ECON 616 CTU International Expansion and Financial Consideration Presentation

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Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.You’re meeting with Lester in his office to discuss the details of your presentation to the board next week.”Given all of the research that you have completed over the past several weeks,” he says, “you should have most of the information you need to make a presentation to the board. The board doesn’t want you to do any more research on all of the topics; rather, we want you to summarize the research that you have already done. “”Yes,” you say. “I think I have what I need.””Of course we want your final conclusion and recommendation on what the company should do regarding the location issue, as well,” he says.”What type of presentation do you have in mind, Lester?””A PowerPoint presentation would be appropriate for this group,” he says. “I want you to include slide notes, too, in case we have to go back and look at something at a later date. Your PowerPoint presentation should contain between 7-10 slides, not including the title slide and reference slide(s). For each slide, you should have between 150–200 words in the Notes sections. Let’s take a few minutes now to go over how the slides should be organized. I’ve done similar presentations, so I can save you some time with a few pointers.”When you get back to your office, you type out your notes about each element you discussed and the overall organization of the presentation. For this presentation, you are addressing the following elements:Legal, social, and financial factor considerationsEconomic factors: gross domestic product (GDP), inflation, interest rates, unemploymentElasticity of demandEconomies of scale and efficiencyStrengths, weaknesses, opportunities, and threats (SWOT)Market structureRiskCosts (marginal, fixed, variable, etc.)International expansion (Five factors that should be considered before making the decision to expand internationally)Assignment ObjectivesApply risk methodologies to economic situations using a variety of approaches ranging from basic statistics to certain equivalency.Demonstrate how metrics such as valuation, economic profit, and related terms are measured and evaluated.Demonstrate the ability to assess market structures ranging from pure competition to monopoly/monopsony.Explain the significance and implications of various economic theories pertaining to profit, consumer choice, demand and supply, forecasting and optimization.

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A MACROECONOMICS PERSPECTIVE
1
A Macroeconomics Perspective
Heather Clemons
Colorado Technical University
ECON616 Applied Managerial Economics
Prof. Melvin Landry
January 28, 2022
A MACROECONOMICS PERSPECTIVE
2
According to Managerial Economics (7th Edition) businesses do not operate in isolation of
external and internal environments and even though they have control over their internal or
microenvironment, they lack control of the external, or macroenvironment. Therefore, companies
must streamline their activities to match and utilize that external environment; and for
multinational companies, the choice of a country of operation is guided by an understanding of the
macroeconomics and ways they affect their long-term goals (Young et al., 2014).
Macroeconomics, such as interest rates, unemployment, gross domestic product, and inflation is
crucial in guiding the choice of the business locality.
This paper focuses on the distinct
macroeconomic factors that can influence AutoEdge’s long-term financial performance by
comparing South Korea and the United States.
Gross Domestic Product
Gross Domestic Product is a significant economic measure that shows the relative total of
all the income and expenditures on services and goods within a year. Thus, the gross domestic
product supports an understanding of the strength of an economy and the spending power of a
population. Countries with higher gross domestic products have relatively higher living standards
and the population spends more on different products.
The United States gross domestic product in 2021 was 20 trillion dollars (Siegel & Van
Dam, 2022). The figure was relatively higher compared to the previous year, and there is a
projection of the numbers to rise in 2022. Economic growth is the highest in USA history since
the early 1980s. Government spending during the period contributed to the surge in the economic
growth witnessed in the country. The economy is further recovering from the pandemic and is
likely to bounce to higher GDP performance in 2022.
A MACROECONOMICS PERSPECTIVE
3
In comparison, South Korea GDP is 1.8 trillion dollars based on the 2021 financial year
(Statistica, 2022). A comparison of the two GDPS from the two countries shows that the United
States GDP is more than 10 times that of South Korea. Therefore, looking at gross domestic
products, the United States offers a possible great market for the long-term financial performance
of AutoEdge. There is a higher likelihood of the company makes more sales in the United States
compared to South Korea.
Unemployment
Unemployment rates show the extent to which an economy can utilize its labor supply by
generating adequate employment for the population. A higher unemployment rate is an indication
that there is a significant number of people actively searching for job opportunities. A higher
unemployment rate also indicates a possible reduced spending power for a significant population
segment (Bureau of Labor Statistics, 2022).
After the effects of the pandemic, the United States has registered a significant decline in
the unemployment rates in the population. Before the closure of 2021, the United States registered
an unemployment rate of 3.9%, which was a decrease of the unemployed people by about 483,000
(Bureau of Labor Statistics, 2022). The country also experienced a decline in the number of
temporary and permanent layoffs.
