A Sustainable Competitive Advantage in Global Business

Managerial Economics

Unit 6

Mastery Assignment: A Sustainable Competitive Advantage in Global Business        

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Introduction

There may be numerous applicable economic models.  It is important for a growing business to be knowledgeable of various business and economic models, even more so when expanding to foreign markets.

Using the scenario, assuming you are a business owner of a growing company that sells electronic goods, including calculators, MP3 players, computers, etc. You receive an email from a business contact in a country with an emerging market, such as Jamaica. She indicates she may be interested in a large purchase for a school in her country. Assume you know and trust this person and that the business deal is legitimate. However, doing business internationally, particularly in an emerging market, comes with uncertainty.

After review the course materials, this paper will describe the economic models relevant to all business deals and how they would be applied in this situation.  Describe the economic models relevant to global business deals, in particular to emerging markets, and apply them to this situation.  Discuss how to ensure you will gain and maintain a sustainable competitive advantage in this scenario, give at least four different business models for consideration, how to apply them, and select three of them I would choose.

Relevant Economic Models

In this deal the product costs will most likely be fixed since you are a retailer, and not the manufacturer.  In this scenario, you will be looking to purchase directly from a manufacturer or find a wholesaler.  One applicable model that would be relevant is economies of scale, which happens when larger quantities are produced, the average costs decrease (Froeb, Shor, McCann, & Ward, 2016, p. 316).  By ordering larger quantities, you can try to obtain a volume discount for the items.  Another way to achieve this would be to contact other schools in Jamaica and attempt to sell them the same items.  Since 2009 there are more than 50 university institutions in Jamaica (Nexus, 2016b), other schools are state owned and private owned with over 2,000 operating since 2014 (Chambers, 2016).  By obtaining volume discounted pricing, this would assist entering a foreign market in Jamaica.  Additionally, since this is for educational use at a school, many companies offer educational discounts, which could help lower costs.  

Based on a volume discount, this would be a form of indirect price discrimination.  After conducting a marginal analysis and determining the cost of purchasing from Jamaica, you could cut the price offered to the school and forfeit your surplus to a price that is competitive with a Jamaican supplier.

Another applicable model is demand for a substitute.  With Jamaica being a small island, there is a good chance that not too many electronic manufacturers are located within the country.  HP does have a supplier, Management Control Systems Ltd that is located in Jamaica (HP Inc., 2016), and a leading supplier of calculators, Texas Instruments does not operate in Jamaica (Texas Instruments Inc, 2016).  Knowing this, we can use these two companies as an example to offer a higher priced substitute.  If HP is the only main computer company with a supplier in Jamaica, by offering another alternative brand of computers that may seem more appealing than HP, you may be able to sell a different brand even though it will be a little more expensive.  In this example we will assume due to shipping and importing costs you can only supply HP computers at the same cost or slightly higher than if they were purchased directly in Jamaica. If there will already be additional costs involved to you to ship and get through customs, and you cannot give them a better deal than buying within Jamaica, you can find a more appealing brand to increase demand.  This would allow the customer to justify the higher priced computer.  With calculators, since Texas Instruments does not have a supplier in Jamaica, the school may be used to cheaper calculators from a lesser quality manufacturer.  Since you know Jamaica has a high focus on improving their education system (Nexus, 2016a), there may be a higher demand for better quality products.  By having more knowledge of your customer, you can increase their value of the substitute good and offer a ‘premium’ price even though it is higher.