Barbara A. Nooney
XYZ Construction, Inc. (XYZ) is expanding into Canada, Mexico and Asia prior to its initial public offering, which it would like to make in twelve months. Considering microeconomic and macroeconomic factors, legal and contractual issues, and employment and labor issues will assist XYZ in developing a strategic plan to successfully launch its IPO.
Microeconomics is basically the study of supply and demand in the marketplace (Wikipedia, 2010). Being a horizontal construction company, XYZ needs to consider its competition, the demand for its services and the amount of those services that they can supply utilizing their current capacity and resources. My research identified a few competitors that XYZ should be watching. Of particular interest is Tetra Tech, Inc. a public company in the horizontal construction industry that launched its initial public offering in December 1991. Tetra Tech would probably be the strongest competitor of XYZ. In order for XYZ to compete with Tetra Tech and other suppliers of horizontal construction services, XYZ should develop an in depth understanding of supply, demand and balance in the market place.
Consumer demand is the amount that all consumers are willing to purchase at different price levels (Engage, 2009). This definition assumes that all other product or service features (like quality) among suppliers are equal (Cengage, 2009). From XYZ's perspective, the pricing of their construction services would influence the demand. The higher the rates that XYZ charges the lower the demand will be for its services. A similar concept exists for supply.
Demand is representative of all consumers in the market; supply is representative of all suppliers (Cengage, 2009). This time we view the concept in reverse, the price the consumer is willing to pay influences the amount the sellers are willing to supply. Balance or equilibrium is represented by the price point where the amount consumers are willing to buy equals the amount that suppliers are willing to provide (Cengage, 2009).
At prices above the equilibrium point there will be a surplus of services and at prices below the equilibrium price there will be a shortage of services. For the horizontal construction industry, economic growth and the prices of related goods and services will influence demand. Supply will be affected by technology, the costs of providing services, and competitors pricing models. As XYZ expands it should develop expectations on how its own expansion will affect supply, pricing and demand. In an open economy (an economy that interacts with other economies) there are many variables (exports, imports, the trade balance, and exchange rates) that play a role in economics (Cengage, 2009). XYZ will participate in an open market that buys and sells good and services.
Macroeconomic factors that influence the operations of the company include exports, imports, the trade balance and exchange rates (Cengage, 2009). As XYZ expands into international markets, the aforementioned variables will affect the supply and demand equilibriums of those markets. Trade balance is achieved when a nation's exports equal its imports (Cengage, 2009). Like supply surplus and demand surplus, trade surplus is created when a country's exports exceeds its imports. A trade deficit is created when a country's imports exceeds its exports (Cengage, 2009). XYZ may participate in an open market on several levels including raw materials, transportation, labor, and construction services. These levels may be performed domestically, internationally or as a combination of both. Trade balance is affected by prices of goods in domestic or foreign markets, exchange rates, cost of transporting goods, labor relations and government policies (Cengage, 2009).
Exchange rates are measured in both currency and goods and services (Cengage, 2009). The nominal exchange rate...