Applied Managerial Economics PPT.

Unit 5- Individual Project

Applied Managerial Economics (Econ 616-1602B-01)

Assignment Overview

Type: Individual Project

 Unit:  Int’l Expansion Considerations 

Grading Type: Numeric

 Points Possible:    250  

 Points Earned:  0 

Deliverable Length:  10–15 slides + 150–200 words per slide in the notes 

Assignment Objectives

Demonstrate how metrics such as valuation, economic profit, and related terms are measured and evaluated.

Explain the significance and implications of various economic theories pertaining to profit, consumer choice, demand and supply, forecasting and optimization.

Compare and contrast how production analysis is carried out and be able to evaluate production situations using economy of scale, elasticity and other analytic tools.

Demonstrate the ability to assess market structures ranging from pure competition to monopoly/monopsony.

Apply risk methodologies to economic situations using a variety of approaches ranging from basic statistics to certain equivalency.

Scenario

Auto Edge is a leading national automotive supply company located in Detroit, Michigan. Founded by Jonathan McAlister in 1976, the company specializes in engines and transmission parts and has been supplying products to the three largest U.S.-based automakers for over 30 years. Auto Edge’s name is known by customers and leaders in the automotive industry for quality, dependability, and reliable products. In fact, despite the extra cost that is added to the automobiles, consumers appreciate the Auto Edge brand name and often make purchases because of it.

In 2005, Auto Edge’s board of directors decided that the company needed to make some drastic changes because of the high cost of labor, rigid American regulations, and increased competition from other engine and transmission part suppliers. Their solution was to gradually close all manufacturing operations in Detroit and begin outsourcing to a well-known factory in South Korea. The board reasoned that this change would allow the company to compete with the growing industry, meet the automotive manufacturing demands, and increase company profits. Some board members were skeptical about the move, however, because Auto Edge had built a reputation for high-quality, detailed craftsmanship, and they feared that transitioning the manufacturing operations overseas would cause quality to diminish.

For the next 5 years, this strategy proved successful. The company showed signs of financial growth and company profit.

However, in 2010, the company was found guilty of supplying products that failed quality tests. As a result, millions of automobiles had to be recalled. The recall was highly publicized, and the issue of poor quality products impacted negatively on American automotive companies. Auto Edge’s $51 per-share stock has fallen to $4 per share, and brand acceptance has come under scrutiny among even its most loyal customers. Although some economists blame these negative effects on the products, others believe that it had to do with the termination of Auto Edge’s Chief Executive Officer, Fred McFadden.

Lester Scholl, Chairman of the Board of Directors, has called an emergency meeting to discuss Auto Edge’s short-term and long-term strategies. Among other things, they need to discuss the possibility of continuing production overseas or returning it to the United States. Lester and others on the board are well-known for being financially conservative and risk-averse. Because the American economy is experiencing high unemployment, low interest rates, low GDP, and low inflation, it might be sensible to make the change. To some extent, they believe that these macroeconomic factors can be used to their advantage. They realize the immediate challenges such as the brand damage, the growing competition, and the financial challenges the company is facing require immediate action. A new strategy must be formulated quickly to save the company from bankruptcy.

You have been hired by Auto Edge’s board of directors as a research analyst. Primarily, your job is to list and describe some of the legal, cultural, financial, and economic factors that Auto Edge needs to consider when deciding to either stay in South Korea or return to the United States. Because Fred McFadden was recently terminated, you will work directly with the board until a new CEO is named.

Assignment Details

Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.

You’re meeting with Lester in his office to discuss the details of your presentation to the board next week.

“Given all of the research that you have completed over the past several weeks,” he says, “you should have most of the information you need to make a presentation to the board. The board doesn’t want you to do any more research on all of the topics; rather, we want you to summarize the research that you have already done. “

“Yes,” you say. “I think I have what I need.”

“Of course we want your final conclusion and recommendation on what the company should do regarding the location issue, as well,” he says.

“What type of presentation do you have in mind, Lester?”

“A PowerPoint presentation would be appropriate for this group,” he says. “I want you to include slide notes, too, in case we have to go back and look at something at a later date. Your PowerPoint presentation should contain between 10–15 slides, not including the title slide and reference slide(s). For each slide, you should have between 150–200 words in the Notes sections. Let’s take a few minutes now to go over how the slides should be organized. I’ve done similar presentations, so I can save you some time with a few pointers.”

When you get back to your office, you type out your notes about each element you discussed and the overall organization of the presentation. For this presentation, you are addressing the following elements:

•Legal, social, and financial factor considerations

•Economic factors: gross domestic product (GDP), inflation, interest rates, unemployment

•Elasticity of demand

•Economies of scale and efficiency

•Strengths, weaknesses, opportunities, and threats (SWOT)

•Market structure

•Risk

•Costs (marginal, fixed, variable, etc.)

•International expansion (Five factors that should be considered before making the decision to expand internationally)