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Economic Future of Larson Inc.

Larson Inc.

Larson Inc. is an international company that has operated in America for 5 years and in Germany for over 15 years. The company supplies batteries for electronic equipment. Batteries are sold for anything from laptops to toys. The company has always maintained a decentralized structure regarding decisions in the areas of marketing, pricing, and trade. After reviewing the profitability of both the American and Germany divisions, profits were much lower than expected and the company decided that decisions of high magnitude should be reviewed and approved through the corporate office.

Corporate decided that a team would be put together to review any results in the aforementioned areas and offer recommendations for change. Your group will be reviewing these results. The following is information you need to make informed decisions.

America

Unemployment 9.9%

Inflation 2.3%

GDP (Purchasing Power Parity) $14.6 trillion

Output per person (GDP per capita) 2007 $46,800; 2008 $32,560

Fed Funds Rate .25

Discount Rate .50

Population 305 million

? Export goods production machinery and equipment, 32.4%; industrial supplies, 26.5%; non-auto consumer goods, 11.7%; motor vehicles and parts, 11.5%; aircraft and parts, 7.6%; food, feed and beverages, 7.3%; other, 4.0%. (2008)

? Average battery cost $80 in raw materials and production costs, and at current sales volume or anticipated initial sales volume, fixed costs come to $30 per unit. Your total cost is $110 per unit. Present markup is 35%.

Present pricing strategy in use: cost-plus pricing

? There is a great deal of competition in the American battery market. Larson finds product differentiation a bit difficult. Packaging is lackluster and commercials are of a serious nature and run infrequently. No other advertisement is present.

? Major slowdown has occurred because of the present financial troubles in the economy. Liquidity has almost evaporated in major markets. Banks have exposed themselves to a great deal of credit risk because of tricky dealings with securitized or not so securitized products. These troubles have spilled over into the global markets but remain much more serious in the United States.

? Problems in the housing market coupled with high unemployment have caused individuals to save more, spend less, and turn from essential items. Though the value of the United States dollar has dropped over the past year, America's Current Account Balance is running a large deficit of $568,800,000,000, which affects the global view for trade.

Germany

Unemployment is 10.8%

Inflation 1.7%

GDP (Purchasing Power Parity) 2.8 trillion

Output per person (GDP per capita) 2008 $34.2

Population 82.3 million

Main industries: steel, cars, electronics, chemicals, cement, textiles, and food

? The average battery costs $95 in raw materials and production costs, and at current sales volume or anticipated initial sales volume, fixed costs come to $40 per unit. Your total cost is $135 per unit. Present markup is 25%.

Present pricing strategy in use: cost-plus pricing

? There is less competition in the Germany battery market. ,Population is smaller, however, and represents fewer sales. Larson finds product differentiation a bit difficult. Packaging here is lackluster but commercials are more humorous and are coupled with magazine ads. No other advertisement is present.

? A small slowdown has also rippled through Germany. Liquidity and spending is slightly higher in Germany because of the favorable unemployment payments made to German citizens. Banks are less exposed than their American counterparts except for the larger international banks. Germany's Current Account Balance is much more favorable ($ 267,100,000,000), which makes exporting Larson products much easier.

Added Information

? Asian markets are growing in personal income and desire for American goods; however, protectionism is prevalent in the communist countries.

? African countries are starting to resolve their differences, though some tribes still fight amongst themselves. At times, westerners are kidnapped and held for ransom.

Describe any future economic conditions that Larson, Inc may encounter.

Solution Preview

Larson Inc. will encounter many economic conditions in the United States as well as Germany. Within the U.S., they will see inflation and unemployment is quite high. This means that they will need to raise their prices in order to meet the market price in order that they bring in a regular profit. However, they will notice that many will struggle to find work because of how high unemployment is within this country. They will have difficulty hiring people and in this process may end up laying off a plethora of workers because of them not having the finances themselves needed in order to survive. Within this organization, management will have to ...

Solution Summary

This solution discussed the economic future with Larson Inc.

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