Econ Chapter 16 Application Questions
1. Discuss how the two cases in this chapter illustrate the major theme of this text: Changes in the macro environment affect individual firms and industries through the microeconomic factors of demand, production, cost, and profitability. Drawing on current business publications, find some updated facts for each case that support this theme.
In the Farnham text, “both the cases of McDonald’s in China and Wal-Mart in Mexico show how the interplay of microeconomic and macroeconomic factors influences managers’ competitive strategies. For both of these companies, expansion abroad was a strategic move that helped offset slowing growth in the United States. However, both cases show how the companies had to understand consumer behavior in these countries and the nature of competition from both local and international sources. Production and cost-cutting strategies that worked in the United States often had to be modified in the foreign setting. Both companies also faced risk from political and macroeconomic events in their developing markets” (Farnham 20101, pg. 458).
Some examples that support the theme for McDonald’s are: The change for McDonald’s in China to start implementing “drive-thrus” as part of their building infrastructure started to occur around the time that China’s $586 billion stimulus package came into affect. “This stimulus package was to be used toward building highways, railroads, and airports. Infrastructure spending had been increasing at an annual rate of 20 percent for the previous 30 years, a major factor behind China’s explosive economic growth. Domestic investment spending had contributed 4-6 percentage points of China’s 10 percent average annual growth rate. Thirty thousand miles of expressways were built since the late 1990s, while plans called China’s highway system to reach 53,000 miles by 2020, exceeding the 47,000 miles of the U.S. interstate system” (Farnham 2010, pg. 450).
Some examples that support the theme for Wal-Mart are:
In the Farnham text, “both the cases of McDonald’s in China and Wal-Mart in Mexico show how the interplay of microeconomic and macroeconomic factors influences managers’ competitive strategies. For both of these companies, expansion abroad was a strategic move that helped offset slowing growth in the United States. However, both cases show how the companies had to understand consumer behavior in these countries and the nature of competition from both local and international sources. Production and cost-cutting strategies that worked in the United States often had to be modified in the foreign setting. Both companies also faced risk from political and macroeconomic events in their developing markets” (Farnham 20101, pg. 458).
Some examples that support the theme for McDonald’s are: The change for McDonald’s in China to start implementing “drive-thrus” as part of their building infrastructure started to occur around the time that China’s $586 billion stimulus package came into affect. “This stimulus package was to be used toward building highways, railroads, and airports. Infrastructure spending had been increasing at an annual rate of 20 percent for the previous 30 years, a major factor behind China’s explosive economic growth. Domestic investment spending had contributed 4-6 percentage points of China’s 10 percent average annual growth rate. Thirty thousand miles of expressways were built since the late 1990s, while plans called China’s highway system to reach 53,000 miles by 2020, exceeding the 47,000 miles of the U.S. interstate system” (Farnham 2010, pg. 450).
Some examples that support the theme for Wal-Mart are: