November 4, 2010
Guillermo Furniture Store Concepts Paper
Guillermo Navallez is a proud furniture manufacturer, which specialized in handcrafted premium furniture in Sonora, Mexico. In the 1990s events happen to change Guillermo business; a new competitor from overseas entered the furniture market. The new company use a high-tech approach and provided rock bottom prices and produce furniture faster and cheaper in cost than Guillermo. Guillermo watched his profit margins shrink in his company, as sales dropped, and costs rose. Guillermo had a dilemma because of the new competition from both companies and his declining profits (University of Phoenix, 2009). Guillermo needed to ask himself a question how could he continue to exist with the new competition and deal with his finances in his new environment.
Guillermo first had to look at financial environments and the concepts and principles of his economic environment. The first group of principles was competition of an economic environment, Guillermo had to find away to make a good business decisions, he need to learn how to understand human behavior. He would learn these processes through the principle of self-interested behavior. The most important application of the principle of self-interested behavior is called agency theory. The theory will help Guillermo analyzes conflicts of interest and behavior in principal agent relationship (Emery, Finnerty, Stowe, (2007) p. 20). The second principle was creating value and economic efficiency, Guillermo look at the options principle value. Guillermo can require the new competition to make transaction specified in an option contract. For example; Guillermo can retain his high end custom work, and move his company from a primarily manufacturing to distribution primarily (University of Phoenix, 2009). The last principle Guillermo observe was financial...