Managerial Economics

KINH T HC QUN L
TS. ng Vn ng vddangvn@yahoo.com 0913215061

Part One
The Role of Managerial Economics in a Dynamic Business Environment Vai tr ca kinh t hc qun l trong mt mi trng kinh doanh nng ng
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1.1.How Managerial Economics

value to the Organization?

adds

Providing information for decision making and planning. Assisting managers in directing and controlling business activities. Motivating managers and other employees towards organizations goals. Measuring performance of activities. Assessing the organizations competitive position.

1.1.Kinh t hc qun l (KTHQL) b sung gi tr cho cng ty nh th no? Cung cp thng tin cho vic ra cc quyt nh qun l v lp k hoch Gip cc nh qun l trong vic nh hng v kim tra cc hot ng kinh doanh Thc y cc nh qun l v cn b cng nhn vin hng ti mc tiu ca t chc o m kt qu thc hin nh gi v th cnh tranh ca t chc
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1.2. Economics and Managerial Decision Making

- Managerial Economics (ME) is on of the most important and useful course in your curriculum of studies. - Provide you with a foundation for studying other courses in finance, marketing, operations research and managerial accounting. - Economics is studying of the behavior of human beings in producing, distributing and consuming material goods and services in a world of scare recourses.
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1.2.Kinh t hc v vic ra cc quyt nh qun l -KTHQL l mt hc phn quan trng v hu ch trong chng trnh hc tp - Hc phn ny cung cp nhng nn tng cho vic nghin cu cc hc phn khc nh ti chnh; marketing; nghin cu tc nghip; k ton qun tr -KTHQL nghin cu hnh vi ca con ngi trong SX, phn phi, tiu dng sn phm v dch v trong mt th gii ang cn kit cc ngun.

- Management is the discipline of organizing and

allocating a firms scare resources to achieve its desired objectives. -Managerial Economics as the use of economic analysis to make business decisions involving the best use of an organizations scare resources. Managerial Economics is Economic tools for Todays Decision Maker

- Qun l l mn hc v t chc v phn b cc ngun lc ca cng ty nhm t mc tiu mong mun. - KTHQL cng vi vic s dng phn tch kinh t ra cc quyt nh kinh doanh lin quan n vic s dng mt cc tt nht ngun lc khan him ca mt t chc. -Kinh t hc qun l, ngy nay, l cng c ra quyt nh cho cc nh ra quyt nh

1.3. Managerial Economics and other courses

Strategy
Finance Marketing

Managerial Economics

M. Accounting

M. Science
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1.4 The Economics of a business

Four Stage modern of change: STAGE I
Cost plus

STAGE II
Cost management

STAGE III

STAGE IV

Revenue management

Changing Economics - Competition - Technology - Customer

Revenue

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1.4.Kinh t ca mt cng ty
Bn giai on thay i m hnh qun l: G I
Cng chi ph

G II
Qun l chi ph

G III
QL doanh s

G IV

Cc trng tm thay i - Competition Cnh tranh - Technology -- Cng ngh - Customer -- Khch hng

Doanh s

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STAGE I: 1970 The good old days - Dominance of the market-c tn th trng - High profit margins- Li nhun bin cao STAGE II: 1980 - Cost cutting -- Gim chi ph - Downsizing -- Gim quy m - Restructuring Ti cu trc - Reengineering Ti trang b

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STAGE III: From 1990 - Reducing work force Ct gim lao ng - Becoming more efficient Tr nn hiu qu hn - STAGE IV: - Companies strive for profitable growth Cc cng ty phn u v tng li nhun.

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Different periods different managerial methods

1945 1960 Focus on product, mass production and selling. Everything which is produced is possible to sell. Management is focused on distribution and selling. 1970The competition is harder. By forcing promotion efforts the companies try to focus on their unique advantages to choose their product. Management is focused on promotion.

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 1980- Even harder competition, more important to listen to the customers. The conception of market demand is established. The demand of the customers is clearer and the market has fallen to pieces of small segments, marketing segments.

