Automotive Production Leveling - Essay Example

?Running head: Automotive Production Levels Automotive Production Levels Introduction Government regulation ensures that mergers adhere to policy goals and that the parties to the contract have confidence in it. Government regulates operations of mergers through rules, which influence the behavior of the firms and economic activities. Moreover, this regulation involves a range of actions such as legislation and market frameworks to detailed regulations that are enforced by sectoral regulators appointed by the government (Gaughan, 2010). Through regulation, the government protects workers’ safety and health. It also ensures that firms do not make profits at the expense of consumers. This essay highlights issues relating to mergers, the role of government in market economy, complexities of self-expansion, and other issues facing companies. Government regulation and importance of government involvement in a market economy Government regulation is of major importance in the creation of mergers, as a certain level of regulation is needed to enhance the functions of contemporary markets. Through regulation, the government ensures that merging industries support policy goals. Government regulates mergers to ensure that the parties to the contract have confidence in it and that the stipulated property rights are defined clearly. According to Gaughan, (2010) regulation comprises of rules, which are administered by the government with the aim of influencing business behavior and economic activities. In the light of this, regulation captures a range of government actions such as setting market frameworks, primary legislation to detailed regulations that are enforced by specialist sectoral regulators. Government regulation of mergers has beneficial effects to the society as it provides protection. Some government regulations for instance, protect the safety and health of workers. Moreover, regulation plays a huge role in consumer protection as industries are approved and licensed. Government involvement in the market economy aims at attainment of important goals such as equity and social efficiency. In equity, the government aims at achieving fair distribution of resources while social equity is achieved by equating marginal benefits and marginal costs of consumption and production. The government also plays an important role in the market economy by formulating policies with the intent of promoting dissemination of information. To achieve this, government provides education, extension, and supports the media for the delivery of important information regarding the markets. Furthermore, through distribution, price assembly and labeling requirements, the government ensures that there is some truth in advertising (Gaughan, 2010). Government involvement in the market may be in order to combat externalities. According to Gaughan ( 2010), externalities arise when the activities assumed by some agents in the market affect the technologies or preferences of other agents. There are positive, negative, consumption, and production externalities. The government is also involved in the market for provision of public goods. These are goods, which are consumed concurrently by many individuals and are free to access. In case the government is not involved in the provision of these goods, the market mechanism cannot provide them, as they are not profitable. These goods include infrastructure, environmental amenities and national security. Government involvement in the market economy curtails non-competitive behavior. Non-competitive behavior arises in case of monopoly whereby the supply of a good is controlled by a single agent and whereby a single agent controls demand. Moreover, the government checks the activities of middlemen to ensure that consumers do not suffer. In addition, the government is also involved in the market economy to ensure that equal distribution of income is attained. The government achieves this through transfer policies such as inheritance and income taxes and social security programs. Rationale for the intervention of government in the market process in the US The US government plays a huge role in the market process in the US. Through government intervention, stability and growth has been achieved in the US markets. The federal government has been guiding the pace of economic activities with the intent of maintaining steady growth, price stability and economic levels of employment. The government is also responsible for adjusting tax and spending rates under fiscal policy or controlling credit use and managing the supply of money through monetary policy. Using the aforementioned policies, the government has affected employment and level of prices (Schlegelmilch, 1998). The US government has played a major role in ensuring the market in US has a frame work for open and fair competition. The government has been able to establish the rule of the law in the market thereby ensuring that property rights and contracts are upheld. Moreover, the government has been able to set institutions to ensure that the market functions properly. This has been through the establishment of a consumer law and competitive framework, which govern the way individuals and firms should behave during market operations. The government also formulates the competition law which prevents companies from formulate anti-competitive agreements. These laws also ensure that dominant firms do not use their position to distort outcomes in the market. Furthermore, the government restricts new firms from entering the markets and charging prices higher than the competitive prices. The government is also responsible for restricting mergers that could lead to less