The Strategic Group Mapping Model Marketing Essay

The Strategic Group Mapping Model Marketing Essay For the purpose of this report, the industry of choice was the cereal industry. The cereal industry is highly competitive with numerous businesses competing for an increased market share. The cereal industry is influenced by customer spending and customer lifestyle. In recent years, consumer behaviour has altered with customers becoming more health conscious. As a result of this, business within the cereal industry have introduced new products and modified existing products to appeal to health conscious customers. Based on research conduct, the following trends were identified within the cereal industry: Consumer behaviour changes Health conscious customers The main businesses within the cereal industry are Kelloggs, Nestlà ©, Weetabix, Flahavans and Odlums. Breakfast apart from being a necessity for breaking the fast, it is also seen as a social ritual amongst the majority of cultures around the world.  [1]   Three main trends emerge from an analysis of the industry: Acquisitions, Automation and Consolidation. The nature of the cereal industry is oligopoly as there are just a few firms dominating the industry. The key players were identified as Kelloggs, Origin Enterprises (Odlums), Nestle, Weetabix and Finegrove Holdings Ltd. (Flahavans).The breakfast cereal industry can be divided into two categories; hot breakfast cereals and Ready to Eat (RTE). The key drivers to operate in this industry were identified as: Reformulation of nutritional ingredient, Product differentiation, Contracts for raw materials, Economies of Scale and Creative advertising. The industry as a whole has an abundance external macro environment factors which are clearly seen in the PESTLE. Porters five forces identified medium barriers to entry, threat of substitutions and supplier power, but highlighted high buyer power and competitive rivalry. From using strategic mapping it was emphasised that players in the industry modernised /changed their strategies to respond to key trends in the industry. From analysing the five key players in the industry, it is clear that all have similar product diversification, product development (Ansoff growth matrix) Strengths, weaknesses, opportunities and threats(SWOT Framework). Industry Landscape There were three key trends found from the players in the cereal industry. Kelloggs have consolidated 42 business websites into one website in order to give a clearer brand identity and to enhance the customer experience. In relation to automation, these players currently use technological advanced machinery to aid them in production and packaging. Finally in May 2012, 60% of shares from the Weetabix Food Company have been acquired by Chinas Bright Food Group while the remaining 40% is owned by Lion Capital. From these trends, there are issues that affect these players, in terms of market saturation and fluctuating prices for wheat and oats. These are potential threats for this industry as reported by Business Insights which states; cereal products have reached a level of saturation in many Western markets, so adding value and following consumer desires will be key to successful product lines. In order to combat this market saturation, businesses need to research, understand and acknowledge consumers requirements. The fluctuating prices of oats and wheat could affect each business within the cereal industry. The price fluctuations are a result of difficulties experienced during the growing seasonal period. Rising prices due to increasing costs for logistics and ingredients are primarily going to affect the breakfast cereal industry and its key players in the future. Cereal products could be sourced globally; however, there is a decline in international cereal production due to weather conditions  [2]  . If this continues, it could lead to cereal prices escalating and increases being passed down the distribution channel. There is increasing pressure for new product development amongst the industries key players. This could potentially increase market share and enhance revenue for the niche players such as Flahavans and Odlums, while allowing market leaders such as Kelloggs the opportunity to prevent smaller businesses from obtaining market growth. There is an increase in health conscious customers and in the future, this may define the product lines produced by the key players. From the acquisition of Weetabix, Bright Food Group has vowed to globally expand the Weetabix business by entering the growing breakfast cereal market within Asia. Changes to food consumption patterns within Asia have resulted in businesses entering Asian regions and selling food and beverages to consumers. Nationally, the cereal industry is worth à ¢Ã¢â‚¬Å¡Ã‚ ¬200 million per year with a profit between 40 45%. In relation to the current market position of these players, Kelloggs would be classed as the leader due to a 44% market share. With Nestle and Weetabix as the market followers, these businesses have a sizeable market share and remain competitive within this industry. The niche players, Flahavans and Odlums, are not as profitable as competitors, particularly Odlums who do not provide an extensive range of products. Competitive rivalries could arise between these industry players, as all competitors have similar products aiming at similar target markets. The threat of substitutes is also an issue for these players; as there is a rise in own brand products, such as Dunnes Stores and Tesco. These products are being introduced into the market due to the changing consumer spending habits. As this industry could be seen as oligopolistic, the power over suppliers and buyer could potentially increase, however for the niche players, the competition could intensify. Generally the cereal industry targets family oriented markets. In relation to Kelloggs and Nestle, they could be seen to target children, as these players introduce characters to their brands in order for the children to be attracted to these products. Weetabix, Flahavans and Odlums target mature audiences which can be seen to be under the family orientated market. For each key player, they must hold competitive advantage in order to sustain the market. The threshold resources that any player should have to operate within this industry include; finance, customer loyalty, brand awareness and a wide product range. Unique resources, such as Flahavans and Odlums, are particularly focused on the Irish aspects of the product. This involves the methods of producing the product and jobs that are created within the country. Irish