These figures are an indication of an economy that is
progressively stabilizing and ensuring that more people can support their life. It is an indication
that the majority of the population has disposable income that boosts their spending power.
In South Korea, the unemployment rate by the end of 2021 was averaging at 4% (Yoon,
2021). Unemployment is spread across different age groups, with a significant percentage being
young people. The unemployment rate between America and South Korea compares well with
almost equal percentages. The rates are relatively low in both countries shows that the economies
A MACROECONOMICS PERSPECTIVE
4
have a higher capacity of absorption qualified and skilled people in the population.
The
unemployment rates show that it is attractive for AutoEdge to invest in either South Korea or
America.
Interest Rates
Interest rates determine the cost of achieving credit for businesses and individuals. Loans
from banks and other financial institutions charge some interests rate on their credits to ensure they
enjoy some profits and create value for their investors. Higher interest rates hinder the expansion
of businesses because they add to their operational costs and as such, they have to present their
products at uncompetitive prices with the intent to have enough monies to pay their loans and their
interests. However, low-interest rates support businesses to be competitive in the market. Federal
Bank sets the federal reserve interests’ rate that guides commercial banks in deciding their lending
rates (Young et al., 2014).
In America, the Federal Reserve has set the federal funds rate at a range that is below 0.25%
(Amandeo, 2022). This rate has remained unchanged for some time to support commercial banks
to offer loans at affordable rates to businesses. The federal reserve’s lower interests further support
an increment in investment in the country and create jobs in the economy (Amandeo, 2022).
The interest rate in south Korea closely matches these in the United States. According to
Jun (2022), the South Korean Central bank has set the base interest rate at 1.25%. Despite the
ongoing pandemic, South Korea’s economy has shown significant resilience. The comparable low
interest rates in both America and South Korea create significant support for AutoEdge’s longterm financial performance.
Inflation
A MACROECONOMICS PERSPECTIVE
5
Inflation is a macroeconomic factor that influences the characteristics of the population by
affecting consumers’ purchasing power. When inflation is high, there is an increment in the cost
of living. This influence relates to the easing of products and services’ costs that poses significant
pressure to the buyers and when inflation is high, people spend less money on non-essential
products and only buy a few goods in the market. This equates to a reduced market for businesses,
resulting in reduced revenues and value for shareholders (Young et al., 2014).
The United States of America registered 7% in inflation in December 2021, which is one
of the highest inflation rates over the years (Aratani, 2022). The influence was an increment and
surge in the price of different commodities including food. In November the average increment
in used car prices in the US had risen by 39% compared to a similar moment in 2020 (Aratani,
2022). The changing inflation rates are influencing the Federal Reserve to plan to adjust interests
in the country. In contrast, South Korea registered an inflation rate of 2.5% in 2021, which result
in an increment in products and services for the population (BBC News, 2022).
Conclusion
Despite the perceived low inflation rate, the Asian economy was concerned and is diverting
ways to lower the rate. AutoEdge can benefit by investing in South Korea based on the low
inflation rate, which will support many people to buy its products compared to those in the US.
This low inflation means that South Korean people have a higher spending power compared to the
Americans.
A MACROECONOMICS PERSPECTIVE
6
References
Amandeo, K. (2022). Current Federal Reserve Interest Rates and Why They Change. The Balance.
https://www.thebalance.com/current-federal-reserve-interest-rates-4770718
Aratani, L. (2022). US inflation reached 7% in December as prices rise at rates unseen in decades.
The
Guardian.
https://www.theguardian.com/business/2022/jan/12/us-inflation-rate-
december-2021
BBC
News.
(2022).
Inflation:
South
Korea
raises
rates
to
pre-pandemic
level.
https://www.bbc.com/news/business-59990470
Bureau of Labor Statistics. (2022). The employment situation — December 2021.
https://www.bls.gov/news.release/pdf/empsit.pdf
Jun, k. (2022). South Korea Raises Interest Rates Back to Pre-Pandemic Level. The Wall Street
Journal.
https://www.wsj.com/articles/bank-of-korea-raises-rate-back-to-pre-pandemic-
level-11642121582
Siegel, R. & Van Dam, A. (2022). U.S. economy grew 5.7 percent in 2021, fastest full-year clip
since
1984,
despite
ongoing
pandemic.
