Question 1
The terminology business cycle is used to denote the fluctuations in the economy in production or any other economic activities over a given period of time. These fluctuations occur around a long-term expansion trend and often involve changes over time between periods of high and vigorous growth and periods of relative stagnation (Tvede, 2006, p 7). The components of a business cycle include boom, recession and recovery. Boom refers to the economic period where businesses are experiencing large sales which results in high profit margins. During this period, the levels of employment are relatively high (Freiber, J. & Freiberg, K., 2007, p 41). Business entities also enjoy the benefits of having a larger work force. Often, recession sets in after boom. It is a period where there is extensive and a continuous drop in the demand of most goods and services (Nagle, 2009, p 12). Further, this period is characterized by numerous losses of employment for many individuals. Cutting down on the human resource is likely to result in lower yields and profits for a given business in the long-run operating in a normal ambience (Krugman, 2009, p 45). However, most business entities find the process of slashing employment of many people as a positive cost cutting undertaking. This is a positive and rewarding undertaking of the given business at that particular moment. Employment of many individuals who require salaries at the end of the month, with low sales and consequently poor profit postings, the businesses are likely to lose more.
A recession is said to have set in when there is a considerably low continuous fall of value for all goods and services in a period of six months consecutively. Recovery sets in after recession in the business cycle. A recovery is said to be in process when for six consecutive months, and after a recession, demand for commodities and services have an upward trend. With the recovery period, there is more money in the economy. This means that the government, companies and individuals as well have more disposable income, which results in an increase in quantities of purchase including impulse buying (Banerji, 2004, p 60). With the realization of higher sales, investment in businesses will get higher incomes. Employment prospects are also high at this period of the business cycle. Businesses positively influence the recovery period by engaging the public in confidence building (Brokaw, 2008, p 101). This process enables many individuals to regain their confidence and start or continue investing in the economy.
Question 2
The level of economic activity during recession goes substantially low. At this time, there is low demand for goods and services. This means there is less income generated for the business entities. Also, there is low investment by the organizations as the yield may not be guaranteed. Businesses experience very low profits or large losses in some instances. The businesses also tend to cut down on their production cost which may include the process of relieving individuals off their duties in the business (Hart, 2008, p 21). Companies, such as Davis’ devise ways of cushioning themselves with the recession. For instance, the fact that Davis’ textile supplies are used by other companies means that if the companies are faced with financial difficulties, outsourcing these products, which Davis’ produces, becomes an option. As a result, Davis’ is able to maintain or even increase its sales during this period. Davis’ also have employed clever methodologies of cost cutting on their production needs when the demand is low. With the availability of cheaper options of production inputs of some of its textiles products, the business easily adopts their use. Working positively against the current can prove rewarding. This is the case that Davis’ are in. Instead of closing down the shop and yielding to the forces of economy, the Davis’ company has continuously re-allocated production resources between its plants to make best use of its resources. This undertaking runs concurrently with the laying down or ‘moth-balling’ other plants or production lines which have less demand. This positive undertaking is also likely to make the firm increase supply during the recovery period.
The Davis’ company has also decentralized its management processes. This has been done by the giving of powers to the local managers to crucial decision making since they are best suited in understanding the influences of the local market in question. Another vital factor for the Davis’ service group has been to maintain a high financial position. This has been achieved by the borrowing of funds from banks. Further, the fact that there exist past good relations with the banks, the Davis’ Service Group can be able to easily access finance from the banks. The factor of good relations also extends to the shareholders of the Davis’ Service Group. The company has maintained a cordial relationship with the shareholders who have been enjoying a dividend of half its profits. This factor is very crucial during this time of recession.
Question 3
It is a positive thing that at the end of any economic recession, there comes a recovery period. Businesses should therefore incorporate methods and processes that will eventually lead to their consequent gaining during the recovery period. Various strategies can be undertaken by the businesses to ensure they are well in line with the recovery period. For instance, the use of cost effective methods of production during the recession period enables businesses to save on accrued profits or reduce the possibility of losses. This can be done through processes such as reducing employee number and also endorsing cheaper products as inputs for the overall production. An example of such an undertaking is illustrated by the actions of Davis’ Services Group. This business outsources its production requirements from China and the Far East. However, with the onset of the recession, the organization tends to get other cheaper sources.