consumers are value driven, however Irish products are important to these consumers. In previous years, Kelloggss held a very dominant position within the industry, however this has changed substantially as more competitors have entered the market and have impacted the profit obtained by Kelloggs. In 2010, there was a net income rise of Kelloggss, which has since fallen from $1.2 billion to $961 million and emphasises a dramatic decrease. In 2012, the share price of the business was volatile as it declined to $46.33 in July, however increased to an acceptable price of approximately $60 in December. The size of Kelloggs reduces the threat of a takeover occurring and exiting the market would not be foreseeable for Kelloggs. Kelloggs use of Corporate Social Responsibility (CSR) is at the forefront when communicating with customers. This is highly evident in Give a child a breakfast campaign launched in October 2011 as this campaign highlighted the benefits of children eating breakfast. By highlighting this campaign, it improved the public perception of the company. Financial reports released for 2012, illustrated that the Nestle group as a whole had a successful financial year. It shows an increase in profit for the year by $1.8 billion. The cereal range of the business is represented in this figure which displays a positive financial performance for Nestle. Previously, Nestle has experienced a negative public image; Nestlà © attempts to divert criticism of its baby food marketing activities  [3]  . Nestle continuously attempt to improve their CSR identity within the eyes of the public. Bright Food Group generated revenues of approximately  £7.5 billion last year which indicates it has a large resource base to expand the Weetabix brand into more foreign markets. The acquisition of Weetabix would indicate that there is a high demand for cereal products globally as well as within its existing markets. The Weetabix brand has a long association with the British and Irish markets and has successfully reflected a positive brand image. However, the recent acquisition could have a positive and negative impact as it could be viewed as the loss of another indigenous company to a foreign multinational and may dilute the brand value. As Flahavans is a privately owned family operated business and similar to Weetabix, is not listed on any stock exchange. Flahavans is an established brand and retains the majority of the market share in relation to hot cereal breakfast in Ireland. This brand has a positive image among Irish customers and assisted the expansion into markets such as the UK and US. Flahavans is associated with Bord Bia and outlines the nutritional value of eating porridge as part of a healthy balanced diet. As the business is proud of its heritage and is a small player within the industry, the possibility of an acquisition may be unattractive to an established player. Odlums is part of the Origin Enterprise Group, which is listed on the Irish Stock Exchange and experienced an increased share price within the last year. The Odlums brand is well known within Ireland, primarily for their baking products. It could be perceived that the public have less recognition for the porridge range. The brand image is viewed positively and is also associated with Bord Bia. Within the cereal industry, there are certain aspects which could affect key players in the future. In terms of Kelloggs, they have primarily grown through merger and acquisitions. If all the key players follow this trend and grow like Kelloggs, they could possibly maintain market share growth. Further brand building of key players, could allow for growth in new divisions, for example Weetabix introducing a new range of biscuits. The majority of dominating businesses have a strong portfolio of products with great brand identity amongst its market share. If the key players continue to invest and grow their brand portfolio, it would be expected to have a positive long-term effect on those businesses. There is a possibility of a new pecking order in terms of the hot breakfast cereal market segment. At present, Flahavans is the market leader in this category. However, Kelloggs have developed a product, Kelloggs Corn Flake Porridge  [4]  , to compete against Flahavans porridge. This product has not been launched in Ireland, but could potentially dominate the market in the future. Currently, the key players are extending the life of their consumer recognisable products rather than removing them from the market place.  [5]  Customers would be willing to purchase familiar products and be more inclined to purchase new products launched by a trusted brand. The key players have adopted an extension strategy of their products. From analysis of the Ansoff Matrix  [6]  on the key players, it was evident that they had the same strategy which included the retention of existing customers and attraction of new customers by means of product development and product diversification. The key players are currently adopting marketing strategies to ensure that their brands are in the evoked set of their target markets while going through the decision making process and the customer chooses their product. HRM Strategies Nestles mergers and acquisitions provides the business with a wider selection of employees which can be used strategically to further develop the companys competitive advantage. However, this method may not be feasible as employees may feel their opinions to be underappreciated and lack participation with front line decisions. In the case of Weetabix, their use of motivational goals drives their use of HRM, which furthers their competitive advantage by providing a recognised and admirable work environment, which could be then used strategically to attract additional talented candidates. In comparison to its competitors, Flavaghans is a considerably smaller company, mainly because of its family ethos. These sorts of companies generally limit new additions of staffing in order to reduce costs. However with the utilisation of their flat hierarchy which enables all departments to work together closely, this allows for a competitive advantage, which does not directly affect necessary recruitment and selection. In a sense Flavaghans has used their limit of recruiting for a more quality staffing experience which then follows through to competitive advantage. Odlums have used their HRM strategies competitively in order to gain talented managerial staff in the company. This can be seen in their quality staff members, who have all had quality previous employment and education. This is a clear competitive advantage for odlums, and has formed them as an elite group of staff. Kelloggs, although they use extensive research and development which effectively provides solid results and provides a clear competitive advantage. It has been recognised that although management positions are favourable, their staff motivation and drives are low, therefore we can indicate that HRM strategies are not of concern to Kelloggs.  · Are the Strategic HRM policies of the key players in alignment with its overall strategy? In essence Nestles vision of good food, good life is very much in alligment with its strategic HRM policies. Through the use of mergers and acquistions, Nestle has managed to collect different types of talent, in order to provide quality behind its overall strategy of good life, good food in its product. External Environmental Analysis Strategic Group Mapping Model Strategic Group Mapping Analysis Nestle is identified with having a high variety of products coupled with a high average price of à ¢Ã¢â‚¬Å¡Ã‚ ¬3.53per 500g Kelloggs is on par with Nestle however Kelloggs have a larger variety of products and slightly higher average price of à ¢Ã¢â‚¬Å¡Ã‚ ¬ 3.54per 500g. Both breakfast cereal companies are positioned as having a large variety of products with a high retail price targeting the same market segments. Kelloggs target families with products such as cornflakes, rice crispies , frosties , all bran, crunchy nut and coco pops as well as the health conscious adult woman with their special k range  [7]  . Nestle target families with products such as nestle cornflakes, cheerios. Target kids and teens with nesquick, cookie crisp,cocoa puffs products and their adult with their fitness range.  [8]   Weetabix is more differentiated from Nestle and Kelloggs. Weetabix primarily targets the health conscience consumer market segment whereas Nestle and Kelloggs target a proportion of that segment. Weetabix is identified with having a low variety of products combined with a high average price à ¢Ã¢â‚¬Å¡Ã‚ ¬3.49per 500g. Weetabix is a market leader with a 12% market share  [9]  (just behind Kellogg which leads brand sales with a 42% value share)  [10]   Flahavans is a market leader in the hot breakfast market segment with a 65% share of the hot breakfast cereal market  [11]  and a 7 % share of the overall breakfast market  [12]  .they have undertaken a hybrid strategy since 2008 by extending their product range and making their product more convenient to the consumer i.e quick oats. flahavans is identified with having a low variety of products (i.e hot oats) coupled with a low average price à ¢Ã¢â‚¬Å¡Ã‚ ¬1.25 per 500g.flahavans solely targets the health conscience individual/families. Odlums holds a relatively small proportion of the hot breakfast cereal market and is identified with having a low variety of products combined with a low average price of à ¢Ã¢â‚¬Å¡Ã‚ ¬1.15 per 500g. Kelloggs and Nestle are the most expensive of the companies, their higher price is justified by their larger variety of product offered. Weetabix, Flahavans and Odlums are the least expensive of the companies with is due to their low product range however their prices may increase in the further due to the perceived customer benefits of their products. Internal Strategic Capability Analysis Kelloggs Company Background The Kelloggs Company was established in 1906 by W.K. Kellogg. By continuing to use the same technique in producing the product since this time, the Kelloggs brand has grown successfully over the last 100 years with products reaching 180 countries worldwide. Kelloggs primarily produce breakfast cereal products, along with toaster pastries and snacks, such as, cereal bars and winders. In 1922, the Kelloggs company arrived in Ireland with products being sold throughout the country. As Kelloggs now is the leading brand in the breakfast cereal industry in Ireland and the UK, the business was one of the first to introduce nutritional labelling on their packaging, back in the 1930s. With their successful launch in the 1950s of the cereal products Frosties and Special K, in the 1980s new products, such as Crunchy Nut Corn Flakes, was launched into the Irish market. The W.K. Kellogg Institute for Food and Nutrition Research was opened in 1997. This is where the engineers, nutritionists and food scientists would investigate the quality of the produce used. This facility also catered for the alternation in the reduction of salt used in breakfast cereals in 2010, along with vitamin D been added for children in 2011. The Kelloggs Company have various locations worldwide including North America, Europe Middle East, Asia, Africa, Oceania and Latin South America. The Headquarters for Kelloggs is located in Michigan. Kelloggs Cultural Web Model Kelloggs Ansoff Product / Market Growth Matrix Market Penetration By utilising this strategy, this would benefit Kelloggs in terms of continuing to remain competitive within the market and stabilising their position as a market leader within Ireland and UK. Over the years Kelloggs have dramatically increased their product range to cater for a wider customer base. Kelloggs provides cereals for children and adults to accommodate for their different lifestyle requirements. By continuing to penetration this market at a relatively low risk for the business, Kelloggs would need to implement a strategy in order to maintain their market share by using their existing products while retaining their current customers. This strategy would need to be developed by increasing brand awareness of their products, for example charity events or competitions, in order to remind customer their products. Product re-launch could be another penetration for Kelloggs in terms of retaining their existing customers. Through customer involvement and push marketing strategies, these methods could help Kelloggs to secure their market share or have the possibility of increasing their customer base. New Products and Services As the cereal industry is a competitive market and developing the ability to be distinctive from the existing competitors could be a challenge for Kelloggs. In order to increase the customer base, Kelloggs developed products in the areas if toaster pastries and snacks. These developments allowed the business to explore new products while retaining their existing customers. Market development Market development is an important aspect for Kelloggs to grow within the cereal market. Currently Kelloggs offer a porridge product which is available in South Africa however are not obtainable within Ireland and the UK. Gluten free products from the US are also not available within