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 1990The time for mass marketing is definitely over. The customer is able to satisfy their demand in many different ways. Management has transferred into customer orientation, where ethic and moral plays an important role. 2000Media explosion means that traditional promotion will become more and more complex and expensive. Cooperation between companies and brands are more and more common to influence small target groups. The importance of the commodity in term as environmental-friendly etc., has increased in order to strengthen the profile of the company as a good company. 16

Cc giai on khc nhau - cc phng php qun l khc nhau

1945 1960 Tp trung vo sn xut v bn sn phm i tr. Bt k th g sn xut c u c th bn c. QL tp trung vo phn phi v bn hng. 1970Cnh tranh khc lit hn. Bng vic thc y n lc qung b cc doanh nghip c gng tp trung vo nhng li th ring ca mnh khi khch hng chn mua sn phm. Qun l lc ny tp trung vo qung co sn phm.
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1980Cnh tranh khc lit hn. Lc ny lng nghe khch hng l iu quan trng hn. Khi nim v nhu cu th trng hnh thnh. Nhu cu ca khch hng r rng hn v th trng c chia thnh nhng phn on nh v phn on marketing. 1990-Thi k ca marketing i tr hon ton bin mt. Khch hng c th tho mn nhu cu ca mnh bng nhiu cch khc nhau. Qun l nhm nh hng khch hng, yu t o c v dn tc ng vai tr quan trng.
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2000S bng n v phng tin thng tin i chng ng ngha vi vic nhng cch qung co truyn thng tr nn ngy cng phc tp v t . S hp tc gia cc doanh nghip v nhn hiu cng tr nn ph bin nhm gy nh hng n nhng nhm mc tiu nh. Tm quan trng ca hng ho v cc mt nh thn thin vi mi trng, tng ln nhm nng cao hnh nh v mt doanh nghip hon ho.
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1.5. Brief Review of Important Economic Terms as Concepts Economics

Microeconomics
-Individual Consumers -Producers in specific markets

Macroeconomics

-Analysis of the domestic product -Unemployment - Inflation

-Supply and demand in individual markets

-Pricing of specific outputs and inputs -Production for individual goods and services

-Fiscal and monetary policy

-Trade and finance relationships among nations 20

1.5. Tng quan v tm quan trng ca cc vn kinh t c coi nh cc quan im Cc hc thuyt kinh t Kinh t hc v m
- Phn tch sn phm quc ni - Vn tht nghip - Vn lm pht - Chnh sch ti chnh v tin t

Kinh t hc vi m
-Ngi tiu dng -Nh SX trn 1 th trng c th

-Cung v cu trong nhng th trng ring

-nh gi cho nhng SP v cc u vo c th

-Sn xut v cung cp cc mt hng v dch v c th

-Quan h Thng mi v ti chnh gia cc quc gia

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The key term is scare resources Scarcity can be defined as a condition in which resources are not available to satisfy all the needs and wants of a specified group of people There are three separate choices 1. What goods and services should be produced and in what conditions? 2.How should these goods and services be produced? 3.For whom should these goods and services be produced?
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Vn mu cht l cc ngun lc ang cng khan him. Tnh trng khan him c nh ngha l cc ngun lc hin c khng th p ng mi nhu cu v mong mun ca nhng nhm ngi c th. y c 3 s la chn 1) Sn phm no c sn xut , dch v no c cung cp v trong nhng iu kin no? 2) Nhng SP v DV c SX nh th no? 3) Nhng SP v DV c SX v cung cp cho ai?

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RESOUCE :Ngun lc Land t ai Labor Lao ng

Needs and Wants of population Nhu cu v mong mun ca dn c

Entrepreneurship
and Management skills- DN v Qun l

DEMAND

CU
SUPPLY

CUNG
Figure 1.3. Supply, Demand, and Scarcity
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The Case of Global Foods, Inc.: Situations and Solutions 1. Outlook for the industry 2. Market size and structure: 3. Manufacturing, packaging, and distribution

4. Transportation and distribution

5. Pricing, advertising, and promotion 6. New products 7. Financial considerations
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Hy nghin cu tnh hung cng ty Thc phm ton cu ra quyt nh v kinh doanh sn phm mi. Sau bui tranh lun Hi ng qun tr, cng ty xem xt cc mt sau y trc khi quyt nh cung sn phm mi ra th trng. 1. nh gi ton ngnh 2. Nghin cu quy m v c cu t trng 3. SX; ng gi v phn phi sn phm 4. Vn chuyn v phn phi 5. nh gi; qung co v xut tin thng mi 6. SX sn phm mi 26 7. Cn nhc v mt ti chnh

There are essentially 3 ways a country can answer the questions of what, how and for whom. 1. Market process: supply, demand and material incentives 2. Command process: Government and central authority (political process) 3. Traditional process: Customers and Traditions

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C 3 cch c bn mt nc c th tm gii php cho cc vn : SX ci g; SX nh th no v SX cho ai? 1) Tnh hnh th trng: cung; cu v cc khuyn khch vt cht 2) Qa trnh iu hnh: Chnh ph v cc trung tm quyn lc (qu trnh chnh tr) 3) Truyn thng: Ngi tiu dng v truyn thng.

