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Investment

By aeroplane89 Nov 05, 2012 2543 Words
1. Introduction
From the paragraph, we know that Universal Auto is a large multinational corporation headquartered in the United States, which is a big market in the world and it is not easy to survive without a well development company. So that, the company must has their survival plan to make the company stay in the big market, but they need to make some changes to solve their losses problem, for example their passenger cars business has had weak operating results for the past several years. Even this business is not their primarily income, but they are still feel confident with that and believe that it will growth to the another level to help company to earn profits in the future. In the current year, they still have other business earning profit very stable like information processing services; it is stable income for the company in the past 15 years. Other than that, the company wants to use industrial life cycle and business cycle to show that how their businesses living in the big market and use their pricing strategies to set their product’s price to make sure it is suitable for the big market in the United States. The industry’s life cycle has different life stages in a particular industry. There are stages in everybody’s life like childhood, adult, middle age, and then old age. Likewise, there are four stages in every industry’s life cycle and there are introduction stage, growth stage, maturity stage, and decline stage in industry life cycle. There is different with industry life cycle, the business cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables. A business cycle is not a regular, predictable, or repeating phenomenon like the swing of the pendulum of a clock. Its timing is random and to a large degrees, unpredictable. There are four phases of business cycle, such as prosperity phase, recession phase, depression phase, and recovery phase. Lastly, the company’s stocks and bonds investment timing is important for the investors.

2. Concept of an industrial life cycle

2.1 Introduction stage
At the beginning of an industry’s life cycle, the firm may be alone in the industry and it may be a small entrepreneurial company or a proven company which used research and development funds and expertise to develop something new. Perhaps a new unique product offering has been developed and patented. There are many types of firms with different efficiency levels and historical backgrounds. They want to experiment with new product varieties because there are lots of opportunities for technological innovation and there’s little or no product standardization. For automobile industry, there were so many firms in the United States and such a huge variety of products rolling out from their factory gates, each firm had to be satisfied with a small share of the market. Marketing refers to new product offerings in the new industry as “question marks” that is because the success of the product and the life of the industry in unproven and unknown. Many firms will use a focused strategy at this stage to stress the uniqueness of new product or service to a small group of customers. These customers also called as “innovators” and “early adopters” are typically referred to in the marketing literature. Besides that, they often attempt to establish early perceptions of product quality, technological superiority, and advantageous relationships with vendors within the supply chain to develop a competitive advantage. Because it costs money to create a new product offering, develop and test prototypes, and market the product, the industry’s profits are usually negative at position and help fund continued growth.

2.2 Growth stage
Same as introduction stage, the growth stage also requires a significant amount of capital. The life cycle curve will start to increase when the product is developing smoothly. The goal of marketing efforts at this stage is to differentiate a firm’s offerings from other competitors within the industry. If the new product is successful, sales will start to grow and new competitors will enter the market, slowly eroding the market share of the innovation firm. The product may begin to be exported to other similar types markets and substantial efforts are made to improve its distribution. During this phase competition mainly takes place on the basis of product innovation rather than on the basis of price. Besides that, there are multiple companies in the industry seeking to differentiate themselves and earn market share. It is during this phase that companies may start to benefit from economies of scale in production. This stage of industry growth, while still presenting risk to investors, demonstrates the viability of the industry. 2.3 Maturity Stage

In the maturity stage, the industry life cycle curve becomes noticeably flatter, indicating slowing growth. The product has been standardized, is widely available on the market and its distribution is well established. Competition increasingly take place over cost and a growing share of the production takes place in low cost locations. This is the stage where the industry will start to see slowed growth with the rate of sales growth often slowing to the rate of overall economic growth. Some experts have labeled an additional stage, called expansion. While sales are expanding and earnings are growing from these “cash cow” products, the rate has slowed from the growth stage. In fact, the rate of sales expansion is typically equal to the growth rate of the economy. Late entrants appear in this stage seeking to capture market share through lower-cost offerings, thus requiring the existing companies to continue their marketing efforts. For investors, maturity of an industry can mean relatively stable stock investments with the possibility of income through dividends

2.4 Decline Stage
As the product begins to become obsolete, production essentially takes place in low costs locations. Production and distribution economies are actively sought as profit margins decline. Eventually, the product will be retired, an event that marks the end of its life cycle. A decline is inevitable in any industry as technological innovations and changing consumer tastes adversely affect sales. At this stage, some companies may exit the industry or merge and consolidate. In this phase, sales are decreasing at an accelerating rate. This is often accompanied by another, larger shake-out in the industry as competitors who did not leave during the maturity stage now exit the industry. An investor should approach stocks in declining industries with caution. 3. Universal’s two primary businesses

Passenger cars business is in the growth stage of industry life cycle because this business just passes the introduction stage and still in a losses period. Even the weak operating results are not in a good condition, but universal auto still being confident to think that this business will has a good performance in the future. I-Data, the information processing services is in the maturity stage of industry life cycle because this business already 15years and this business still being strong, steady growth. Even this business is going to the decline stage, but it is still can become one of the stable businesses for the company.