these countries. These products could have a dramatic effect if Kelloggs introduced these products into the Irish and UK market, as it could heighten the competition amongst competitors and attract new customers to their products. Conglomerate Diversification In order for Kelloggs to diversify into an unrelated market would be a difficult challenge for the business. A market that Kelloggs have diversified into is the snack food market. This is evident from the acquisition of Pringles in early 2012. This market could be seen to be difficult to operate as it does not relate to the cereal industry and the business may not have the necessary knowledge of the snack food industry. Nestle Nestle Company Background Nestle was founded in 1866. As the company began to grow, it merged with another established company, Anglo-Swiss Condensed Milk Company in 1905. From this merger, Nestle acquired Rowntrees of York in 1988. Within Ireland and UK, Nestle is one of the key players in the food industry with 19 locations employing over 7000 staff. Nestle is also one of the key exporters for these two countries, with exporting products over  £300 million worth to 50 countries worldwide every year. With the mergers and acquisitions previously mentioned, this gave Nestle the ability to diversify their product portfolio to cater to a wider target audience. Nestle Ireland and UK expanded to sister companies such as Nestle Professional, Nestle Waters, Nestle Nutrition, Nestle Purina Petcare, Lactalis Nestle Chilled Dairy Company Ltd, Cereal Partners UK, Nespresso and Jenny Craig. With these sister companies, Nestle was able to produce popular brands such as, breakfast cereals Shreddies and Cheerios, Go Cat pet food, Nescafe, Kit Kat and beverages Nestle water and Nesquik. Nestle have Headquarters in Ireland and UK, with their factories primarily in the UK. Globally, Nestle are located in Africa, Oceania, Europe, and Asia and North and South America. Nestle Cultural Web Model Nestle Cultural Web Analysis Paradigm Nestles ethos Good food, good life is a clear indicator of where nestles drive originates. This can be clearly defined as Nestles collective experience which is applied to situations in order to make sense of strategy. For example nestles acquisition of Alcon Laboratories Inc. provided an increase of food technology competencies behind their foods thus confirming their initial ethos of good food, good life. Stories: Nestlà ©s is regarded as the largest food business company in the world; this has been experienced through the use of mergers and acquisitions and primary food nutrition values. Nestle acquired Crosse Blackwell in 1950 and Rowntree Mackintosh in 1988 to name a few. It operates in 86 countries and is the largest shareholder of LOreal. It has also been ranked at 1 in the fortune global 500. However, Nestle cereals received bad press in 2011, with the accusations of incorrect nutritional information on their cereal products. This apposed their believes of nutritional value in good food. Symbols: Nestle is a Swiss made multinational country which strives in power and direction. It is a professional company, which has used mergers and acquisitions to its advantage in its early years and continues in this fashion today. Nestle receives great admiration publicly. Power: Nestles power structure is very hierarchical, many field employees feel like progression is limited and not balanced for all employees. However when we consider their previous paths to this power (mergers and acquisitions) we can interpret their power drive as continuous and dedicated. Also another interesting fact is that Nestle is primarily a Male dominated organisation, which creates the concerns of the glass ceiling effect for women, which can be regarded as discouraging and an imbalance on gender equality. Organisational structure: Nestles Organisational structure is revolved around innovation and expansion. Innovation through their ethos of good food, good life, this can also be seen in their portfolio of innovating products such as baby formula and instant coffee. Their constant collaboration makes their company quiet segmented, however this approach has proven to be successful. In addition to this organisational structure, employees felt that quick decision making is not a competency of Nestles senior managers. This could potentially bring up the issue of potential lose in employee involvement, which can in most circumstances be valuable. Control systems: Nestle offer attractive pension plans in order to control employee systems. This is a lot more attractive for long term employees who are in the office. However, a majority of employees expressed that there is no work life balance plans to keep employees motivated and balanced in home and work activities. In contrast to their attractive pension plans, it can be assumed that Nestle is clearly monitory focused with employees. In addition we found that Nestle do not micro manage their employees, although this is more enjoyable for the employee, it can be interpreted that nestle need to grasp control systems in order to keep employee focus in activities. Routines Rituals: On a day to day basis, Nestle offer flexible working schedules for their staff. This communicates a laid back working environment, however due such hierarchical stances, strategy and direction is driven from headquarters. This tells us that on field employees are not driven on performance, as that type of belief is left to the senior managers in the company. It can be widely assumed of how advantageous it is for all employees to have access to Nestlà ©s international training centre in Switzerland. This can be seen as a prestigious opportunity for all Nestles employees to excel in. Creating Shared Value and meeting our commitments is Nestlà ©s view on expansion into different countries and reaching further customer segments globally. Nestle Ansoff Product / Market Growth Matrix Market Penetration: Like all cereal brands, Nestle is no different in wanting to expand further within markets such as the UK and Ireland. In order to do this they face a major obstacle in that they are the second largest behind Kelloggs who have a 45% market share of the breakfast cereal market. However, as revealed late last year, the company is looking to expand its brand further within the region of Northern Ireland and in order to help achieve its objectives they have enlisted the services of GM marketing to help expand the brand through the use of online technologies and refined marketing strategies. The first phase within the marketing strategy will see the core brands used to help