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SUMMARY Managerial Economics is a discipline that combines microeconomics theory with management practice. -Microeconomics is the study of how choices are made to allocate scare resources with competing uses. -An important function of a manager is to decide how to allocate a firms scare resources. -At pesent problem for all companies are: Competition Technology 29 Customers

Tm li Kinh t hc qun l l mn hc phi hp cc l thuyt kinh t vi m vi qun l thc t. -Kinh t vi m l vic nghin cu v cc la chn phn b cc ngun lc khan him trong mi trng cnh tranh - Mt chc nng quan trng ca nh qun l l quyt nh phn b cc ngun lc khan him ca cng ty nh th no. -Ngy nay cc cng ty ang i mt vi cc vn sau: Canh tranh Cng ngh Khch hng
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Part 2
The Firm and Its goal Cng ty v mc tiu cng ty

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2.1.The Firm
The traditional theory of economics defined the firm as a collection of resources that is transformed into products demanded by consumers. Production cost is the cost at which the firm produces its products. In dealing through the market, the firm incurs transaction costs. The difference between the revenue it receives and the cost it incurs is profit.
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2.1.Cc hc thuyt kinh t coi cng ty (Hng) nh l s tp hp cc ngun lc m c chuyn i thnh sn phm m ngi tiu dng c nhu cu. Chi ph sn xut l mc chi ph m vi mc cng ty SX ra SP. Khi a ra th trng th cng ty phi b thm chi ph lun chuyn Chch lch gia doanh thu v chi ph l li.

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2.2. The economic goal of the firm and optimal decision making
- Principal objective of the firm is to maximize its profit. - The other goals: market share; revenue growth; profit margin; return on investment; customer satisfaction; shareholder value (maximizing the price of its stock...). - Non-economic objectives: Provide a good products (services) to customers; Act as a good citizen in our society; provide a good place for employees to work...
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2.2.Mc tiu kinh t ca cng ty v vic ra quyt nh ti u -Mc tiu c tnh nguyn tc ca cng ty l ti a ha li nhun. - Cc mc tiu khc l : th phn; tng doanh s; bin li nhun; li so vi mc u t; s hi lonhf ca khch hng; gi tr mang li cho cc c ng ( ti a ha gi c phiu trn th trng chng khon..) -Cc mc tiu khng mang tnh cht kinh t :Cung cp SP v DV tt cho ngi tiu dng; Hnh ng nh mt cng dn tt trong x hi: to ra ch vic lm tt cho ngi lao ng . 35

In management, optimal decision is one that brings the firm closest to this goal. So to maximize its profit (or minimize its loss) a firm should price its product at a level where the revenue earned on the last unit of a product sold (marginal revenue) is equal to the additional cost of making this last unit (marginal cost). Todays markets and institutions constrain companies in many ways that did not exist in the past. Therefore, companies must concern themselves with creating employee and customer satisfaction and maintaining social responsibility to a much higher degree than in the past

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Trong qun l, quyt nh ti u l quyt nh a cng ty tin st vi cc mc tiu .Do ti a ha li nhun ( hoc ti thiu ha l) mt cng ty cn t gi SP ca mnh mc mc doanh thu c c t sn phm cui cng c bn (doanh thu bin) tng ng vi chi ph b sung lm ra sn phm cui cng (chi ph bin). Tnh hnh kinh t v th trng ngy nay buc cc cng hnh ng, theo mi cch, phi khc trc y. l cc cng ty phi quan tm n vic to ra s hi lng cho ngi lao ng v khch hng v duy tr cc trch nhim x hi mc cao hn trc y.
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Rules of Selecting The Minimax Rule - manager chooses the alternative that guarantees a minimum gain or avoids maximum loss The Maximax Rule - manager opts for the alternative with the highest possible gain, regardless of risk The Average Rule - the alternative chosen is in the middle between maximum gain and minimum loss

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Cch la chn mc tiu -La chn ti thiu: Nh qun l chn cc png n so snh t mc li t nht nhng trnh tn tht ln nht - La chn ti a: Nh qun l chn phng n cho php t li ch ti a, bt chp ri ro -La chon trung bnh: Phng n c la chn t mc trung bnh gia mc li ln nht v tn tht trung bnh

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In managerial optimal decision is one that brings the firm closest to this goal. So to maximize its profit (or minimize its loss) a firm should price its product at a level where the revenue earned on the last unit of a product sold (marginal revenue) is equal to the additional cost of making this last unit (marginal cost).

