Able Corporation: Management of Strategic Planning Essay

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General Economic Indices and Historical Projections

The general economic indices affecting the power tool market and companies, like Able Corporation, can be understood if we examine the external environment where they operate, which is the Portable Electric Power Tools or PEPT industry. The various economic indices include housing starts, expenditures for commercial construction, residential construction, and home repairs and improvement and these highly influence the industry where Able Corporation operates. However other factors, like foreign exchange rates, interest rates, and inflation rates, also affect the PEPT Industry, and thus, Able Corporation needs to realize these problems they face regarding the exchange rates, interest rates, housing market, and unemployment rates to determine how they influence the power tool market. (Edelman, 2007)

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For a company like Able Corporation to understand how to deal with its strategic issues, it needs to examine its external environment, especially where it operates. A basic requirement of financial information is that companies need to learn how they can efficiently research data so that the acquired information can be used to make their important strategic decisions. Similarly, even in the PEPT industry the various economic indices mentioned influence the result of purchasing of power tools and other products and services that are necessary for the maintenance and construction of both residential and commercial buildings. New houses that had been constructed but were not sold due to the present economic recession have saturated the existing housing market. Able Corporation should revise the number of present housing starts, the price for residential construction that has been put in place, the price of commercial construction that has been put in place, and the expenditure required for repairing and improving these residences. (King, 2008)

Given below are an examination of the historical data and various forecasts which affect the power tool market and also the construction industry.

Housing starts

Housing construction starts as soon as excavation starts for the foundation or footing of the building. Even for the housing units of a multifamily building excavation indicates that construction has begun. The following table shows the number of housing starts in the United States between the years 2003 and 2007. While in 2003, the number of housing starts stood at 1847000 units by 2004 it had increased to 19558000 units and increased further to 2068300 units in 2005. After that, there was a significant decline in the number of housing starts since the figures reached 1800900 units in 2006 and, after a further decline, 13555200 units in 2007. This proves that in 2006 the applications for the construction of new houses fell as a direct result of the recession experienced by the housing market. (King, 2008)

Table for expenditures for housing starts.

  • Year

Single-Family

Multi-family

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Total

  • 2007

1045900

309200

1355200

  • 2006

1465400

335500

1800900

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  • 2005

1715800

352500

2068300

  • 2004

1610500

345300

1955800

  • 2003

1499000

348700

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Expenditures for residential construction, commercial construction, and home repairs and improvements

By simply considering the number of house starts we will not completely be able to form a whole picture of our home construction industry since there are some other aspects that provide further insight into those markets on which the companies of the PEPT should focus on. For this reason, we need to examine the expenditures required for residential construction, commercial construction, and repairing and improving the homes. The following tables give the above-mentioned expenditures between the years 2003 and 2007.

  1. Table for expenditures for residential construction
  2. Table for expenditures for commercial construction
  3. Table for expenditures for home repairs and improvement

By calculating the seasonally adjusted average rate, the expenditures were given at:

  • Year

Expenditures for residential construction (million)

Expenditures for commercial construction (million)

Expenditures for home repairs and improvement (million)

  • 2003

$5,340,253

$2,751,632

$707,000

  • 2002

$6,378,884

$2,857,470

$794,100

  • 2005

$7,326,331

$3,080,825

$860,800

  • 2006

$7,399,983

$3,579,691

$914,200

  • 2007

$5,936,795

$4,282,100

$908,400

From the above table, we see that from 2003 to 2006 the expenditures for residential construction increased continually with an upward trend but in 2007 due to a recession in the housing market, the put in place value for expenditures in residential construction shrunk to $5,936,795 million from $7,399,983 million. However, both the expenditures for commercial construction and expenditures for home repairs and improvement continued to increase from 2003 to 2005 although the latter saw a slight drop between the years 2006 and 2007 (Kar, 2007).

After examining the above results we can see that there was an increase in the expenditures for home repairs and improvement during 2007 even when there was a reduction in expenditures for residential construction. During that year consumers became hesitant in continuing their construction of new houses due to certain market forces like increases in interest rates, adjusted-rated mortgages, or ARM and mortgage rates. Based on these data it becomes clear that Able Corporation needs to focus on the existing consumer market since there will be an increase in the number of people who maintain and make repairs to their existing houses due to increases in interest rates, the unwillingness of lending institutions in providing loans to the customers and foreclosure rates.