identify the Nestle brand as well as using pre priced cereal boxes which may be cheaper or the same price as their competitors. Even though this is a low risk strategy the level of success of such a strategy can also be miniscule. If this strategy vastly increases the market share of Nestle it will have an impact on the market share of their competitors but at the same time it may not increase the market share of Nestle sufficiently to have a major impact on their competitors. It may take a considerable amount of time and may cause an impact within other areas that Nestle focus time and resources on. This strategy should be taken with a prudent approach in mind so as not to harm other categories that Nestle positions its brand. New Product Services: Research and development is an integral part within the Nestle company as they look to introduce product development within all of the categories that it positions its brand. This is clearly evident within the company as they employ 4,500 people globally within its RD departments as well as using external research provided by scientists, doctors who work within world renowned universities. This aspect of building bridges externally allows the company to further innovate within the area such of nutritional and healthy foods as well as numerous other categories. A core belief that exists within the Nestle group is to think global act local. When looking for new ways in which to introduce new products within existing markets they place the customer at the core of the product. This is recognisable in the way that they cater to various customer groups with breakfast cereal brands such as Nestle Multi Grain Cheerios focusing on all members of the family, Nesquik for teenagers and children and Nestle Fitness for people who place a high importance on keeping in shape. Nutrition is a vital element within the Nestle core beliefs and values but they also put a lot of effort into ensuring that good quality taste is never sacrificed in the cereals that they provide. Product development is a strategy that Nestle have continuously looked to improve upon since it identified that nutrition, health and wellness was to be the core strategy that it developed its products upon. Although it is a costly strategy the financial benefits on a global scale seem to outweigh the costs for Nestle. Market Development: Organisations would ideally like to operate as if the world were one large market, ignoring superficial regional and national differences but still making sure that marketing activities fit to the practices and cultural characteristics of genuinely different markets (Lee and Carter, 2008) The Nestle brand is recognised on a global scale and has a vast portfolio as it does not primarily focus on cereals which can be identified due to its large divergence into similar but also unrelated areas such as baby food, chocolate bars, beverages and many other various categories. However, they do not focus each of these categories on a global scale as not all of their products would be successful within each of the segmented markets. Even though each of the categories are not launched on a global scale it does not mean that they would not be successful within different markets as alterations could be made in relation to; How the product is packaged and designed The type of market

Profit Maximization

Firms are in business for a simple reason: To make money. Traditional economic theory suggests that firms make their decisions on supply and output on the basis of profit maximisation. However many Economists and managerial Scientists in our days question that the sole aim of a firm is the maximisation of profits. The most serious critique on the theory of the firm comes from those who question whether firms even make an effort to maximise their profits. A firm (especially a large corporation) is not a single decision-maker but a collection of people within it. This implies that in order to understand the decision-making process within firms, we have to analyse who controls the firm and what their interests are. The fact that most large companies are not run by the their owners is often brought forward to support this claim. A large corporation typically is owned by thousands of shareholders, most of whom have nothing to do with the business decisions. Those decisions are made by a professional management team, appointed by a salaried board of directors. In most cases these managers will not own stock in the company which may lead to strongly differing goals of owners and managers. Since ownership gives a person a claim on the profit of the firm, the greater the firm's profit, the higher the owners† income. Hence the owners goal will be profit maximisation. When managers† salary stays unaffected by higher profits they may pursue other goals to raise their personal utility. This behaviour strikes the critical observer regularly when for example reading or watching the financial media. Managers there often rather mention the rises in sales or the growth of their company rather then the profits. Some economists like Begg (1996) argued that managers have an incentive to promote growth as managers of larger companies usually get higher salaries. Others like Williamson (1964) suggested that managers derive further utility from perquisites such as big offices, many subordinate workers, company cars etc. Fanning (1990) gives a rather bizarre example: When WPP Group PLC took over the J. Walter Thompson Company, they found that the firm was spending $80,000 p. . to have a butler deliver a peeled orange every morning to one of their executives. An unnecessary cost clearly from the perspective of the company owners. But often it becomes difficult to identify and separate this amenity maximisation from profit maximisation. A corporate jet for example could be either justified as a profit maximising response to the high opportunity cost of a top executive or an expensive and costly executive status symbol. Baumol (1967) hypothesised that managers often attach their personal prestige to the company†s revenue or sales. A prestige maximising manager therefore would rather attempt to maximise the firms† total revenue then their profits. Figure 1 illustrates how the output choices of revenue- and profit maximising managers differ. The figure plots the marginal revenue and marginal cost curves. Total Revenue peaks at x r , which is the quantity at which the marginal revenue curve crosses the horizontal axis. Any quantity below x r , marginal revenue will be positive and the total revenue curve will rise as output goes up. Hence a revenue-maximising manager