The contemporary business environment has become complex and competitive in the recent years. Businesses have to operate amid the influences of economic, social-cultural, political and technological factors that are normally unstable and uncontrollable by a business organization (Burdick, 2009). For instance, the last few years have seen a rapid advancement of technology, increased cultural diversity in business, call for corporate social responsibility and unstable economic climate (financial crunch witnessed 2008-2009). It therefore calls for business to device sound strategies that will aid in coping with these challenges.
Cold Stone Creamery is an ice-cream manufacturing company founded in 1988 in Arizona. The company has been able to spread further over the years, and now boasts of over 1400 stores across the world (Cold Stone Creamery, 2009). Apart from ice creams, the company manufactures cakes and shakes making it one of the top firms in the industry. Despite the challenges in the economic environment, the company has a clear statement that focuses on making people happy and boasts of a well managed corporate culture and innovative workforce. The company has an expansion strategy that has enabled it to expand widely and compete effectively with other to brands in the ice cream business including McDonalds among others. However, the company’s operations may be affected by various economic factors.
First, the interest rates of borrowing money may affect Cold Stone Creamery’s expansion plan or even its operating/working capital. Interest rates keep on fluctuating depending on the market conditions. In most cases, government tends to set the applicable interest rate through its monetary policy based on the economic conditions in the country. According to Tyson (2008, p. 78), high interest rates affects the expansion plans of businesses and to some extent, lead to collapse of debt-laden businesses; and also affects the purchasing patterns of individual consumers. Therefore, during the times of economic downturn or inflationary periods, the interest rates will have to be raised thus increasing the cost of borrowing. The increase in interest rate will affect Cold Stone Creamery in two ways: one, the company will be discouraged to borrow, causing liquidity problems in the company; and second, if the company decides to borrow at high rate of interest, it will be strained in repayment, causing a huge dent in its profit margin. Therefore, both cases will interfere with the company’s business both locally and abroad – especially in its two new units in Canada and Trinidad. Another effect of interest rate on the company will be through the impact of the high rates to the company’s debtors, where most of the customers who are used to purchasing on credit will have to slow down on their purchases, thus affecting the sales of the company.
Purchasing power of individuals will also have an impact on the business of Cold Stone Creamery. This will be based on the income levels of the individuals which may affect their buying behavior. Cold Stone Creamery’s core market is the households, and therefore, when the economic conditions do not favor access of income by the households, they may opt to cut back of their purchases preferring to go for the staple foods first. However, where the consumers have more disposable income, they tend to purchase products that seem superior, luxurious or even ready to eat and therefore, most of them will purchase the ice creams. The level of household disposable income have a direct effect on the demand of commodities in the market and therefore only those with high disposable income will be willing to purchase Cold Stone Creamery’s products – ice creams and cakes are considered non-staple consumables.
Unemployment levels have direct impact on the consumer’s behavior, which in turn can affect the performance of a business. According to Hiebing and Cooper (2003, p. 102), unemployment level in a given area will affect the sales volume of a companies products. High unemployment level will lead to low personal average income and therefore low purchasing power. However, unemployment levels vary from one nation to another and therefore, Cold Stone Creamery’s products may perform better in countries that have low unemployment levels than in countries with high unemployment levels.
Inflation may also affect the performance of Cold Stone Creamery especially where the prices of other goods keep on rising. Inflation is said to be a tendency of prices of commodities to rise causing a deficit in the real income of households. For instance, if there is inflation in US where Cold Stone Creamery is based, the company will lose international market competitiveness due to high price of its products thus affecting the overall sales and general performance of the company. In addition, since wages and other incomes of the consumers do not change with changes in prices of goods and services, inflation will reduce the real wages/income of the consumers, thus affecting their purchasing power. This will force the company to experience reduced sales as most of the consumers will have to adjust their purchasing patterns based on their real wages.
Another economic factor that may affect the business of the company is forex rate fluctuation. Cold Stone Creamery operates in various countries and therefore changes in exchange rate will affect the revenues generated from the company’s products, for instance, where the dollar strengthens against other foreign currencies, exports will be cheap causing the company to lose on profit margin.
These economic changes can be handled by establishing various strategies, putting in mind that they are beyond the company’s control. One action plan that the company can adopt is the establishment of a contingency plan, which will be an effective fall back in case of economic crisis (Awe, 2006, p. 128). The contingency plan will involve identifying the weakness in the company and making a prearranged course of action such as downsizing, product diversification and market segmentation among others. Prior arrangement will enhance the chances of the company getting a competitive advantage over rival companies. For instance, Cold Stone Creamery will have to plan on manufacturing both high price and low price products in order to cater for both the affluent and the low-income households depending on economic conditions.
The company can also establish cost cutting and saving measures in order to safeguard the company’s financial status during the time of economic crisis. For instance, organization realignment and elimination of redundancy can help the company to focus on key issues and cut costs. Internal controls will also be effective in ensuring that the company’s resources are efficiently utilized. This will help to boost the working capital of the company and avoid relying on borrowed funds.
To cope with the fluctuating interest rates, the company can rely solely on franchising or direct foreign investment in order to eliminate the foreign exchange losses associated with movement of goods across borders. In addition, the company should try to win the market from its competitors through community programs that will make the community to develop consumer loyalty on its products. This will be beneficial in the times of low economic activity as the consumers will tend to go for the products they can relate to.
References
Awe, S. C. (2006). The entrepreneur’s information sourcebook: charting the path to small business success. CA, Libraries Unlimited. Illustrated. 2009. Web.
Burdick, J. (2009). Business Economic Factors. Web.
Hiebing, R. G. and Cooper, S. W. (2003). The successful marketing plan: a disciplined and comprehensive approach. Third Edition. NY, McGraw-Hill Professional.
Tyson, E. (2008). Investing For Dummies. Fifth Edition. Illustrated. For Dummies. Web.