competition (Schlegelmilch, 1998). The government also intervenes in the market processes in the US for control and regulation. Welch & Welch (2009) indicate that through economic regulation, the government controls prices. The US government has been preventing monopolies from raising prices to make supernormal profits. In the absence of government control, the consumer would be subjected to high prices and low quality of goods. The government has had to broaden economic control to many industries. Following the great economic depression, the government devised a complex system with the aim of stabilizing prices for certain goods. Among these goods were agricultural goods whose price tends to fluctuate uncontrollably in response to changes in demand and supply. Industries such as airlines and trucking sought regulations to limit harmful price-cutting. The government formulates antitrust laws, which is a form of economic regulation that seeks to empower market forces making direct regulation unnecessary. The government and private parties have embarked on the use of antitrust laws in order to prohibit mergers and practices capable of limiting competition. The US government also influences market operations by controlling private companies. This is done to achieve goals such as protection of public safety and health as well as maintenance of a healthy and clean environment (Welch & Welch, 2009). Complexities of self-expansion via capital projects Self-expansion is a method used by the company to enhance growth in the financial market. This method allows investors to face various complexities as they try to enhance growth in their company in productive and smooth ways (Gomez-Mejia & Wiseman, 1997). Record keeping is one of the major complexities faced by businesses undergoing expansion. This is due to poor systems of monitoring inventories, deliveries, finances and cash flows. In addition, self-expansion hinders business from information on human resources in the product market. This is due to lack of proper systems that provide adequate support in business operations. Lack of enough capital is another complexity faced by an industry that decides to have self-expansion. This is because, for a business to enhance expansion, it requires additional finance. Finding capital for business expansion therefore, can be frustrating to the industry. Disagreement among ownership is another complexity faced by an industry during the early stages of its expansion. In most cases, as businesses diverge and become more complex, ownership arrangement becomes problematic (Gomez-Mejia & Wiseman, 1997). Self-expansion severely affects customer service. According to Welch & Welch, (2009), effective customer service is a significant factor in the success of a small firm but is also an aspect that tends to be ignored in case the business is faced with the need to self-expansion. Upon expansion, workload in various sectors of the company tends to increase tremendously and this overwhelms the firm’s management to an extent that it has hard time trying to reach the clients and address their problems on time. Hence, the customer service that had propelled the firm to achieve significant growth is difficult to sustain in the face of expansion. Moreover, during expansion, businesses not only have difficulties when trying to retain clients but become less effective when trying to secure new businesses. In order to minimize such developments there is the need for a firm to maintain an adequate level of staff so that clients receive the service and attention that they demand. In self-expansion, a firm is usually faced by disagreements regarding its ownership. Ownership arrangements that may have functioned effectively during the firm’s early stages may become problematic due to increasing complexity of business issues and emergence of divergent philosophies. Gomez-Mejia & Wiseman (1997) indicate that some cofounders may be unable to keep pace with business acumen and levels of sophistication required by the business upon expansion. Such a cofounder may not be making necessary contribution towards the progress of the firm and it becomes increasingly hard to diminish his or her responsibilities. Another scenario that happens during expansion of a business is the realization that the firm’s owners have differing visions about the future direction of the company. Forces creating a convergence between the interests of stakeholders and managers Expansion and merger is the combining of two or more companies to increase profit margin. This is normally achieved through offering stakeholders of one company’s securities to acquire stocks from the other company. Securing a business is one of the most important strategic moves made by middle-market Companies. The latent rewards of this security is to increase growth and broadening of product, rising market share, stabilizing the business, strengthening business financial position, and providing key managerial and technical capacity. Various forces tend to create convergence between stakeholders’ interests and managers. The forces make managers become interested in maximizing profits and values of the company (Zajac & Westphal, 2005). Understanding takeover circumstance in a business is one of the major forces that are needed by investors to create convergence between interest of stakeholders and managers. This is because takeover circumstances helps investors to know merger’s nature and other key information about the company involved in the merging. In addition, it also helps managers to understand the nature of benefits received by stakeholders of that company and other financial and non-financial considerations that are relevant. In order for a company to be bought by