would continue to produce additional output regardless of its effects on cost. Given this information one might ask why the owners don†t intervene when their appointed managers don†t direct their actions in the interest of the owners, by maximising profits. First of all, the owners will not have the same access to information as the managers do. Where Information relates to professional skills of Business administration as well as those of the firms inner structure and its market enviroment. Furthermore, when confronted with the owners demands for profit maximising policies, a clever manager can always argue that her engagement in activities, like a damaging price war or an expensive advertising campaign serve the long-run prospect of high profits. This excuse is very difficult to challenge until it is too late. Another aspect is that managers aiming to maximise growth of their company (expecting higher salaries, power, prestige, etc. ) often operate with a profit constraint. A profit constraint is the minimum level of profit needed to keep the shareholders happy. The effects of such a profit constraint are illustrated in Figure2. Figure2 shows a total profit curve (T? ). T? is derived from the difference between TR and TC at each output level. If the minimum acceptable level of profit is ? , any output greater then Q3 will result in a profit below ?. Thus a sales-maximising manager will opt for Q3 which gives the highest level of sales at the minimum possible profit. This however would not be the profit maximising option. In order to maximise profits the manager would have to chose an output level that creates Q2, where profits are highest but sales lower then in Q3. So given this conflict of interests between the owners and the managers of a firm? What are the possible solutions available to the owners, to make their agents work in their interest? It is often suggested that an effective way to control the managers behaviour and bring it in line with the owners interests, is to make the managers owners themselves by giving them a share in the company. However, research by De Meza & Lockwood (1998) suggests that even with the managers owning assets, their performance does not necessarily become more profit raising. Rajan & Zingales (1998) assessed the impact of power and access to it on the behaviour and performance of managers. Their findings suggest that the power gained by access to critical resources is more contingent than ownership on managers or agents to make the right investment and decisions then ownership. They also report adverse effects of ownership on the incentive to specialise. Other ways to control managers include performance based pay, which can prove to be effective in the short-run but again, the long-run perspective of the firm may suffer, when managers neglect crucial Long-run investments into Research and Development, restructuring, equipment or advertising to raise short-run profits and hence their own salaries. In conclusion it is important to note that profit maximisation fails to demonstrate a general validity when applied as a theory of firm-behaviour. The real world businesses often operate on a multi-dimensional basis with many confronting interests and aims. As well as differing short-run and long run aims. Therefore profit-maximisation should be regarded as one possible goal of a firm but not necessarily its sole one. There is also a difference to be noted between the size of firms. A small family-run business for instance can easily adopt a pure profit-maximising approach, since the utility of its owners equals that of the labour-force and the management. In this setting, the income will equal profit. Therefore it is imperative to assess and develop a theory of firm behaviour on the different classes of firms with a perspective to their individual differences in management, ownership and market enviroment.

Government Intervention in the Housing Market and Is It Ethical?

Government Intervention in the Housing Market and is it Ethical? Intermediate Microeconomics Two schools of thought encompass the intervention of government into the national economy. On the one hand there are those who believe that state intervention is not only beneficial but also essential for the creation of a stable economy. However, there too are those who contend that government intervention sub-optimises the economy and the free market should be left to its own devices. The current state of the domestic housing market helps to build a foundation for those who advocate for greater government intervention in the economy.Owning your own home is for many a life-long goal; government intervention has the ability to bring this dream to fruition for those in lower socioeconomic circumstances. A combination of taxation, subsidised mortgage rates and government incentive schemes are the most commonly used tools of intervention into the housing market that are available to intervention ist national governments. Opponents of this theory believe that letting the free market regulate the housing sector is the fairest and most effective means of reducing or eliminating government intervention all together.There are, however, ethical issues intertwined with government intervention within the housing market and these issues must be weighed up against the economic and social benefits. Without regulation many would find homeownership to be unaffordable and unattainable. Microeconomic theory states that lower rates of owner-occupied homeownership would affect the supply and demand for housing within the residential market. Therefore forcing the price of rentable property well above what many lower socioeconomic families are able to afford.This subsequently has a flow-on effect, rates of home ownership tend to be in lower in areas of low socioeconomic standing, where unemployment is high, income is low and consumer confidence is down. A desire to increase the rates of homeo wnership is the catalyst for government intervention in the market. For this reason governments seek to regulate the housing market as a means of making it an attractive and ultimately more affordable investment for the average family. Homeownership is central to a state’s economic growth and overall financial stability. Residential investment constitutes a large portion of national capital formation.Poterba writes; â€Å"In the United States, real estate itself accounts for more than 1/3 of all fixed capital stock and a similar fraction of real assets in other developed countries† (Poterba, 1989). Economic policy usually provides favorable income tax incentives to homeowners; government