Question

1. Competition is generally considered to be a source of growth for companies as well as for the general economy. Studies confirm that competition leads to more efficient resource use. Yet, competitive forces also result in firms being driven out of the market. Moreover, firms compete through innovations and introducing new products to the market. Some of these products will be success and others will end up failures. Why is competition important for efficient use of resources? What can the company you researched do to compete effectively? How may the company avoid business failure competitions induce? What determines whether the new products are success or failures? How important are innovation and product differentiation as the source of growth for the company of your research?

2. Business cycles lead to fluctuations of macroeconomic indicators, and hence they have impacts on the performance of firms. Suppose the economy is under a recessionary pressure. The uncertainty about the future causes households to increase their saving and reduce their consumption. In another situation, suppose the household saves little and spends most of its income on current consumption. How does a company prepare to weather the ups and downs of the business cycles? How will the situations that influence households spending behavior affect the company you selected for research? How can the company plan to deal with the economic decline and decrease in household spending to be profitable on a sustainable basis?

3. Fiscal policy deals with the government's spending and taxation practices. The changes in fiscal policy affect the households and firms (companies) in the economy. Monetary Policy refers to the actions of the Federal Reserve to control (regulate) money supply to influence the rate of interests in the economy. The change in rate of interests affects companies and households. Suppose the Federal Reserve increased money supply to reduce the rate of interest. How does this affect the company you selected for your research? How can the company prepare itself to deal with the changes in fiscal policy and monetary policy? What actions do you suggest for the firm to undertake to ensure success on sustainable basis during the changes in macroeconomic environments pertaining to fiscal policy and monetary policy?

Answer 1

1.) Why is competition important for efficient use of resources?

A1.) Competition is extremely essential for the efficient use of resources, as in competitive markets all firms are price takers, and the only way each firm can survive in this environment is by producing the goods at the lowest possible costs with the resources they have procured, or in other words by being the most efficient they can be, as this aids in acquiring a better market share via capitalising on the lower prices they can afford due to lower production costs. In a perfectly competitive environment, there are only two ways in which a firm can differentiate its products from other firms products, the first one is by being more productively efficient, and producing at lower costs, and the second one is by being innovative and producing goods that can be differentiated from its competitors.

2.) What can the company you researched do to compete effectively?

A2.) The company chosen by me is One Plus (China). The global smartphone market is highly competitive in nature with there being numerous companies producing and a lot of companies entering the market as well as exit the market. One way in which One Plus can compete in the industry is by producing high-quality smartphones at a lower cost than its direct competitors. This will enable then to realise supernormal profits, which they can then use for R&D. Through R&D they can come up with more efficient ways to produce phones or come with technology that they can integrate into their phones to differentiate them from the rest of the products in the market.

3.) How may the company avoid business failure competitions induce?

As stated in the answer to the previous question, one of the ways in which One Plus can avoid being pushed towards business failure as a result of competition is by being more efficient with their production. Their efficiency will aid in generating supernormal profits which they can used to develop technology that aids in differentiating their products from their competitions. The chief rule of surviving in a highly competitive environment is by being more efficient than your competition.

4.) What determines whether the new products are success or failures?

The major factors influencing a new product's success or failure are: Clear differentiation, Effective promotion, and the benefits of the product.

Benefits of the product: The marketing department of the company should be able to identify what the consumers want, and how they will be able to benefit from it. It is essential that companies bridge the gap between identifying what the consumers want, and how a product that can benefit them can be realised in an efficient and effective manner.

Clear differentiation: The success of the new product hugely depends on being able to differentiate the new product and its benefits from that of your competitors. If there are 30 other products that provide the same benefit as your product, your new product will not make much difference in the market, and establishing clear differentiation will be void. If the product no matter how good its quality if not properly positioned and differentiated will fail.

Carrying out effective promotion: Once the product has been successfully differentiated from its competitors it is all up to the promotion that will lead to the product gaining traction in the industry. With effective promotion coupled with adequate differentiation, the product is set to become successful.

5.) How important is innovation and product differentiation as the source of growth for the company of your research?

The company chosen by me is a phone manufacturer, therefore in a highly technologically driven and innovation-intensive industry, innovation and product differentiation via innovation is of paramount importance. In order for One Plus to be able to differentiate its phones, it must be able to develop better cameras, better speakers, or longer battery lives for its phones, or in other words, be technologically innovative in order to be able to sell more products and induce growth of the company.