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DEFINITION - Total revenue: tng doanh thu - Total cost: tng chi ph - Variable cost: chi ph kh bin - Fixed cost: chi ph c nh- bt bin

- Marginal cost: Chi ph bin - Manufacturing overhead: Chi ph sn xut chung

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- BEP- Break even point: im ho vn l im ti c lng sn phm lm cho tng doanh thu bng tng chi ph
- Contribution margin :hiu s gp l phn cn li ca doanh thu sau khi tr chi ph kh bin (Contribution margin= Total revenue-Variable cost)

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Maximizing the wealth of stockholder - Evaluation of a stream of cash flows - Time value of money: a dollar earned in the future is worth less than a dollar earned today.
We are going to discuss the matter of Time value of money by Vietnamese in the following slides.
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 Xt v tnh thi gian ca tin u t V sao tin t c tnh thi gian? Mt ng tin c gi tr khc nhau vo 2 thi im khc nhau. Khong thi gian cng di v c hi sinh li cng cao th s khc bit trong gi tr gia 2 thi k cng ln. C 3 l do chnh l gii vn ny: a) Chi ph c hi. ng tin lun c c hi sinh li.

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Khi ta a ng tin u t vo mt vic hy vng kim c li, th ng thi lc ta b i c hi kim li mt d n khc , ch t th cng thu c li bng vic khng cn u t m gi s tin vo ngn hng. Cng nh vy, nu ta s dng tin cho mt mc tiu s dng no th ta phi chu hy sinh s sinh li ca ng tin .
Dng tin u t vo mt d n l vic hy sinh li ch ngy hm nay hy vng mt li ch ln hn ngy mai.
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b) Tnh lm pht
Do trong nn kinh t c lm pht, nn ng tin b mt gi th hin sc mua ca n.

c) Tnh ri ro
Trong hot ng SXKD lun lun c ri ro, ru

ro cng cao, kh nng thu li nhun cng

ln.High return, high risk l bi hc u tin cho nhng ngi lm kinh doanh v nhng ngi

hc v qun tr kinh doanh.

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- K thut chit khu ng tin

C th ni rng chit khu ng tin l ci trc ca ti chnh hin i tr thnh kin thc cn bn khng ch dnh ring cho cc nh qun tr ti chnh m l ca bt k ai, bt k lnh vc hot ng no. Khi mt ngi bnh thng t bt k hp ng vi mt cng ty bo him nhn th,th cng tc l ngi cho vay tin vi mt li sut thp. Do vy, phi bit phng php chit khu ng tin.
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a) Ga tr tng lai ca mt ng
Nu ta gi ngn hng 100 n v tin t, li sut 10% nm, mt nm sau ta s c:

100 +100 x 10% = 100(1+10%)= 110

Ta li tip tc gi s tin 110 ngn hng, mt nm sau na, ta s nhn c: 110 + 110x10% = 110(1+10%) = 121 T trn ta c th vit:

110= 100(1+10)
121= 100(1+10%)(1+10%) = 100(1+10%)2
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Khi qut li, nu t PV = 100 FV2= 121 ; r = 10% ; n = 2 Ta c : FV2 = PV(1+r)2 Tng t ta c FV 3,FV4,FV5,... v

FVn = PV(1+r)n ,

(2-1)

Trong : PV gi tr s tin hin ti-(prensent value); r li sut (rate), n s nm FVn gi tr tng lai (future value) ca s tin PV sau n nm, vi li sut r, k ghp li l nm; (1+r)n cn c gi l h s tch lu, hay h s li 49 kp, lun ln hn hay bng 1

Tnh hung : -Bn s c bao nhiu tin sau 4 nm tt nghip kha hc, nu u nm th nht bn mang 2 triu ng gi vo ngn hng, vi li sut c nh 10% nm? FV = PV(1+r)n FV = 2(1+10%)4 = 2 X 1,46= 2,92 triu - t vn mt cch khc: li sut no lm cho s tin 2 triu thnh 2,92 triu sau 4 nm? 1/ 4 4 2,92 = 2(1+r)4 (1 r) 1,46 1,46 1,1 r= 0,1 hay 10%
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- Phi mt bao nhiu nm, tng doanh thu ca DN gp 2 ln hin nay, nu DN duy tr tc tng trng u hng nm l 7,2%? - p dung cng thc (2-1)
2=(1+7,2)n = (1,072)n

Ly logarit t nhin (e=2,7183) hai v

Ln2 = nLn1,072

Suy ra n = 10 nm
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Dng EXCEL tnh nhng s liu cn thit:

1) Bnh phng, cn s:
- Lu tha: Shift v du ^, v d tnh 23, vo EXCEL ta nh=2^3, OK, kt qu l 8 - Cn s: Shift v du ^, m ngoc n, nh phn s vi t s l 1 mu s l bc ca cn, ng ngoc n v OK. V d tnh
3

8
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ta vit nh sau: =8^(1/3), OK, kt qu l 2

2) Hm Ln. V d mun tnh Ln88, ta nh

=Ln(88) ,OK kt qu l 4,48 3) Hm FV. Trong EXCEL, chn hm (Financial), chn FV.Chng hn tm gi tr tng lai ca 100,vi li sut 10%, s nm l 3, ta s c FV=133,1. Ch l phi vit hm FV nh sau: -FV (li sut, s thi k,, s tin).

