Competitive Strategies and Government Policies Essay
Competitive Strategies and Government Policies
The electronics industry is in a monopolistic competitive market. This market has few barriers to entry which means there “easy entry for new firms in the long run (Colander, 2010, 361). Further, globalization has expanded this market across the globe with many countries distributing and manufacturing electronic products. Thus, globalization always comes with the threat of new companies entering into the electronics market. This can have a definite effect on pricing and profits. As more firms enter the market, the price for goods will decrease due to the entrance of several substitutes. However, due to this highly elastic market, a change in price will lead to a higher change in quantity demanded (Colander, 2010, p. 155). Therefore, it is important for the marginal cost to be below the price but the price not to be set at an unrealistically high level because of the wide range of substitutes. In the long-run, profits will tend to break even for firms within a monopolistic electronics industry. “As firms enter the industry, the demand curve facing by an individual firm shift down, as buyers shift some demand to new firms until the firm just breaks even. If the demand shifts below the break-even point, some firms will leave the industry in the long run” (Four Market Structures). However, due to the wide range of firms across the globe, firms such as Vizio must differentiate themselves through brand recognition, service, and quality to ensure staying power and a profitable future. Since the market is expanded across the globe, this differentiation must be displayed across the globe. Sony has held a strong brand name for many years now with dedicated consumers. Not every firm within the electronics industry can do this as Sony has done, and therefore, will not gain long-term profit. However, as years pass, Vizio is making a name for themselves in the electronics industry. If it continues along this path to differentiate themselves among the pack, they will succeed in substantial consumer loyalty and profits.
There are several different types of mergers that can take place within an industry. Horizontal mergers are mergers of two companies within the same industry. A vertical merger is “a combination of two companies that are involved in different phases of producing a product, one company being a buyer of products and the other company supplies” (Colander, 2010, p. 418). On the other hand conglomerate mergers are between two firms in unrelated industries. The most detrimental to an industry would be a horizontal merger. For example, the merger of two major firms within an industry could impair competition between with other firms as well as prices and profits because the merger may create a massive firm that holds an extremely high percentage of the market. That majority firm would be able to control prices due to its hold on the industry.
Furthermore, profits for the minority firms would decrease as they increased for the majority firm. It would begin to take the shape of a monopoly. Therefore, the Federal Trade Commission must investigate and review any proposed merger before it is finalized and it will not proceed if it is not authorized to by the Federal Trade Commission. The Federal Trade Commission can order conditions upon the merger in order to promote fair competition. One type of merger within the electronics industry was that of Panasonic and Sanyo. Panasonic manufactured a variety of electronics from cameras to televisions to audio to DVD players and more. Sanyo was also in the electronics industry. In December 2010, Panasonic acquired Sanyo for $9 billion (FTC Order Sets Conditions for Panasonics Acquisition of Sanyo, 2009). This type of merger is known as a horizontal merger. A horizontal merger is “the combining of two companies in the same industry” (Colander, 2010, p. 418). Accordingly, the merger between Panasonic and Sanyo can be classified as a horizontal merger because it merger two major electronics manufacturers. However, conditions were put in place concerning this acquisition that included agreeing “to sell assets related to Sanyo’s portable nickel metal hydride (NiMH) battery business, including a premier plant in Japan…to preserve competition…” (FTC Order Sets Conditions for Panasonics Acquisition of Sanyo, 2009).
The electronics industry has seen many changes in its historic evolution. This technology began with radio and broadcast technology, followed by television and magnetic recording. When the demand for electronic devices supersceeded its production, we began to see more of a competitive nature, these principles hold true through modern time, even with a constant evolution to tables, television, cell phones and the like. The one thing that stays the same is the constant, driving need to keep up or stay ahead of the curve. With the current government creation and policy intervention in place to regulate consumer electronics also comes the need to regulate monopolies and copywriters. These laws, and regulations upheld by executive branch agencies are reviewed and voted upon, primarily to control monopolies. Whenever a law is passed to regulate or control something, these issues, before being passed or voted upon, demand the attention of the public. Another possible issue that law would be passed to regulate electronic commerce is copyright infringement, identity theft and consumer liability.
When we look at decisions made by management in the labor force for the electronics industry, one very effective result can now be achieved, filling supply and demand. Apple is one of the leading companies within the industry and their action on what a global labor market can do for them shows huge benefits for filling a demand and obtaining supply. “Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight. A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day. “The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.” Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.” (DUHIGG, 2012, para. 12-15).
Another huge advantage given to the companies within the industry comes from the beneficial relationship countries particularly in Asia, will do to win manufacturing for an electronics industry. The example provided will again stem from Apple, however Apple was one of the last industries in 2012 to ship the bulk of its manufacturing overseas. A huge reason can be because of the relations rules and regulations other nations gave them to fill seemingly impossible demands. This carries a similar result for unions. Unions fight for employee safety standards and higher wages. Although this creates a more efficient result start up for a new project can take much longer to get off the ground. This results in a less effective role for the electronics industry because decisions can sometimes change on the manufacturing line. Unions now become a slow moving dinosaur in a faced paced cut throat industry like electronics. “For years, cell phone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc., to manufacture large panes of strengthened glass. Although, figuring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, hundreds of pieces of glass to use in experiments and an army of midlevel engineers. It would cost a fortune simply to prepare. Then a bid for the work arrived from a Chinese factory.
When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day. The Chinese plant got the job. “The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.” (DUHIGG, 2012, para. 37-39).
In a monopolistically competitive market there are few barriers of entry. Globalization is always a threat in this type of market as well. Supply and demand are important for any business to consider, especially in the electronics industry. Filling supply and demand is one of the most important factors that companies must consider when deciding how to use labor. Also, as demand shifts, supply needs to as well, if this does not occur, business can go south quickly. If demand was to shift below the break-even point for a business, the firm may leave the industry all together. In order for a company to stay at or above the point of breaking even they must differentiate themselves from the competition. Something that can be detrimental, and may make a company lose some demand for products from their business, is the horizontal merger. The horizontal merger is one that merges two companies in the same industry together and that company ends up holding a high percentage of the market. There is help though, unions and government regulations are fighting for the safety and rights of companies and employees alike. Companies must consider and anticipate a lot throughout the year and into the future. As long as they are able to adapt, compete, and stay ahead of the pace, companies in the electronics industry should continue to flourish.
Colander, D. C. (2010). Economics (Eighth ed.). New York: McGraw-Hill/Irwin. Four Market Structures. (n.d.). Retrieved March 9, 2014, from Los Angeles Harbor College: www.lahc.edu/classes/…/MicroLecture4.ppt http://www.mcrinc.com/Documents/Newsletters/201302_EvolutionElectronicsIndustry.pdf http://www.techrepublic.com/resource-library/whitepapers/the-evolution-of-the-electronics-industry/#. http://hbswk.hbs.edu/item/3738.html