investors, it should show an outstanding performance and as good future prospect. Additionally, a certain amount of goodwill is also involved during the merging of companies, which is normally accounted to intangible assets. Although goodwill confuses many people, it is the amount of money paid by a company over another company’s book value to purchase it (Gomez-Mejia & Wiseman, 1997). When viewed in terms of economic approach, understanding business circumstances offers a better managerial decision making in order to protect and advance the interests of the stakeholders (Lenox, Rockart, & Lewin, 2006). This is because it gives managers a crucial duty of serving the interest of all stakeholders since the main objective of the firms is to maximize their interests. Moreover, it also tends to extend means of safeguarding all stakeholders in the company. However, stakeholders may not know the maximum profit generated by the company. They thus look for satisfactory returns from high dividends resulting from increase in price if the products in the company. On the other hand, managers in the company will not hold profit maximization but will manage the company in a way that will satisfy stakeholders. Competitive pressure is another force that creates convergence between stakeholders and management in a company. This is because it leads to decline of stock prices for the non-performing companies. In addition, it also results to takeover of the weak company by the well-established companies. Competition pressure in the market allows stakeholders and managers to merge to create wealth and address the matter (Kolstad, 2007). Coming together and cooperating to improve competition issues creates economic values in the company. This is because it allows managers to develop relationships that inspire stakeholders and create a community where all shareholders strive to offer their best and deliver value and profit goals in the company Mergers in most cases aim at enhancing scale growth of the company. This is because success in a company requires gaining various scales in profit regulation tactics to address competition in the product market. In this case, correct business and market definitions are required to get better price scale in a competitive market. In addition, redefining the company is another important strategy of combating competition in the market. This redefinition can be achieved by refreshing technologies and knowledge in order to increase production (Lenox, Rockart, & Lewin, 2006). Goals of firms as to whether to maximize profits or create more value for the shareholders The smart and the most effective goal of a firm is to increase value of shares in the company and maximize its profits. This is because when managers make decision to maximize profits in a company, they simultaneously create value for the shareholders by promoting sufficient allocation of resources. Maximizing profits is, therefore, the most sensible goal since it allows the company to be well functioning in the financial market. Financial market allows the company to incur risks and profits within different times. In addition, it also gives the company a flexibility to manage its own savings and other investment plans. Better investment leads to increase in market values creating more wealth to the shareholders (Kolstad, 2007). The theory of maximizing shareholders’ value should not be accepted in the modern world. This is because it is a bad form of management practice, which cannot cope with the stiff competition in today’s global market. Managers should, therefore make a decision of maximizing overall market value and current price in the investment share. On the other hand, shareholders should agree on the goals of profit maximization in the firm. This is because better outcomes in the financial market will give shareholders flexibility of managing their savings and investment plans (Lenox, Rockart, & Lewin, 2006). Company’s value can be increased by making good financial and investment decisions. This is because the two decisions force a trade off in which the company can either invest or return the profit to the shareholders (Zajac & Westphal, 2005).To increase profit in the financial market, shareholders should forgo the opportunity cost of capital for investment. Conclusion Every organization has a purpose of maximizing profits in the financial market. Human resources is the most important part of any organizations that is made up of managers and stakeholders. It is, therefore, feasible that companies have purpose of profit maximization while stakeholders have the objective of creating value in their wealth. It is thus clear that the chief objectives of companies is to make profit, maximize wealth of their shareholders, creating employment opportunities and enhance customer satisfaction. References Gaughan, P. A. (2010). Mergers, Acquisitions, and Corporate Restructurings. Hoboken: John Wiley & Sons. Gomez-Mejia, L., & Wiseman, R. M. (1997). Reframing Executive Compensation: An Assessment and Outlook. Journal of Management , 23 (3), 291. Kolstad, I. (2007). Why Firms Should Not Always Maximize Profits. Journal of Business Ethics , 76 (2), 137-145. Lenox, M. J., Rockart, S. F., & Lewin, A. Y. (2006). Interdependency, Competition, and the Distribution of Firm and Industry Profits. Management Science , 52 (5), 757-772. Schlegelmilch, B. B. (1998). Marketing Ethics: An International Perspective. Andover: Cengage Learning EMEA. Welch, P. J., & Welch, G. F. (2009). Economics: Theory and Practice. Hoboken: John Wiley & Sons. Zajac, E. J., & Westphal, J. D. (2005). Accounting for the Explanations of CEO Compensation: Substance and Symbolism. Administrative Science Quarterly , 40 (2), 283-308. Read More