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Ch : - Phi c du tr trc FV, tc l vit : - FV( ...) - Gia s k v s tin c 2 du phy, tc l vit : -FV(C1,C2,,C3). - Trn mn hnh ch type dng khai bo thi im thanh ton, nu u k th ghi 1, nu cui k th trng (mc nh)

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4) Hm Goal seek (tm kim kt qu).

Sau khi tnh FV ca 100 sau 3 nm vi li sut 10% l 133,1, by gi mum bit li sut 12% th FV s l bao nhiu, ta ch cn sa 10% thnh 12%, nhn OK ta c kt qu mi. Tng t ta c th i s nm... Tnh r trong hm FV: Nu t cu hi l nu FV =172 trong 3 nm th li sut phi bao nhiu ta dng hm Goalseek.
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b) Ga tr hin ti ca ng tin T cng thc (3-1) ta suy ra:

PV

FV (1 r ) n

(2-2)

Trong :r--chit khu hay li sut. Ch rng khi tnh gi tr hin ti, ngi ta gi r l sut chit khu (discount rate), khi tnh gi tr tng lai ngi ta gi l li sut, c khi gi l sut sinh li ca ch s hu (return of equity) hay chi ph s dng vn (cost of capital).
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Ta c th vit mt cch khc:

PV FV

1 (1 r ) n

Ta d dng thy

1 (1 r ) n

l h s chit khu

Ngc li vi h s tch lu, h s chit khu lun lun nh hn hoc bng 1( <,=1), ngha l gi tr hin ti lun nh hn hoc bng gi tr tng lai).

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Ch rng trong cng thc (2-2) r v n nm mu s,tc l thi gian cng d,sut chit khu cng cao th gi tr hin ti PV cng thp, cn trong cng thc (2-1) th n cng di, r cng cao th gi tr tng lai cng ln.

Tnh hung : Tnh gi tr hin ti PV. Sau 5 nm, bn s nhn c s tin l 1610 n v tin, th by gi gi tr ca n l bao nhiu, vi c hi sinh li ca ng vn l 10%/ nm?
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p dng cng thc ta c:

Trong 0,621 l h s chit khu .Nu d n ha em li cho bn 1000 ng sau 5 nm, th bn phi hiu rng : n ch bng 621 ng hm nay thi, tt nhin gi nh rng li sut ngn hng l 10% nm.
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Tnh PV theo EXCEL.Ta c th tnh PV theo cc

cch thng thng, nhng tnh nhanh, ta s dng EXCEL.Cch tnh nh tnh hm FV:

-PV(sut chit khu, thi gian,,gi tr tng lai)/OK, c th, nu trong EXCEL, ta ghi:
A1:10% A2: 5 A3: 1610

=-PV(A1,A2,,A3) OK ,ta s c 1000.

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We have discussed the matter of Time value of money . The value of the stockholders wealth today dependent on discount rate (or interest or cost of equity capital), in its turn the discount rate in particular is affected by risk. Financial theory differentiate various types of risk. Risk Definition The volatility of future income and economic value of equity that results from changing environmental and market conditions.

Types of Risks:
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Business Risk Strategic Risk Liquidity Risk Types of Risk Operational Risk Market Risk Credit Risk Financial Risks
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The are two major types: business risk and financial risk. Business risk attends all business organization with vary degrees. Financial risk concerns the variation in return that induced by financial leverage. What is Financial risk ? Financial risk signifies the proportion of a company financed by debt.
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n by ti chnh (FL: financial leverage) n by ti chnh l khi nim dng din t cch th hin t l n v t l vn ch s hu so vi ti sn. Theo cch ni vn hoa hn, th hin cu trc ti chnh tc hot ng huy ng vn cho qu trnh u t vo ti sn. Ta c ng thc cn bn ca k ton: Tng ti sn = N phi tr + Vn ch s hu (Asset) = (Debt) + (Equity) A = D +E
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V d: C s liu v dng lu ngn ca Cng ty B nh sau:

