Several market and economic as well as fiscal factors may influence the existence and operation of a company. Precision Machines for instance may be affected by the following economic and market factors;
Market factors.
Mergers and acquisitions
If Precision Machines Company competitors enter into a merger or one of the major competitors acquires the other, the company’s growth prospects may be severely hampered. Some of the ways in which the company will be affected are as follows;
Economies of scale.
The merged companies may enjoy increased economies of scale in terms of discounts on purchases, (Elvis Picardo, 2014). Bulk purchases made by the company may entitle the company to large purchase discounts offered by sellers which may help Precision Machines Company’s competitors to reduce its costs of production thereby allowing them to sell at cheaper prices than the company. As a result, the company’s sales might be reduced thereby threatening the existence of the company.
Increased market size.
Mergers and acquisitions may increase the size and market share owned by the merged companies. As a result, the companies are able to look after their interests better and more effectively than if they were individual companies. The companies can also acquire resources such as loans, land and buildings much easier than if they were individual companies, (Elvis Picardo, 2014). In essence they would have a greater competitive advantage than Precision Machines Company hence they may threaten the existence of the company by;
Economic factors.
The economic factor that might affect Precision Machines Company plan for the coming period is as follows;
Changes in the government’s Economic policy
The Government’s economic policy and market regulations have a great impact on the competitiveness and profitability of businesses. Policies on aspects such as business taxes, company law, and subsidies. In complying with such policies changes, Precision Machines Company plan for the coming period might be hampered in the following ways;
Changes in interest Rates
Change in interest rates is by far the most powerful tool with which the government can influence the operations of businesses. Interest rates will influence the cost of borrowing at which Precision Machines Company will acquire borrowed funds. Increased interest charges will also result in increased expenses which will in turn reduce the profit margin on sales made by the company (Frank Williams, 2016).
Higher rates also results in decreased spending by consumers as well as increasing inflation thereby reducing the sales that will be made by the company. Lower interest rates on the other hand will increase investment made by the company thereby increasing the company’s revenue.
Provisions on of subsidies
The government may implement a policy of giving subsidies to enterprises that operate in certain regions or certain market segments, (Frank Williams, 2016). If Precision Machines benefits from such subsidies, its costs of production will be reduced hence the company will be to sell at cheaper prices than its competitors. As a result, the company’s sales will be increased and the profit margin made on these sales will greater.
Regulations
Government regulations such as setting of market price ceilings and floors will also influence the economic plan that Precision Machines has for the upcoming period. Setting of maximum prices at which the company can sell its products may reduce the profit margin that the company makes on its sales thereby reducing the company’s profits.
References
Elvis Picardo. (2014). How Mergers and Acquisitions Can Affect A Company. Retrieved from
http://www.investopedia.com/articles/investing/102914/how-mergers-and-acquisitions-can affect-company.asp
Frank Williams. (2016). The Effects of Government Policies on Businesses.
Retrieved from
http://smallbusiness.chron.com/effects-government-policies-businesses-65214.html