incentives, for example first time buyers tax credits and subsidised mortgages. These policies are usually the only reason prospective homeowners are able to enter the market. Economics teaches people to respond to incentives; therefore homeowner’s entrance into the owner-occupi ed sector creates economic responsibility by means of servicing a mortgage.This action forces homeowners into stable employment, relative income and creates consumer confidence all factors of microeconomic stimulation within the economy. Government intervention within the housing market is both ethical and unethical. Some would say that government intervention within any market is unethical. Ethically is it right for a government to intervene in the economy, as what was once used as a market mechanism can in turn become a market norm. Government intervention is see by many as the government initiating force and imposing on ones right to liberty. Morally and ethically that would be an injustice upon ones self.But with that in mind governments introduce economic policy because they have a moral obligation to help those who are less able. Morally the government has the duty to ensure that those who are disadvantaged are given equal opportunities to succeed. According to social contract theory and those who would subscribe to the Hobbesian state of nature; one ethical stream of thought would say that governments should not exist in the market place at all. If and only when it is essential then they are only in place to offer retaliation of force in order to preserve individuals rights. In turn preserving free markets.It is well documented that the United States regulation within the housing market is unethical. Fannie Mae and Freddie Mac whom of which are both government backed and subsidised mortgage lenders, were seen as too big to fail. Until they did, the way government policy was constructed around these two giants of the housing market was so ethically and morally corrupt that it poisoned the entire economy. Economic policies put in place would allow almost anyone homeownership, policies that allow no deposit, no proof of employment and no proof of income are themselves morally corrupt.This type of regulation would construe to a gross ethical breach. Policy that allowed individuals to set themselves up for failure is obviously morally corrupted. The principal alternative to government intervention in the housing market is to end all government regulation and state-mandated economic policy from the market, effectively creating a truly free market. Common consensus on free markets are that inherently people will choose to better themselves without the need for government regulation and naturally people will choose to improve their situation.In an article published by the Brookings Institute, former chairman of the United States Federal Reserve, Alan Greenspan, hypothesized that this alternative to government intervention would result in â€Å"interest rates and mortgage rates would clearly be higher and the size housing market would be significantly smaller† (Greenspan, 2011). This limits the access to affordable housing, a lack of government intervention would essentially eradicate achievable ownership; house prices would soar ne gatively affecting demand while the size of the market would shrink simultaneously, severely limiting a markets housing supply for both purchase and rent.Hennessy explains under these economic conditions, â€Å"High mortgage interest rates and high down payment requirements might prove that the opportunity cost of owning is too high† (Hennessey, 2001). Therefore as previously mentioned unattainable homeowner ship would lead to a downturn in the economy, raising unemployment, decreasing the supply of rental property, decreasing the demand for property both for home owners and investors as well as leading to a downturn in consumer confidence all of which create a large negative effect on the economy and decrease economic growth.In conclusion the economic case for government intervention is strong. Governments are in place to help those less fortunate, this type of economic policy not only helps stimulate the economy in a multitude of ways but it also enables homeowners to enter the market, creating economic growth and long term financial stability. The argument, government intervention in the housing market is systemically flawed, due to sub-optimisation of the economy and erosion of free markets is incorrect.There is however a lesson to be learnt from what has happened with government intervention within the housing market, namely the global economic crisis. This was not entirely due to government regulation but in some ways the opposite, not enough regulation. Ethically there are strong views around government intervention and some do have merits. Namely market mechanisms used to guide economic policy, they can then become seen as market norms.When this happens you erode the moral value of what you are trying to accomplish in the first place. References Greenspan, A. (2011). Imagining a Housing Market Without Government Intervention. Retrieved 25-09-2012, 2012 Poterba, J. M. (1989). Residential Real Estate and Capital Formations. Regional Science and Ec onomics. Hennessey, S. M. (2001). The Impact of the Tenure Choice Decision on Future Household Wealth.

Legacy of Communist Leaders - 1524 Words

Legacy of Communist Leaders The History of modern Russia (twentieth century) is the period of communist government. After the revolution in 1917 Russia became the first communist state, which survived until 1991. Seventy-four years of rapid changes left an enormous mark in the history of Russia. This period of history introduced us to the greatest communist leaders. History doesnt happen by itself. There must be Individuals who make it. And in our history those individuals are Lenin, Stalin, Khrushchev, Brezhnev, Gorbachev and Yeltsin. To understand how this period of history affected the present and then future we must look at each leader at a time to see what were his purposes and actions and†¦show more content†¦Stalin made a cult of himself. People were madly in Love with him and believed in him no matter what. Stalin was aiming toward total control of society, tightening discipline in economic sector; he needed the slave labor for the industrialization (a policy of rapid development of the Sovi et economy with particular emphasis on heavy industry in 1930). From 1934-1939 Russia was in a constant state of fear, starvation. The results of the terror were declined production, starvation, widespread resistance to collectivization (a policy of forceful