4. Product pricing of Universal’s two businesses
One of the secrets to business success is pricing your products properly. Price your products correctly and that can enhance how much you sell, creating the foundation for a business that will prosper. Get your pricing strategy wrong and you may create problems that your business may never be able to overcome. There are a variety of different types of pricing strategies in business. However, there’s no one surefire, formula-based approach that suits all types of products, businesses, or markets. Pricing your product usually involves considering certain key factors, including pinpointing your target customer, tracking how much competitors are charging, and understanding the relationship between quality and price. The good news is you have a great deal of flexibility in how you set your prices. That’s also the bad news. 4.1 Passenger cars

Passenger cars business is in the growth stage of the industry life cycle. The company has to changes their product pricing because they are still have losses in this business. In product pricing, they need to do is make their sales increase and make profit for the company. The pricing strategy is all prices must cover costs and profits, but they cannot make it because they are in a losses condition. So that, the most effective way to lower prices is to lower costs to attract more people to know this business in the situation of this business. Other than that, the company also can use the money which is reducing the cost to do some advertisement to make this business more famous. 4.2 I-data

The information processing services is in the maturity stage of industry life cycle. Their development is smooth and strong enough in that area and the company also make lots of profits through the services. Even like that, the company needs to care its future development and to do some product pricing to help its product life cycle to be longer. The company can reducing the services’ price for their lovely customers because people is too familiar to the services, if the pricing can be decrease to lower price that will be a best choice for the customers. Finally, people can make their life cycle to be longer.

5. Investment timing in a business cycle
In the business cycle, it is starts from a lower point and passes through a recovery phase followed by a period of expansion (upper turning point) and prosperity. After the peak point is reached there is a declining phase of recession followed by a depression. Again the business cycle continues similarly with ups and downs. Successful investment timing depends on understanding the impact of the business cycle on different types of assets at different stages of the cycle. From the theory of investment expert Jon Gregory, the different phases of the business and growth cycles, and the effect each phase has on investment returns in equities, bonds, and cash. 5.1 Prosperity phase

For this phase, there is an expansion of output, income, employment, prices, and profits; there is also a rise in the standard of living. Due to full employment of resources, the level of production is Maximum and the GNP also will rise. Due to a high level of economic activity, it causes a rise in prices and profits. There is an upswing in the economic activity and economic reaches its Peak. This also called as a Boom Period. In this period, there is a good investment timing for the investors because every businesses is in the good expansion period, even there are many choices for investors who can put their money to this investment timing period. It is really nice period for investors, when every business rising all the time in the stock market which is giving the chances for investors to earning profits. 5.2 Recession Phase

This is the turning point from prosperity to depression. During a recession period, the economic activities slow down, the demand of the market will starts to falling down and the overproduction also will make the market become more disorder. The future investment plans for companies also will give up. The businessmen lose confidence in their investment or business to become pessimistic and it is reducing the investors to do more investment in the market. The banks and the people try to get greater liquidity and to save their money through their own plans. Expansion of business starts to stops because the stock market falls. Orders are cancelled and people start losing their jobs because the company can affords so many workers’ salaries. The unemployment rates will straight forward increasing to another level. This short recession period is the upper turning point to the business, we can make sure that this is not good investment timing for the investors, but some of the investors already invest in their confidence stocks. That means not every stocks will be affected, so that some of the companies can hold on their stock in a good position of the investment. Lastly, we are not suggesting the investors take risks to invest in this dangerous period.

5.3 Depression Phase
There is still a continuous decrease of output, income, employment, prices and profits, there is a fall in the standard of living and depression sets in. There is under-utilization of resources and fall in GNP. The aggregate economic activity is at the lowest, causing a decline in prices and profits until the economy reaches its low point. If the investors want to invest in this period also will face the dangerous stock in the market, which is not good investment timing. But the investors can save their money in this period to waiting right investment timing for them to invest in the market. That’s why some of the expert investors already prepared their money for the new period to earn another big money from the stock market.

5.4 Recovery Phase
There is the turning point from depression to expansion. In the recovery or revival period, there are expansions and rise in economic activities. When demand and production starts to increases and it will causes an increase in investment. There is a steady rise in output, income, employment, prices and profits. The businessmen gain back their confidence and become more optimistic which is help to increase investments. The stimulation of investment brings about the revival or recovery of the economy. The business expansion takes place and stock markets are activated. There is an increase in employment, production, income and aggregate demand, prices and profits start rising, and business expands. The investors can use the money which is prepared to invest in this recovery period to earn their big money; there is the people who called as great investment timing. Everything growth and expansion well is help to increase the stock price. 6. Conclusion

As a conclusion, we found that as an investors also need to waiting correct investment timing for them to invest, there is not meaning that you are a expert investor then you can invest in which stock you want and it is not easy to earn the profit through the investment. The stock of universal auto will be good choice in the recovery phase of business cycle for investors, that’s because their stocks already pass through the difficult time and they are well development in everything. So that, there must be other stocks better than Universal Auto even though they are in a good position but investors never less. 7. Reference

Industry Life Cycle
http://www.navhindtimes.in/business/four-stages-industry-life-cycle http://www.open.edu/openlearn/money-management/management/business-studies/lifecycle-the-car-industry http://www.financewalk.com/2011/4-stages-industrys-life-cycle/ http://www.inc.com/encyclopedia/industry-life-cycle_pagen_2.html Product Pricing

http://www.inc.com/guides/price-your-products.html
http://www.entrepreneur.com/encyclopedia/term/82380.html
Investment Timing and Business Cycle
http://useconomy.about.com/od/glossary/g/business_cycle.htm
http://www.amazon.com/Investment-Timing-Business-Frontiers-Finance/dp/0471188794 http://www.peterdag.com/s_files/mLcn829S3eP2.pdf

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