Corporate Finance May 20th, 2013 Professor Dennis Carver Introduction This paper will analyze Guillemot Furniture Scenario and explain the finances concepts that found in the chapter 2 and 3 of Corporate Financial Management how they relate to the context of Guillemot Furniture Scenario. There are 4 principles that Guillemot uses to save his business and keeps it going when overseas competitors happened.
These principles are principle of self-interest behavior, the principle of woo-sided transactions, signaling principle, and behavioral principle, Guillemot Furniture Scenario Analyses Guillemot Naval had a furniture business in Sonora, Mexico for years. The business was doing very well that provided Guillemots family an easy life. The location was ideal. Labor cost was inexpensive. Supply timbers were great. There was not much competition. Guillemots products were known as high quality and slight premium prices.
Things went well until late ass’s, foreigner competitors entered the furniture market. The competitors brought in better business strategies, higher technology, different finances concepts, and cheaper prices. They had more locations all over the town. The development effected Guillemots furniture business. His profit margins shrank when prices collapsed (University of Phoenix. (20113). Principle of self-interest behavior Unlike competitors, Guillemot focused on researching and changing his strategies to fit in with the new changes.
As an independent business, Guillemot is more careful making business decision. Instead of going out there to expand business, reducing prices or consolidating into big organization like competitors, Guillemot used the principle of self-interest behavior concept to understand the competition and their high-tech solution. Guillemot wanted to know how they are handling changes before he made any business decisions. “People act in their own financial self- interest. To make good decision, you need to understand human behavior.
Although there may be individual exceptions, we assume that people act in economically rational way. That is people act in their own financial self-interest” (Emery, Finery, & Stows, 2007). Principle of two-sided transactions The Principle of Two-sided Transactions will help Guillemot not to lose hope and understand that tort every seller there is a buyer. Even though, the competition is higher but there are chances that old customer still existing and new customers will come. This principle also help Guillemot avoid self-centeredness when making financial decisions.
However, when transactions are not conducted face-to-face, the robber of forgetting about parties on the other side of table can happen (Emery, Finery, & Stows, 2007). Guillemot has to be very conservative on this principle. Signaling Principle Guillemot started losing customers and making less money. To fix this problem, Guilder got to show to his customers with the new changes he still offers better products and better deals and this applied to Signal Principle. According to the Emery, Finery, and Stows, “The Signaling Principle is another extension of the Principle of Self-Interested Behavior.
It addresses the problem of asymmetric information. Assuming self-interested behavior, we can guess at the information or opinions behind the decisions we observe” (Emery, Finery, & Stows, 2007). Behavioral principle After doing some research and talking with his distributors, Guillemot decided to move his company from primarily manufacturing to primarily distribution by establishing a patented process for creating a coating for his furniture which applied to behavioral principle (Emery, Finery, & Stows, 2007). This decision will push Guillemots business forward and catch up with competitors.