Firms can also prepare for recovery positively through increasing their production. This process can be done by creating and expanding businesses in areas with emerging economies which often are not affected largely by the ongoing recession. For example during the recession the Davis Company continued to invest in new plants in other countries with emerging economies where there are clear opportunities. The new investment areas for the Davis’ Service Group are Poland and Czech Republic (“Managing Firms,” 50). With these new plants, the business entity in question will therefore reap high yields during and after the recovery period. This will go well in consequently offsetting losses previously suffered during the recession. Another positive undertaking by businesses during recession is the operation of existing firms more efficiently. This has the effect of ensuring the reduction of possibilities of losses during the recession period. This undertaking will also lead to the realization of better profits margins. This process may be effectively done by changing or creating new processes in the business. This includes decentralizing powers of managers and decision makers. Such is the case with the Davis’ company, where the powers of local manager have been enhanced since they are deemed to be best suited in making of crucial final decisions of the firm at certain levels and locations.
Question 3
Deere and Company limited based in Illinois is a business that deals with the manufacturing of equipment such as cars, tractors, and other products. The fact that it is situated in the United States economy means that it gets affected by the business cycle processes (Kelly, 1994, p 109). The company is highly successive and enjoys economies of scale over other similar companies not only in the United States but also worldwide. The company in cooperated various strategies in its management and production departments to curb or cushion themselves with the recession. One of the strategies used by Deere and Company limited was the use of further innovations. The business entity instead of cutting down on investment, continuously used other means of ensuring prosperity during the recession period. Deere and Company not only encouraged innovations in processes involved but also wholly endorsed them. The company used innovations to not only reduce the loss of commodities released in the market, but also to introduce better and advanced commodities to the market. This was aimed at attracting the much needed interest of the consumers. As a result, the consumers would be able to buy more of the goods, and hence substantially reduce the effects of the economic crunch that would have otherwise been fully felt. Deere and Company’s CEO Robert Lane in February, 2009 asserted that the company was experiencing and feeling the impact of the recession. This was during an annual shareholders meeting. However, one of the retirees of the company, with 36 years experience, asked about the possibility of fallout in the company gave a very positive answer that reflected Deere and Company strategies of dealing with the recession were clearly going to work. The fact that the Deere and Company also deals with a wide variety of products for consumers to choose at, ensures that they do not face the economic slump outright. The failure of other products can be offset by the large profits of other products within the company. This helped Deere and Company very much in ensuring they were sustainable in the market during one of the worst economic recession that has ever been experienced.
Deere and Company has a large number of employees. Despite the economic downturn of the recession, the company did not extensively lay off its workers. The company has more than 50,000 employees, a very large number of personnel working for a single company. The company did not embrace the common way of other companies whereby employees are laid off to cut on costs. As a result, Deere and Company Limited were able to stay abreast with the competition from other investors and consequently lead the pack. To cut down on the number of workers can often lead to short term benefits but may as well lead to long-term difficulties. In maintaining the number of employees, the Deere and Company relatively increased its production and sales as well. The policy of innovation was further heightened by this process whereby, employees were obviously involved in the discovery of better methods of production and other innovations subsequently (Weiner, 1991, p 47). The methods used by the Deere and Company to cushion the effects of the economic recession were quite unique and different compared to the ones used by the Davis’ Service Group. However, the two companies relatively concurred on the use of new technology as in the case of Deere Company, and the in cooperation and advancement to other new markets by the Davis’ Service Group. Though the processes and programs endorsed and practiced by the Deere Company may have worked for them, it is evident that they may not be the best options available. For instance, the laying off of workers should be a proper and effective way of reducing the cost of production and subsequently increasing the profit margin or avoiding of loss. The Deere Company should have used the approach of reducing the large number of employees it has. However, an assumption can be made that the company endorsed this methodologies as a result of past experience and testing of the modes to ensure success. This can be further proved from the statement given by a former employee about how the Deere and Company was competent in dealing with the recession.
REFERENCES
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