Effect of general economic indices on the power tool market

To ensure competitive advantage, the above data needs to be constantly examined in order to guarantee efficient strategic implementation. When we combine the expenditure data with that of housing starts, it becomes evident to the companies of the PEPT industry that there is a decrease in the construction of new homes as indicated by a fall in housing starts but a constant increase in the expenditure for home repairs and improvements. This further indicates that new homes have saturated the housing market. Construction of homes has stalled since very few customers are ready to spend for building newer residential constructions and thus, companies like Able Corporation and others belonging to the construction industry need to shift their focus towards the home improvement area which is mostly run by those who believe in repairing their homes themselves. The requirements of industries other than the construction industry and of companies in building various structures for their different operation determine the increase of commercial construction. Due to this, the overall quantity of commercial buildings will keep on increasing even though this increase will not directly influence the power tool industry since the commercial contractors will have to use industrial channels in order to buy their equipment (Fletcher, 2006).

The economy, forecasting services, and recommendations

After examining the historical data the next stage of the strategic management process includes the examination of the present forecasts and conditions which influence the PEPT industry. A company may need to reevaluate its strategic position as a reaction to the changes that occur in a few of the governing factors which affect or determine its overall performance. After Able Corporation has analyzed the historical information, it further needs to examine the present data and other forecasts related to the housing industry so that they can obtain an insight into the movements the company needs to make in order to gain additional market shares in that segment of the PEPT industry which constantly displays an upward trend. The industry referred to here is the consumer products industry. By proper examination Able Corporation will be able to enjoy success among its consumers by utilizing its circular saw and also gain additional market shares in various sections of the industry, other than the PEPT industry.

After examining the chart given above we can see that a downward trend which began in 2007 had continued to affect the industry even today. After examining the data for an annual growth rate of real GDP, an increase in the unemployment rate, and a decrease in real disposable income, we find that the present state of our economy has steadily slowed down. There has been an increase in the mortgage rates too which has forced more and more consumers to stop purchasing or building new houses. As indicated in the forecasts, there will be a continual contraction in the rate of real GDP all through 2008 and 2009 which means that the productivity levels will continuously decline as an incessant rise in the unemployment rates points to the loss of production of most US businesses. The thirty-year fixed decline in mortgage rate will only account for one-tenth of the percentage point but will result in the moving away of the consumers from their housing market. But since this is a single forecast of our US economy, it is necessary that Able Corporation further researches and examines the different data forecasting and delivery services so that they are able to adjust their strategic plans depending on the median of the given economic forecast data. This further guarantee that Able Corporation will also study the highest and lowest prediction rates while at the same time supervise their operations and plan for their long-term development. (King, 2008)

The data that has been given in this paper indicate that our economy is still facing a recession and thus, is continually moving downward. Being a small organization, Able Corporation needs to import the materials required to operate power tools and equipment from other nations and export the tools made by them to those nations. The present downward trend of various productivity indices indicates that the existing US market cannot be viewed as healthy. While there has been a decrease in the rates of disposable income, unemployment rates have steadily increased all across the US rendering it incapable of providing Able Corporation with opportunities using which they would have been able to increase their brand loyalty with the customers of the nation. In order to position themselves in the international market, it is necessary that Able Corporation retain their domestic market share by dealing with circular saws, while at the same time increase the global demand for their power tools. Since many factors can affect Able Corporation, they need to execute a thorough analysis of their accessible information resources so that they are able to identify their potential, efficiently outline their mission statement and prepare strategic objectives that are achievable by them.

References

  1. Edelman, S. (2007). Evaluation Techniques in International Business Management. Bloemfontein: ABP Ltd
  2. Fletcher, R. (2006). Principals: Beliefs and Knowledge; Believing and Knowing; Dunedin: Howard & Price
  3. Kar, P. (2007). History of Industrial Economics and Related Applications. Kolkata: Dasgupta & Chatterjee.
  4. King, H. (2008). Management Principals Today. Auckland: HBT & Brooks Ltd.
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