed the worth of IKEA’s brand, assigned it a value of $11.9 billion in 2012.

Strategic Evaluation and Selection Approaches

Businesses large and small now compete in a truly global economy. To be successful in another country it is essential to understand and appreciate the cultural differences that exist. Business practices and ideas that work well here in the United States may not necessarily be expected to do so in other cultural environments.

If you were considering an expansion of your current business into an Asian country, what cross cultural challenges might you encounter?

Considering of expanding into Asia, China comes across as the strikingly obvious choice. The predominantly socialist and capitalist economy has grown into a so called capitalist market. The country is the most populous around the globe and is the largest among emerging markets. Despite a growing resemblance between the inherently socialist economy of China and the American market economy there are a lot of cross-cultural barriers to entry in the way of a Successful deployment to China. Various overt and covert aspects of the Chinees culture differ predominantly from the American market. Starting from religious beliefs and moral values at individual and group levels to the marketing orientation there are visible differences. Moreover the linguistic barrier is also there which highlights the difficulties arising from connotations and implications of everyday words that differ in each language. Culturally speaking , Chinees people are more focused towards a family oriented culture, are closer their parents, love to extend their families and are more modest and hard working when compared to Australian nationals. On three out of four Hofstede dimension Power distance, Uncertainty Avoidance and collectivism, the Chinese people score high against US consumers. On the other hand US consumers are more individualistic and Masculine (Chou, Lee & Chung, 2004).

The FTC puts out its mission by investigating issues raised by reports from consumers and businesses, pre-merger notification filings, congressional inquiries, or reports in the media. These issues include, for instance, false advertising and other forms of fraud. FTC investigations may pertain to a single company or an entire industry. If the results of the investigation reveal unlawful conduct, the FTC may seek voluntary compliance by the offending business through a consent order, file an administrative complaint, or initiate federal litigation.

Traditionally an administrative complaint is heard in front of an independent administrative law judge (ALJ) with FTC staff acting as prosecutors. The case is reviewed de novo by the full FTC commission which then may be appealed to the U.S. Court of Appeals and finally to the Supreme Court. A summary of cases heard since 1996 indicates that the commission has never upheld an administrative law judge's decision to dismiss a complaint. After adverse results in which the independent administrative law judges have ruled against the FTC (Schering Plough and Rambus), there has been a move towards FTC commissioners being appointed as ALJ (Commissioner Rosch in Inova Health).

Under the FTC Act, the federal courts retain their traditional authority to issue equitable relief, including the appointment of receivers, monitors, the imposition of asset freezes to guard against the spoliation of funds, immediate access to business premises to preserve evidence, and other relief including financial disclosures and expedited discovery. In numerous cases, the FTC employs this authority to combat serious consumer deception or fraud. Additionally, the FTC has rulemaking power to address concerns regarding industry-wide practices. Rules promulgated under this authority are known as Trade Rules.

In the mid-1990s, the FTC launched the fraud sweeps concept where the agency and its federal, state, and local partners filed simultaneous legal actions against multiple telemarketing fraud targets. The first sweeps operation was Project Telesweep in July 1995 which cracked down on 100 business opportunity scams.

In 1984, the FTC began to regulate the funeral home industry in order to protect consumers from deceptive practices. The FTC Funeral Rule requires funeral homes to provide all customers (and potential customers) with a General Price List (GPL), specifically outlining goods and services in the funeral industry, as defined by the FTC, and a listing of their prices. By law, the GPL must be presented to all individuals that ask, no one is to be denied a written, retainable copy of the GPL. In 1996, the FTC instituted the Funeral Rule Offenders Program (FROP), under which "funeral homes make a voluntary payment to the U.S. Treasury or appropriate state fund for an amount less than what would likely be sought if the Commission authorized filing a lawsuit for civil penalties. In addition, the funeral homes participate in the NFDA compliance program, which includes a review of the price lists, on-site training of the staff, and follow-up testing and certification on compliance with the Funeral Rule."

One of the Federal Trade Commission's other major focuses is identity theft. The FTC serves as a federal repository for individual consumer complaints regarding identity theft. Even though the FTC does not resolve individual complaints, it does use the aggregated information to determine where federal action might be taken. The complaint form is available online or by phone (1-877-ID-THEFT).

Implementing a Specific Strategy:

The FTC has been involved in the oversight of the online advertising industry and its practice of behavioral targeting for some time. In 2011 the FTC proposed a "Do Not Track" mechanism to allow Internet users to opt-out of behavioral targeting.

Comparison Of US and Chinese market:

1. Product: The product portfolio decision for Chinees market will need a through involvement of local designers, engineers and marketers to add a local touch to the product that is acceptable to the host country. Mobile phones and telecommunications equipment are in high demand in the emerging market.

2. Price: An average Chinese consumer is generally price sensitive, risk averse and is brand cautious when shopping for the new products compared to their Australian peers. Also, Chinese consumers are more price conscious than European consumers and the final buying decision is a group one and since price is a prime determinant of the decision to buy the pricing strategy (especially retail price is likey to be effected by the matter . Skimming the market with high price is only possible for stronger brands of International recognition. The retail price will have to be ranged at a mid market range in order to gain

attention of the market (Chou, Lee & Chung, 2004).

3. Promotion: The marketing promotions and communications will be adapted keeping in view the religious and moral susceptibilities of Chinese people. The telecommunication market is already Americanized as mass advertising campaigns can be tailored to meet the mindset of the local population (Chou, Lee & Chung, 2004).

4. Place: The distribution channels in the Chinese market are normally constrained. Most of the power is concentrated in the hands of few regularized distributors. For example the power in the cellular telecommunications market of the county sticks in the hands of the three state lead company’s. As a new entrant alliance with an established local distributor will be more beneficial instead of setting up an own distribution channel.

Making unauthorized payments and giving inappropriate gifts to corporate personnel are two emerging ethical issues in the global companies. Gift give away and charitable donations have very different connotations in Chinese culture. Similarly, making of unauthorized payments is sometimes not viewed as a matter of utmost suspicion in Asian countries like China. where trade is based on a foundation of personal relationships and corporate liabilities assumes the shape of a social responsibility. s mutual trust instead of contractual liabilities. A globally applicable code of conduct is a must for any ethnocentric or multinational organization. Moreover, apart from these and other few issues, most of the ethical issues have taken a global dimension in the global world of today’s day and age. Governance should provide a firm ethical culture to facilitate employees to better handle the ethical dilemmas with confidence. This ethical climate, has deeper beliefs, values and assumptions compared to the corporate culture.

(Chou, Lee & Chung, 2004).

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