Rick Auto Parts Expansion

ECON545

Expansion Rick is interested in expanding his auto parts company to include many other potential customers. Rick would like to receive an informed opinion from someone who has had education on economical topics such as business cycles, unemployment, inflation, monetary policy, etc. before he commits to this endeavor. All of these topics and statistics will be taken into consideration and once informed Rick will make his decision accordingly.
Business cycles A business cycle can be defined as “The fluctuations in economic activity that an economy experiences over a period of time” (Investopedia, n.d.). On average different business cycles have lasted around 69 months with expansion this period lasting 58 months and contraction 11 (Investopedia, n.d.). Of the various cycles the early expansion stage is the one most suitable for starting and or expanding a business. During this stage there is documented evidence that businesses in fields such as technology, entertainment, and services experience an increased profit margin. During the contraction phase, which includes severities such as recessions, only services such as healthcare flourish (Investopedia, n.d.). GDP is an important concept to consider when expanding a business. It measures consumption and production amounts within a specific country within a given timeframe (Investopedia, n.d.). Although there are critics of this method who argue that not all transactions are reported to the government therefore the statistics are inaccurate; utilizing this equation GDP= C+X+I+NX, will give Rick knowledge on the overall health of the economy and it will allow him to make an educated guess regarding the best point in time for expansion (Investopedia, n.d.).
Unemployment
The unemployment rate will have a major effect on the prosperity of his business. If there is not enough money in circulation Rick will not turn a major profit. As of May 2015 the unemployment rate is 5.5 and has been decreasing since 2010 when it was much higher at 9.6 (data.bls.gov, n.d.). Given the steady decrease each year it is safe to predict that the trend will continue throughout the following years. The unemployment rate will need to be considered when determining price points for his products. Given that Rick already has a business and is only looking to expand it he should have a good understanding of what to consider when determining prices. With this new found knowledge Rick can determine whether he would like to proceed with the expansion now or wait to see if the unemployment rates drop any further.
Inflation and Deflation Both inflation and deflation can be seen throughout the business cycle. Inflation is an increase in costs overtime which causes the value of the dollar to be lower. Deflation can be defined as the exact opposite (Money-zine.com, 2015). Rick needs to consider which phase would be the best for him to introduce his expansion as they both have pros and cons. Those individuals working in the economy favor a small but constant state of inflation (Money-zine.com, 2015). This state is controlled by the Federal Reserve as they have access to monetary means and can influence the value of the dollar as well as the interest rates consumers are given when taking out loans (Money-zine.com, 2015). Going forward with his expansion desires during favorable economic conditions will be the key to his success and longevity.
International considerations Rick has mentioned interest in expanding his business to include not just more states in the U.S. but also other countries. With this endeavor there are a large number of factors to consider. One of the first tasks Rick needs to achieve is to determine exactly how much of his budget he can afford to invest internationally (Delaney, n.d.). He would run into a serious financial crisis if he just spent the money he deemed necessary and did not budget first. He also needs to determine the costs associated with shipping overseas and decide if the profit will be enough to make the cost worth it (Delaney, n.d.). In order to do this he would also need to ensure that he has an ample customer base in the locations he will be shipping to. Along those same lines he will need to define his target market as it would not be cost effective to attempt to service everyone (Delaney, n.d.). In order to do this he will need to research the locations he is considering expanding to and conduct survey’s determining the consumers’ needs. Based on the results of said surveys Rick will be able to determine which products are in need instead of assuming every service he offers is worth transplanting (Delaney, n.d.). This would also be a prime time for him to promote his services so that he will have a healthy consumer base awaiting his first shipment. One other important concept for Rick to address will be the follow up care his international clients receive. If they have complaints, concerns, or even praises there needs to be a way for his company to be contacted so that these topics can be addressed (Delaney, n.d.). Customer service will be a major point that can make or break his success overseas. With his headquarters being in the United States he will have to initiate extra efforts in order to keep his customer base satisfied and purchasing his products. He could possibly establish a separate headquarters in a different country but this may be a more pricey option than some others such as sending out follow up emails or curtesy phone calls to customers. He could also set up a hotline both stateside and internationally so that his customers always have a way to reach out and have their voices heard (Delaney, n.d.).
Monetary and Fiscal policy Monetary policy can promote faster growth as well as slow it down (Investopedia, n.d.). The growth rate is worth considering when expansion is involved because more growth equals increased profits. Fiscal policy, amongst other things, involves government spending and tax policy (Investopedia, n.d.). This will directly affect Rick’s business because he may need to recalculate expenses to incorporate tax increases. He may also be effected by stimulus packages which are introduced to promote spending in the economy (Investopedia, n.d.). These packages depending on what they entail could either be a hindrance or a positive boost to his expansion desires.
Recommendations
Based on the considerations previously stated at this particular point in time I would recommend Rick waits before he expands. He has many separate topics he needs to address before he moves forward with his idea. Although the unemployment rate is favorable, he needs to conduct research on the separate countries he desires to distribute his products in. He also needs to determine if there is even a need for his services in foreign countries. Another thing for him to consider is his financial situation. He needs to have a very sound business plan in place which takes into account any mishaps which have the potential to occur. Expansion itself is a major step for an entrepreneur but expanding to different countries entails a great deal more of planning, money, and research an at this moment I feel that Rick needs to take another 1-2 years to work out all of the kinks before he dives in head first.

References
Business Cycle Definition | Investopedia. (n.d.). Retrieved June 14, 2015, from http://www.investopedia.com/terms/b/businesscycle.asp
Current FAQsInforming the public about the Federal Reserve. (2014, October 30). Retrieved June 14, 2015, from http://www.federalreserve.gov/faqs/money_12855.htm
Databases, Tables & Calculators by Subject. (n.d.). Retrieved June 14, 2015, from http://data.bls.gov/timeseries/LNS14000000
Delaney, L. (n.d.). 20 Factors to Consider Before Going Global. Retrieved June 14, 2015, from http://www.entrepreneur.com/article/75138
Inflation and Deflation. (2015, February 16). Retrieved June 14, 2015, from http://www.money-zine.com/investing/investing/inflation-and-deflation/