General Motors Economic Concepts - Case Study Example

Name: Institution: Title: Economic Concepts Tutor: Course : Date: Introduction Business objectives are specific targets that organizations normally use in achieving their goals. Business might employ mission statement in setting out principles that need to be followed. The plan handles logistics on how the set objectives will be achieved. According to Pride and Hughes (2009), economics normally assume that a number of various buyers and sellers exist in the market place. This implies that the market normally has competition that permits price to change relative to supply and demand changes. Case study: General Motors The advantages, limitation, opportunities and risks are quite dynamic in General Motors and they can be integrated to each other. For instance, what might be a risk in a particular category for general motors, can change into a prospect or become a new tactic for general motors in future. One of the main advantages that general motors have is the international awareness and presence it has in today’s market. Currently, General motors have manufacturing firms in thirty two nations and its vehicles are sold in one hundred and ninety two nations (Rittenberg, 2008). General motors Basic business objectives As their basic objective, General Motors normally aims at being socially useful. It usually participates in specific activities that perform operations that are socially and economically useful. The main aim of General motors is to produce vehicles that are friendly to the environment and that can assist individuals to improve their social and economical lives. It is quite clear that businesses cannot exist minus consumers’ approval. If activities of the firm seem to be against the consumers’ will, it can be wiped out by political, legal action or consumers’ own negative reactions. Therefore, by setting this objective, the organization normally satisfies the requirements of its customers (Pride & Hughes 2009). General motors aim at becoming the most innovative organization. It is normally developed in away that business activities associated to it, are performed and the necessary strategies implemented. General motors, through its innovative culture, came up with hydrogen fuel car and currently they are the leading manufacturers for this type of automobile. Rittenberg (2008) notes that in macro-marketing sense, buyers in economies that are market-directed have given businesses the right to work and if possible make profit. With this right, it is important for a business to be a dynamic agent of change that is, adjusting their provisions to achieve the current requirements. Innovation and efficiency therefore, are normally promoted by competition. An organization need to be developed in a way that consumer-assigned tasks are effectively performed and the organization’s prosperity is maintained. Profit maximization is another basic objective that general motors normally aims at achieving. It normally aims at getting enough profit so that it can survive in the market. The anticipated profit can be realized in the long run. Just mentioning that an organization need to try and make profit is not always enough. In general motors, the management team normally provide specific time period that is necessary in maximizing profit. It is essential to set profit targets because this can direct an organization into opportunities that are more profitable. It is also important for managers to specify the level of risks that they are likely to incur incase their returns are large. The basic objectives in any organization normally guide the firm’s operations. The firm also needs to develop specific objectives (Rittenberg, 2008). The market structure of general monitors General monitors operate under oligopolistic type of market structure. An oligopoly is a market structure that is dominated by few large suppliers. Automobile market is an oligopoly market structure since it is dominated by few firms such as Toyota, general motors, ford and Honda. The degree of market concentration is normally high, that is, a big percentage of the market share is usually won by the leading firm. Firms in an oligopoly produce products that are branded. In automobile production, general motors normally produce motor vehicles that are differentiated from those manufactured by competitors through branding. In this kind of market, marketing and advertisement is significant feature of competition. New firms that are interested in joining the market can be prevented from entering the market by few operating firms. An oligopoly is interdependence among firms. Hitt and Hoskisson (2009), argue that this implies that all firms need to take into considerations the probable response of other firms in the market when making decisions on prices and investments. This normally develops uncertainty in this kind of market. Economists usually model this fact by using the game theory. Game theory is applicable in situations that need decision makers to consider the reasoning of other decision makers. The theory has been applied, for instance, to determine the creation of political alliances or business conglomerates, the maximum price at which products or services are sold, the best location for a manufacturing plant, and the behavior of a particular species in the fight for survival. The continuous interdependence among businesses can result to implicit and explicit collusion among the key firms in the market. Collusion occurs when organizations accept to operate as if they are monopolies (Hitt & Hoskisson, 2009). Key characteristics of an oligopoly market structure Oligopoly market has various features. These are: The market has few firms that sell homogenous products The firms in the market produce products that are branded New firms are restricted from entering the market. This enables them to make supernormal profits. In the market, the competing firms are interdependence. Firms need to consider the probable response of rivals to any price and output change. Competition between general motors and rival firms Bargaining power of supplies In the automobile industry, the suppliers bargaining power is very low. There are several parts that are applied in production of automobile. To achieve this, it needs many suppliers. When many supplies are available in an industry, there power is always reduced. This implies that manufacturers in the market can easily switch to a different supplier if necessary. Therefore, since the bargaining power of general motors suppliers is low, the competition among them and the rival firms is also limited. Buyers’ purchasing power Competition between General motors and the rivals is limited because the purchasing power of buyers is fairly high. The buyers in the automobile industry normally purchase about all the outputs in the industries. Manufacturers relays on its consumers to stay in the market. The buyers are also an important portion of industries revenue. In case the manufacturers fail to make its customers they risk losing them to their rivals. If the buyers are not happy with the manufacturers’ product, they can easily switch to their rivals’ product because buyers’ switching cost is very low. What the buyer need to do is to sell the car he or she owns and purchase another one. The purchasing power of consumers is not completely high because consumers are few in number. The buyers also lack capability to integrate backwards into the industry. If buyers need a car, they need to buy it from a dealership (Baumol & Blinder, 2009). Threat of substitute commodities According to Boyes & Melvin (2007), competition between General motors and rivals firms is limited because substitutes in automobile industry are few. Some of the products that might substitute automobiles are walking, taking a train or riding a bike. Substitute’s products depend on consumer’s geographic location. In some cities such as Chicago, cars are not always important. In other cities, subway is the most useful means of transportation. Therefore, in these areas, substitutes tend limit competition between general motors and rivals firms. However, in many areas an individual need to access automobile so that he or she can get around. Threat of new entrants Competition among general motors and rival firms is limited because the threat of new entrants in an automobile market is very low. The automobile market is very mature, and has successfully attained economies of scale. Therefore, in order to compete in this type of market, a manufacturer needs to be capable of achieving economies of scale. This implies that few firms are able to enter in automobile industry. Competition therefore among the firms that are able to enter the market is limited because of few firms in the market. Manufacturers since they are few in the market should produce many automobiles so that consumers can easily afford them. Firms also find it hard to enter into automobile industry because a huge amount of capital is required in manufacturing automobiles. A huge amount of capital is required in both manufacturing and in keeping up with the research and growth that is essential for innovation matters. It is important for organizations to find dealership or have their dealership. Due to limited space in dealership lots, it has been hard to have a broader variety of inventory (Boyes & Melvin, 2007). Conclusion Through our discussion, it is clear that general motors have several basic business objectives. The organization aims at being useful in the society, being innovative and maximizing its profit. General motors operate in an oligopolistic type of market structure. The firms in the market are few. Competition among the competing firms is limited because of supplies bargaining power, Buyers’ purchasing power, threat of substitute commodities and threat of new entrants. Bibliography Pride M. W., &Hughes J. R., 2009, Business, Cengage Learning: New York. Boyes W., & Melvin M., 2007, Microeconomics, Cengage Learning: New York. Hitt A. M., & Hoskisson E.R., 2009, Strategic management: competitiveness and globalization: concepts & cases, Cengage Learning: New York. Rittenberg L., 2008, Principles of Microeconomics, Flat World Knowledge: New York. Baumol J.W., & Blinder S.A., 2009, Economics: Principles and Policy, Cengage Learning: New York. Read More