Bng 2-1
Nm th Lu ngn tng u t 0 1

- 1000

1200

u nm 1 (tc cui nm 0) chi ra 1000 (n v tin), cui nm 1 mang v 1200. Gi nh sut chit khu = 0%, tc ta khng cp n gi tr thi gian ca tin t, sau mt nm cng ty s c li 200 (= 1200 1000), thu sut = 0%.
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Trng hp 1: Cng ty b 100% vn u t, tc vn ch s

hu l 1000 th sut sinh li ca vn ch s hu (Return

on equity--ROE) s l: ROE = Li rng/ Vn ch s hu

= 200/1000 = 20%. Trng hp 2: Cng ty b 60% vn, tc vn ch s hu l 600 v i vay 40%, tc 400 vi li sut tin vay 8% nm. Bng lu ngn by gi nh sau: Bng 2-2
Nm 0 1

Lu ngn tng u t
Gc v li vay , vi li sut 8% Cng

- 1000
400 -600

1200
- 432 768
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Dng cui cng chnh l dng lu ngn ca vn ch s hu, iu ny ngha l ch s hu ch b ra 600 (n v tin) vn v thu v 768. Nh vy, ch s hu c li 168 ( = 768 600). V sut sinh li ca vn ch s hu ROE by gi (khi c n vay) s l: ROE = Li rng/ Vn ch s hu = 168/600 = 28%

Bn c thy rng dng lu ngn u t vn khng i, tc khng thay i mt cht no trong hot ng kinh doanh, sut sinh li ca vn ch s hu tng ln (t 20% ln 28%) hon ton do tc ng ca n cn n.

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FL trong trng hp ny l bao nhiu? = A/E = 1000/600 = 1,67 ln hoc, FL = 1+ D/E = 1 + 400/600 = 1 + 0,67 Nh vy, ch cn bit t l N trn Vn l bn s bit n by ti chnh bng cch ly t l cng (+) cho 1. Vit theo dng t l D/A v E/ A ln lt l t l n vay v t l vn ch s hu chim trong ti sn. V mt s hc, tng ca chng bng 1, v D + E = A. Lm mt vi bin i v c th vit n by ti chnh FL theo cc cch sau: FL = D/E, t l n trn vn ch ch hu

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Vit nh vy hm rng, c bao nhiu ng vn ca nhng ngi cho vay tham gia cng vi mt ng vn ch s hnh thnh nn ti sn.

Hoc vit FL theo cch trong phng trnh DuPont, ta c: FL= A/E t l ti sn trn vn ch s hu
M: A = E + D, nn c th vit FL li nh sau: FL = E + D/ E = 1 + D/E

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Phn tch n by ti chnh

Ta cng c th gi n by ti chnh l h s ri ro ti chnh (financial risk), h s ny cao, hiu qu mang li cho ch s hu cng ln trong trng hp n nh khi lng hot ng v kinh doanh c li. H s thp, mc an ton cng m bo trong trng hp khi lng hot ng b gim v kinh doanh thua l.

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Ta quan tm n vai tr ca n by ti chnh vi tc ng ca n ln sut sinh li ca vn ch s hu ROE.

Trong cch vit sau cng, tc cch vit n by ti chnh trong phng trnh ROE, tc
FL = A/E, trn t s l ti sn (A) di mu s l vn ch s hu (E), ta thy n by ti chnh s tng (by cho ROE tng theo) trong hai trng hp:

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(i) Gi nh E khng i hoc tc tng E chm hn A, khi A tng s lm cho c phn s, tc FL tng. Nhng A = D + E, nn A tng ngha l D (n ) tng. (ii) Gi nh A khng i hoc tc gim A chm hn E, khi E gim s lm cho c phn s tng , tc FL tng. V cng vy, do A = D + E, nn E gim ngha l D (n) tng.

C hai trng hp gii thch s gia tng n by ti chnh u do nguyn nhn l tng n. Ni nm na l, tng n th s tng n by ti chnh v dn n tng sut sinh li ca vn ch s hu. V l do , ta cn gi n by ti chnh l n cn n.
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Mt khc,ta cn c th xem xt t kha cnh thu khi phn tich ch tiu li nhun trc thu v li vay (Earning befor interest and tax-EBIT). Phn tch n by ti chnh dng o s thay i ca li nhun sau thu ca vn ch s hu. Ch s hu (cc c ng) c chia li rng (ch tiu cui cng trn bo co thu nhp). Nh cho vay c tr li vay. Nhng li vay c tnh vo chi ph trc khi tnh thu thu nhp, nh vy li vay to ra mt l chn thu(L chn thu= Li vay x thu sut).
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Nh vy ngha ca n by ti chnh l n by ti chnh cng ln s tng sut sinh li ca vn ch s hu khi hot ng c hiu qu EBIT>Li vay. Ngc li, khi hot ng khng hiu qu mi ri ro ch s hu phi gnh ht.

