December 14, 2010
Professor Charles Prescott
Guillermo Furniture Store Concepts
Guillermo Navallez made furniture for years near his Sonoran home. The area had a good supply of timber for the variety of tables and chairs produced by his company. Labor was also relatively inexpensive. In addition, he priced his handcrafted products at a slight premium for the quality they represented. Overall, life was good for Guillermo, until in the 1990s when two forces combined to cause a large dent in his business.
First, a new competitor from overseas entered the furniture market. Second, the sleepy communities in Sonora woke up. One of the largest retailers in the nation’s headquarters was just a few miles down the road, and its influence had expanded considerably. Guillermo watched his profit margins shrink as prices fell and costs rose.
According to Emery, Finnerty and Stowe in their text Corporate Financial Management, “Every field of endeavor has fundamental laws, principles, or tenets that guide you in understanding that field (2007, p. 19). The simulation as many concepts as it relates to the principles of financial management.
There are three principles that Guillermo can consider and apply when deciding on what to do with his current situation. The first principle is the Principle of Self-Interested Behavior. This principle is a belief that people act in their own financial self-interest. In the scenario, a foreign competitor has been scooping up much of the business from Guillermo seemingly without regard for how it affects Guillermo’s business, acting in their own financial interest. As well, Guillermo is facing similar decisions about the future of his business.
As Guillermo has seen with his competitors, he may need to merge with another organization in order to survive. The behavioral principle is leading this decision (Emery, Finnerty, & Stowe, 2007). This option is not Guillermo’s... [continues]
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