The effects of government policies on the functioning and a long-term plan of an enterprise are undisputable. The concept of free market economy is not devoid of a government mechanism that controls the operations from distance and in invisible ways. Government fiscal and monetary policies affect the operations of private organizations.
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On the one hand, government’s actions have a strong effect on a pricing policy, an expansion decision, and other operational decisions undertaken by a private enterprise (Agenor, Izquierdo & Jensen, 2009). Policies related to antitrust laws, fiscal, and monetary policies affect private enterprises directly. On the other hand, policies related to environment, trade relations, and international policies affect private companies indirectly.
The sportswear market is a dominant form, which has to expand and embrace globalization in order to remain competitive in a highly monopolistic market. This paper discusses the fictitious sports apparel company XYZ and the effect that government policies have on its expansion plans and long term investment decisions. However, the paper will begin with a discussion of the development of an inelastic pricing policy.
An Inelastic Pricing Policy: Rationale
Inelastic pricing policy of a product is carried out in order to have inelastic demand for the product. The aim of the inelastic pricing is to have a profit maximizing sports apparel brand. Gaining profit-maximizing is traditionally defined as setting the range of prices, at which the marginal revenue of the product is zero.
Profit maximizing will ensure inelastic prices for a corporation (McEacherm, 2011). For instance, the marginal cost of the brand and association of the brand with the sports celebrities will double the effect of the appeal of the product to the customers. This will ensure an inelastic demand for sports, because apparel is not bought simply for the sake of the product itself but for the association of the product with the game or the sports personality.
Hence, the price that the consumers are willing to pay is not for the product but the association of marginal talent that is related to the product. Hence, the sports apparel brand has to associate itself with the top talents in the industry to ensure that their pricing can be inelastic, for the price is equated not with marginal cost for profit maximization, but with marginal talent of the sportsperson.
Effect of Government Policies on Production and Employment
The process of recovering from failure of capital projects is through regrouping. Apart of assembling, all the key people involved in the planning process have to be regrouped to assess the failures and loopholes in the planning process and do a proper diagnostic check. Usually what companies do is trying to reduce cost and losses by getting back on schedule at the earliest.
However, this is a knee-jerking response to the problem, and in doing so, companies usually do not detect the real reason of failure. Therefore, the best option is to put in quality time to evaluate the issue and address it. Complete transparency in the operational process and the implementation process is necessary.
Further accountability is also important. Maintaining a complete and thorough audit trial is essential for the companies to ensure proper documentation of the project process. In addition, as it has been mentioned above, the cessation of a company’s monopoly reduces unemployment rates considerably. By opening new opportunities or other enterprises within the target market, government will provide more people with the chances to get a job. Thus, the unemployment rates will plummet.
Effect of Government Policies XYZ Company
In a retrospect, the effects that government has had on the XYZ Company are rather impressive. To start with, it would be wrong to claim that governmental regulation of the company’s processes can be defined as solely negative. Quite on the contrary, it seems that the XYZ Company can reach equilibrium between the marginal revenue and marginal cost curves.
More to the point, seeing how the XYZ Company is defined as a monopolistic one, as well as that the company operates within a monopolistic market, the introduction of governmental regulation allows for setting the prices for the company’s services that will be considerably higher than the aforementioned marginal cost, therefore, increasing the company’s profit.
However, the effects that the governmental supervision has on the XYZ Company’s processes are rather diverse; particularly, the fact that the government will reduce the company’s control over market price should be mentioned.
Once the XYZ Company is unable to earn higher profit and remain the monopolist for the provided services, it will have to address a number of issues, including the means to fight the competitors efficiently, come up with the new means of attracting target customers, search for resources and information faster than the rival companies, etc.
The aforementioned operations will demand impressive amounts of money, which presupposes that the XYZ Company will have to cut on several costs, possibly including the inbound and outbound logistics (the choice of the resource transportation methods should be reconsidered), as well as the current methods of marketing.
Is Government Regulation Needed for XYZ Company/Industry?
The information provided above shows clearly that the XYZ Company does not actually need the interference of the government into its organizational, financial and production processes; in fact, knowing quite little about the specifics of the company’s key mechanisms, as well as inside and outside factors that affect its operations, the government will most likely do more harm than it will improve the organization’s performance (Forrest & Yip, 2011).
This, therefore, begs the question whether the governmental regulation should actually be encouraged for SMEs in general and the XYZ Company in particular. Seeing how the intrusion of the government bodies into the course of the company has been quite negative so far, one might assume that the idea of allowing the governmental bodies interfere with the company’s policy are entirely negative. Indeed, the state authorities know little to nothing about the XYZ Company’s operational processes, marketing principles and organizational culture.
Therefore, their effect on the company’s ability to earn supernormal profit may be deplorable. In addition, it will be harder for the XYZ Company to remain monopolistic once the state authorities will take control over most of its processes. However, when considering the aforementioned changes closer, one will notice that the governmental influence allows the XYZ Company to gain better competitiveness.
Fairness of Government Policy
Government policies have a strong effect on stimulating market demand and expansion of the market for organizations, as well as production and employment in private sector. The evidence of the positive effect on public capital investment, infrastructure and other developmental work in the specified afield is evident – with an increase in public spending, there is an increase in resources as well as an increase in the productivity of the existing resources available to the private companies.
For instance, a new highway joining the industrial belts allows trucks to transport goods faster. The reduction in the time taken by truck drivers to transport the products implies less damage to the trucks and greater productivity by means of reducing wage paid to the drivers by the producers. Hence, government spending on construction of a highway has a positive externality on the total cost of production of the private companies.
Further, government spending on education, sewers, hospitalization, etc. helps in creating a more educated and healthy workforce that helps private companies to increase employment. In other words, public spending helps increase the employability of the working age population (OECD, 2012).
Major Reasons for Government Involvement in a Market Economy
The agency theory has tried to explain the issues between the divergent interests of management and shareholders. The issues may be solved by usage of the firm’s strategic behavior, finding a convergence between management structure and shareholder contract, and signing a new shareholder and manager contract. Some areas of friction between shareholders and managers are entry-exit barriers, organizational inertia, and an inefficient organization structure (McGuigan, Moyer, & Harris, 2014).
In the agency theory, one of the most prevalent methods of conversing the interests is through ESOPs (employee stock options). Stock options given to employees introduce managers to the rank of shareholders, and, hence, help managers maximize shareholders’ wealth. Another method presupposes the enforcement of a bonding mechanism in the company.
Thus, managers are responsible for the bonds and are accountable for them. In both the cases, the aim is to enhance the degree of dependability between managers and shareholders.
These methods will ensure greater reliability and understanding between the managers and the shareholders, whose interests will become linear, and, hence, will fetch greater profitability for the XYZ Company. Further, the convergence of interest theory suggests that the firm’s valuation will increase once the company will be guided by the government (Peng, 2009).
Convergence between the Interests of Stockholders and Managers
The overall study shows that the presence of government control and a panoptic system to monitor capitalist market economy is essential in order to work as a cushion that facilitates the working and/or recovery of the firm. Moreover, it also works as a monitoring agency that ensures ethical conduct.
Government intervention has been found to be profitable to companies entering the global market. Inelastic pricing policy may be adopted by maximizing profit, but in case of sports goods brands, maximizing talents is necessary. Government intervention is essential for the functioning of the economy, for an open credit environment will delve the economy in an unprecedented recession.
Further, the essay presents that inefficient planning is to be blamed for failure of capital projects. The only method to elevate the problem of management and shareholder conflict of interest is through establishing managerial shareholding through employee share ownership.
Capital projects essentially mean expansion by acquiring a large sum of money or capital for long-term growth. Capital project usually run the risk of failure due to the primary cause of cost overrun. One of the causes of cost overrun is insufficient planning at the initial stage of the project implementation.
Further inadequate and poor project controls can also cause problems in capital projects. Other issues may include delays in payment, an ineffective decision-making process, the lack of control over the processes, unavailability of skilled labor, etc. Usually, capital projects are not caused by a single problem, but rather are triggered by a blend of two or more issues.
Many projects end up badly because they were unable to begin at the right pace. Further, unregistered, or defined cost resulted in company’s deviating from the schedule of the project. A poor calculation of the project budget and an untimely delivery of the results, as well as missing the deadlines, are the primary causes of project failures (Venkataraman & Pinto, 2011).
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McEacherm, W. A. (2011). Economics: A contemporary introduction. Stanford, CT: Cengage Learning.
McGuigan, J. R., Moyer, R. C., & Harris, F. H. deB. (2014). Managerial economics: applications, strategies and tactics (13th Ed.). Stamford, CT: Cengage Learning.
OECD (2012). OECD economic surveys: Slovak Republic 2012. Geneva, Switzerland: OECD Publishing.
Peng, M. (2009). Global business 2009 update. Stamford, CT: Cengage Learning.
Venkataraman, R. R. & Pinto, J. K. (2011). Cost and value management in projects. New York, NY: John Wiley & Sons.