74

Nhng ch n cng l ngi gp phn vn vo nhng ch c tr li , phn d ra l phn thng cho ch s hu. Mt phn thng ri ro. Ti sao? n gin v vn ch s hu chu ri ro cao hn nn xng ng hng li sut cao hn. Qu vy, bn hy hnh dung khi Cng ty ph sn, ch n l nhng ngi c chia trc, v ch s hu l ngi cui cng. Mt khc, nu do ri ro th trng (ri ro kinh doanh) li sut hot ng kinh doanh khng t cao m thay vo , ch t thp hn. Lc ny, ch n vn thu phn mnh, trong khi , ch s hu s khng c g c.
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Khng qu li c th ni rng, nguyn l ca ti chnh hin i l nhm gii quyt mi quan h v nh i gia: sut sinh li v ri ro (return & risk). By gi ta tr li vn ang tho lun: How do we obtain a measure of stockholders wealth?

Dividends represents the return on the stock generated by the company. We have the following:

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D1 (1 k )

D2 (1 k ) 2

D3 (1 k )3

...

Dn (1 k ) n

(2-3)

Where P- Present price of the stock D Dividends received per year (in year1,2,3..n k - Discount rate applied by the financial communityas the cost of equity capital of the company. If it is assumed that dividends will remain the same year after year, then the price of each share of stock can be calculated as a perpetuity with the following formula: P = D/k In the case where dividends grow at a constant rate each year, the formula for share price becomes: P = D1/(k-g) , (2-4)
77

Where D1 the dividend to be paid during the coming year g - the annual constant growth rate of the dividend expressed as a percentage . Multiplying P by the number of share outstanding gives the total value of the company common equity. For example assume that a company expects to pay a dividend of $4 in the coming year, and expects dividends to grow at 5% each year. The rate at which stockholder require earn from this stock is 12%. There is 1 million shares 78 outstanding.

We would expect the price of each share to be: P= 4(0,12-0,05) = 4/0,7= $57.14 The value of the companys stock would be $ 57.14million. The variable in equation may have to change. Since k is a function of the companys level of risk, the company may be able to decrease k by lowering the riskiness of its operations or by changing its leverage.

79

It can affect g and D by retaining more or less of its earnings. By retaining a larger portion of its earnings and devoting smaller portion of its earning to dividends the company may be able to decrease its growth rate g.

2.3. The market value added and economic value added The market value
- In (2.2) we known that wealth of stockholder = price per share quoted in the stock market x number of shares outstanding.
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- Such a measure does not show the wealth that has been created by the company stockholder has contributed more capital than the stock was worth currently. - New measure market value added (MVA) has been developed. MVA represents the difference between the market value of the company and the capital that investor have paid into the company. - Where a companys market value is less than the contributed capital, investors wealth has actually been destroyed.
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- Every company closes its books annually and knows what its profits are. - For the public company every body can see the published statement and its bottom line, where its profits are showed. The main published statements of the company are: Balance sheet Income statement Cash flows statement Financial statement Let see the Income statement of a company:
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Bng 2-3 Doanh thu (-)Gi vn hng bn-COGS (=)Li nhun gp (-)Chi ph kinh doanh (-)Khu hao (=)Li nhun trc li vay v thu (-)Li vay (=)Li nhun trc thu (-)Thu thu nhp doanh nghip (=)Li nhun rng (-)Chi tr c tc (=)Li nhun gi li Revenue Cost of goods sold Gross profit Operating cost Depreciation EBIT Interest EBT(Earning before tax) Corporate tax (income tax) 955 644 311 85 99 127 9

118
41 77 47 30

Net profit
Dividens Retained Earning

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The financial statement has been done in conformance with generally accepted accounting principles (GAAP), but profits,as reported on an earnings statement,are not necessarily definitive. Why? A few examples will suffice: 1- The are different way of recording depreciation: - Straight-line depreciation (SLN)- Khu hao ng thng - Double declining balance (DDB)- KH gim dn theo h s kp
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- Accelerated depreciation -Khu hao nhanh - Sum-of-year digits (SYD) KH theo tng k s - ... 2- The are various way of recording inventories: FIFO (first in, first out) and LIFO ( lastin-first out)

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V d

Tnh hnh nhp kho ca mt Cng ty Bng 2-4 S lng sn phm 400 250 80 450 n gi (1000/SP) 10 12 14 15 Thnh tin (1000 ) 4.000 3.000 1.120 6.750