agriculture transformation from traditional individual to collective forms of production). Stalin believed in revolution from above, in socialism in one country, forced centralization of economy. From 1941-1945 Russia was in The World War Two. And Russia wins it. Stalins legacy is impressive progress in economy, culture and political sector. All this was achieved because of terror, forced labor and deportations. Russia became totalitarian state. After his death in 1953 began the Khrushchev Era. The period from the mid 1950 to mid 1960is the time when Khrushchev was the leader of Russia. This period is characterized as the time of Destalinisation. A time for people to have rest. Khrushchev is known for his housing constitution. He understood that it is not right to live in one flat for severalShow MoreRelatedAnalysis Of The Article Peaceful Revolution During Czechoslovakia From Economic And Political Weekly, A Social Science Fiction Essay1598 Words   |  7 PagesAlexander Dubcek into the government, and how these revolutionary ideas had already been churning in prior years leading up to this time. They are also already reporting on concern coming from communist leaders that these sort of ideas will spread to other countries, as a meeting with several communist leaders and Dubcek had taken place in March in which they â€Å"strongly advised Dubcek to slow down the pace of change in view of the serious consequences that might ensue in Czechoslovakia and in the otherRea d MoreLegacy and Leadership: Mikhail Gorbachev Essay1282 Words   |  6 PagesMikhail Sergeyevich Gorbachev showed legacy and leadership when he launched a program of political, economical, and social reform for the Soviet Union. He changed and influenced many people lives positively with his reformations, and started a â€Å"revolution† that later seemed to get out of his grasp, causing the end of the Soviet Union. In 1985, Mikhail Sergeyevich Gorbachev became the general secretary of the USSR, (Union of Soviet Socialist Republics) also known as the Soviet Union. That is whenRead MorePuse, Mark Diego C. Pol Eco Current World Issues T-Th1591 Words   |  7 Pagesand effects of the downfall of the USSR, we must first take a look on how the state was formed along with its ideologies and principles as a governing body, and what caused its downfall and demise as a state. Once established, we can hypothesize the legacy left by the USSR be it good or bad. A. A history on the USSR on how it came to be. The History of the Soviet Union begins with the end of the Tsardom of Russia, for hundreds of years Russia was ruled by a series of Monarchs known as Tsar who wieldedRead MoreMao Zedong And The Great Leap Forward1640 Words   |  7 PagesThese seemingly contradictory statements are only part of the persistent dispute about Mao’s complicated and controversial legacy. The leadership of Mao Zedong in China from 1921-1976, including the Great Leap Forward, his Five Year Plans, and the Cultural Revolution, significantly impacted China in both positive and negative ways, leaving him with a very controversial legacy that is still debated today. Throughout most of its long history, China was ruled through a series of dynasties characterizedRead MoreMao Zedong And Its Impact On The World1613 Words   |  7 Pages A line of thousands of Chinese communists hiked up the mountains of Northern China. The years of struggle and harsh life they lived did not deter these fighters. Their goal was to create a better future for the common Chinese citizen by using communism; something which their leader called â€Å"a hammer which we use to crush our enemies.† He stayed true to his word. This bold and charismatic leader was at the head of a mass revolution in which China was forever changed. He led a movement which transformedRead MoreThe Leadership And Legacy Of Mikhail Gorbachev977 Words   |  4 PagesKate Foust Mr. Isaacs Global Studies 17 March 2016 The Leadership and Legacy of Mikhail Gorbachev Not long after becoming the president of the Soviet Union in 1986, Mikhail Gorbachev made a phone call that symbolized many of the reforms he would soon bring to his country. He called Andrei Sakharov, a human rights activist who was exiled to the closed city of Gorky, to tell him that his exile was over: The famous dissident and his wife could return home to Moscow. The very next year, Gorbachev pardonedRead MoreBiography of Mao Zedong 1284 Words   |  5 PagesZedong was the founding leader of the Peoples Republic of China and ruled as the Chairman of the Communist Party of China from 1949 up until he died on September the 9th, 1976. He is largely accredited with crafting the post-revolution policies known as the Great Leap Forward and the Cultural Revolution (Joseph, 1986) which have left many critics arguing that the political and economic devastation those policies left are what define his legacy. Mao Zedong however, left a legacy that far outweighs theRead MoreA Comparative P erspective Of Post Communist Transition1357 Words   |  6 PagesA Comparative Perspective of Post-Communist Transition in China and Russia The similarities between Russia and China are well known and can be quickly summarised. These are countries with huge territories and population. Both have recent experience of dictatorial communist rule. Both now function in a manner that fails to match up to an ideal model of democracy. And of course, during the past generation both societies have been energetically engaged in a radical economic transition, moving awayRead MoreEvolution of the Vietnam War825 Words   |  3 Pagesover American politics and society, not to mention the history of American presence in Southeast Asia. The reason for that longstanding legacy of the war is that the Vietnam War was a monumental political blunder and consisted of a series of strategic military errors. These errors made a profound impact on America as well as Southeast Asia and haunts American leaders to this day in the form of, as some argue, the Vietnam Syndrome. Due to a mixture of misguided understanding of international affairsRead Mor eThe History Of The Czech Republic1655 Words   |  7 PagesA thorough study of the economic transition in the Czech Republic post-communist era offers insight into the  developmental process of a transition state and its struggles at reform and innovation. For nations that have had little-to-no experience with a free market economy, let alone experience with the democratic institutions that protect it, the formation of such an avant-garde system required collaboration between elites, new and old, as well as by the citizens that would eventually form the backbone