Washington
Post.
https://www.washingtonpost.com/business/2022/01/27/gdp-2021-q4-economy/
Statistica. (2022). South Korea: Gross domestic product (GDP) in current prices from 1986 to
2026(in billion U.S. dollars). https://www.statista.com/statistics/263579/gross-domesticproduct-gdp-in-south-korea/
Yoon,
L.
(2021).
Unemployment
rate
South
Korea
2021,
by
https://www.statista.com/statistics/949066/south-korea-unemployment-by-age-group/
Young, P. K., Erfle, S., & Keat, P. G. (2014). Managerial Economics (7th Edition). Pearson
Education (US). https://coloradotech.vitalsource.com/books/9780133560329
age.
Memo:
To: Ingrid Adams
From: Heather Clemons
Hi Ingrid,
When we spoke earlier today, you requested a memo explaining elasticity as they relate to
AutoEdge and relocating the manufacturing operation back to the United States. Managerial Economics
(2014) defines elasticity “as a percentage relationship between two variables” (pg. 68). In this case, the
two variables are pricing and demand.
There are five types of elasticity; relatively inelastic, relative elastic, unitary elastic, perfectly
elastic and perfectly inelastic. My hope is that this memo provides you a better understanding of how
each method relates to today’s market. As well as define how increasing prices could affect customer
demand.
Relatively Inelastic
Price percentage change is greater than percentage change of quantity demanded. As the numeric
value of relatively inelastic demand ranges from zero to one (ep1), price increases equal greater changes in
demand. Consumers are very sensitive to price changes.
Unitary Elastic
Price percentage change is equal to the percentage change in quantity demanded. As the
numeric elastic demand equals one (ep=1), for every price percent increase the demand falls an
equal percentage. Consumers are extremely sensitive to price changes.
Perfectly Elastic
Price percentage change is less than percentage change in quantity demanded. As the perfectly
elastic demand is equal to infinity (ep=oo), price increases equals decrease and can completely
stop demand altogether. According to Nitsha (2015) this type of elasticity is not realistic and
only theoretical in nature.
Perfectly Inelastic
Price percentage change does not affect quantity demanded. As the perfectly inelastic demand
is equal to zero (ep=0), there is no change in demand. Just like perfectly elastic, this type of
elasticity is not realistic and theoretical in nature.
AutoEdge is relocating their manufacturing operation from South Korea to the United
States. This will increase costs and the board of directors are rightly concerned about how the
subsequent increase in pricing will affect consumer demand. I would recommend employing
the relatively inelastic method as a percentage change in pricing will minimally affect consumer
demand.
REFERENCES
Nitsha. (2015, August 11). 5 types of price elasticity of demand – explained! Economics
Discussion. Retrieved February 1, 2022, from
https://www.economicsdiscussion.net/elasticityofdemand/5-types-of-price-elasticity-of-demand-explained/3509.
Young, P. K., Erfle, S., & Keat, P. G. (2014). Managerial Economics (7th Edition). Pearson
Education (US). https://coloradotech.vitalsource.com/books/9780133560329
1
Efficiency and Cost of Production
1. What AutoEdge must do to Obtain Economies of Scale with Production
In the case of AutoEdge, economies of scale are the cost-effectiveness it tends to achieve
from its efficient production processes (Atack, 2018). Therefore, the economies of scale are the
factors involved in saving the cost of production that are particular to AutoEdge. First, AutoEdge
must improve its productivity and the magnitude of its production activities. The company can
distribute its production processes into small activities, which would enable it to increase its level
of production. Secondly, AutoEdge must equally review its purchasing activities, in which the
company can participate in bulk buying of production resources which would significantly save
on the costs of production. In turn, for instance, the company would have obtained effective
economies of scale. Consequently, AutoEdge must invest in expertise to obtain managerial
economies of scale with its production processes. The expert managers will be responsible for
supervising and improving the company’s production processes, which will, in turn, lower the costs
of production activities. Finally, AutoEdge must take advantage of the opportunity in risk-bearing.
When AutoEdge expands its production activities and openly lays out its production costs, then it
will be exposed to fewer risks in production, thereby saving on its costs of production.
2. How the Company will Know that it has Obtained Economies of Scale
AutoEdge will know if it has achieved its economies of scale when it produces more
products using lesser costs of production in the entire production process. Consequently, the
company will realize its economies of scale when it would have recorded economic growth as a
result of an increase in the produced units (Husan, 1997). In addition, when AutoEdge’s range of
production activities lengthens because of external establishments, then the company will know
that it has achieved economies of scale.
2
3. How the Company will Know if its Obtaining Diseconomies of Scale
In the course of obtaining economies of scale, AutoEdge may also acquire diseconomies
of scale. Consequently, the company will know if it is obtaining diseconomies of scale through
various factors. First, the company will know when there are too many managerial levels in the
production processes, or less control of the production processes, or through massive hiring of
employees, or through a decrease in the company’s transportation and distribution networks
(Bárcena-Ruiz and Garzón, 2005). Secondly, the company will know if it is achieving
diseconomies of scale when it starts recording an increase in the production costs as a result of a
surge in production units. Additionally, when the company starts supplying its produced units in
gradually more accumulated locations, then it will know that it is obtaining diseconomies of scale.
References
Atack, J. (2018). Estimation of Economies of Scale in Nineteenth-Century United States
Manufacturing. Routledge.
Bárcena-Ruiz, J. C., & Garzón, M. B. (2005). Economic Integration and Privatization-under
Diseconomies of-Scale. European-Journal of Political-Economy, 21(1), 247-267.
Husan, R. (1997). The Continuing Importance of Economies of Scale in the Automotive
Industry. European Business Review.
1
Running head: SWOT ANALYSIS
The move to relocate the manufacturing operations of AutoEdge to the United States has
to incorporate the analysis of the strengths, weaknesses, opportunities, and threats associated
with this decision. The SWOT analysis will enable the company to assess the new market they
are relocating its manufacturing operations in, thereby being responsive and adapting steadily to
changes experienced therein. It will be essential to conduct an assessment of how AutoEdge’s
internal environment, the organizational systems, resources, both natural and human, and
operational costs will be influenced by the relocation to the United States.
Additionally, the SWOT analysis will ensure a better understanding of external factors
that will affect the company once it relocates, and these factors include economic, political,
social, and technological differences. Understanding the internal factors will ensure that the
company’s organizational culture, reputation, staff, and all other things under its control remain
unaffected by the relocation. Further, the SWOT analysis will enable AutoEdge to factor in
differences in industry regulations, economy, competition intensity, demand, and other factors
beyond the company’s control. In essence, the SWOT analysis will ensure that AutoEdge stands
out from its competitors and improve its manufacturing processes.
The strengths associated with AutoEdge’s relocation into the U.S include the availability
of resources that are already in plenty in the market. Further, the company has been in operation
for a while and therefore, its financial stability as a result of this is an additional strength.
Additionally, AutoEdge conducting its manufacturing in the United States will ensure the
production of high-quality products in accordance with the customer’s needs. Additionally, the
company’s strong brand portfolio and ability to perform superbly in new markets is another of its
strengths. Finally, due to the existence of exquisite talent and endless resources in the country,
the company will have the ability to create excellent product prototypes and innovations.
2
SWOT ANALYSIS
However, the move to relocate the manufacturing operations is mired by weaknesses
such as the existing employee qualifications regulations in the U.S. Thus, this will require the
company to upgrade the employees’ skills or suffer from high attrition rates among its workforce.
This is in addition to the levies and unerring costs charged by the federal and state authorities.
Moreover, an additional weakness identified is the failure to integrate into the working culture of
the United States, which is bound to result in a negative organizational culture. Finally, the
ability to be good at product demand forecasting may be lacking at the company. This may result
in it losing out on opportunities to the company’s competitors and end up having a high
inventory.
Relocation provides AutoEdge with numerous opportunities, including a larger market
share with more customers with superior purchasing power. This will ensure that the company
has a stable free cash flow and exponentially expands its product segments and opportunities to
adopt new technology. The adoption of new technologies will open up new markets, thereby
enhancing the company’s competitiveness. Lastly, relocation to the U.S will decrease transport
costs for resources and finished products, thereby reducing operational costs.
The threats identified by the SWOT analysis regarding the relocation of manufacturing
for the company include government regulations and laws that may result in lawsuits.
Additionally, the product standardization requirements in the U.S are different, thereby
increasing costs for quality assurance. Rising pay level requirements in the country present a
threat to operational expenses for the company. Established competitors who offer suppliers
better terms are an additional threat. Lastly, in recent years the national economy of the U.S has
been affected by instances of political tension, and this might affect the operations and revenues
of the company.
3
SWOT ANALYSIS
References
Young, P. K., Erfle, S., & Keat, P. G. (2014). Managerial Economics (7th Edition). Pearson
Education (U.S.). https://coloradotech.vitalsource.com/books/9780133560329

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