Ngy

1/1 10/2 5/3 6/5

Tng

1.189

14.870
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Trong thng 6 xut kho 400 n v SP, Ga bn 20.000 /SP. Bo co thu nhp theo 2 phng php hch ton hng tn kho: Bng 2-5

n v (1000 ) Doanh thu Ga vn hng bn Li gp Chi ph bn hng Li nhun trc thu Thu thu nhp Li sau thu

FI FO 8.000 4.000 4.000 1.800 2.200 660 1.540

LI FO 8.000 6.000 2.000 1.800 200 60 140 87

Various way of recording inventories gives different result of the profits that were showed in the bottom line of the report. 3-Amortization of such items as goodwill and patents can be recorded differently. So every body agrees that profit equal revenue minus cost (and expenses). But matter is what is the cost? An accountant reports costs on historical basis. The economist is concerned with the costs that business considers in marking decisions. Economic costs include not only the historical costs and explicit costs recorded by the accountants, but also the replacement costs and implicit costs, that have described in chapter 3.
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Qua s liu bng sau, ta xt xem ti thi im 31/12/nm 2006, cng ty no c tnh thanh khon cao hn Hng mc 1-Li rng trn bo co 2-Khon phi thu 3-Khon phi tr 4- Hng tn kho 5- Khu hao Cng ty A 150 60 10 60 10 Cng ty B 100 10 70 10 50

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Nhng vn rt ra t phn 2
1- Doanh nghip cn xc nh r mc tiu lu di v mc tiu ngn hn r rng. 2- Cc quyt nh thc hin mc tiu li nhun ch c th t c mt cch bn vng khi cc quyt nh xt n s tc ng i vi nhng ngi chu nh hng trong DN v c x hi. 3- L nh qun l phi bit thc cht ca cc ch tiu kinh t m mnh s dng cng nh cng b (nht l i vi cc cng ty c phn, cng ty cng chng). 4- Hy cn thn vi cc bo co ti chnh ca chnh DN mnh khi xy dng chng v vi cc bo co ti cnh ca cc DN khc, khi s dng chng. Lu rng c nhiu DN thc t l ang i ti ph sn, nhng 90

do k thut k ton,trn s sch vn ghi c li nhun (li nhun k ton) nhiu nm trc . Chng ta u nh vic Cng ty ENRON b ph sn, nhng trn bo co ti chnh cui cng ca ENRON nm 2000 vn ghi li nhun rng 979 triu la, cn nm 1999 th cn 893 triu. C l do vy m hin nay, trong h thng bo co, ngi ta bt buc c bo co v lu chuyn tin mt (cash flows). 5- Nh qun l cn bit s dng cc n by kinh doanh v n by ti chnh.

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Part 3
The Theory and Estimation of Cost

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3.1.The Importance of Cost in Managerial Decision -Cost is not a simple concept. It is important to distinguish between four different types fixed, variable, average and marginal. -Cost has become particularly important in recent years. Why? as increasing competitive pressures; changing technology and customer demand have made it harder for firms to achieve high profit margins.
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- Costs & Profits Profits = Revenues Costs How revenues relate to output How costs relate to output Then we can decide how profits vary with output and so what output levels are most profitable.

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Manufacturing Cost Flows

Balance Sheet Inventories
Raw Material Work in Process Cost of Goods Sold

Costs
Material Purchases Direct Labor

Income Statement Expenses

Manufacturing Overhead

Finished Goods

Selling and Administrative

Period Expenses

Selling and Administrative

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3.2. Cost Structures Distinction 3.2.1. Historical vs replacement cost Suppose a manufacturer of a video game has an inventory of $ 750,000 worth of 16-bit chips , but a shortage made market value up to $1,000,000.So by using this inventory, it is forgoing the opportunity to receive $1,000,000 for sale. If it decided to buy chips,it would have to pay $1,000,000 for the same quantity that it hold in inventory.
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Historical cost is $ 750,000 Replacement cost is $1,000,000 3.2.2.Opportunity and out-of-pocket cost -Opportunity cost is the amount or subjective value that is forgone in choosing one activity over the next best alternative. Opportunity cost indirect cost or implicit cost. -Out-of-pocket cost direct cost or explicit cost In the case if the firm decides that it needs $1,500,000 worth of chips (at current market prices) It can infer that this figure consists of $1,000,000 in opportunity cost and $500,000 in additional out-of pocket cost.
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3.2.3.Sunk versus incremental cost Suppose that something happens to cause the value of chips to fall to $550,000.Under these circumstances, how much will it cost the firm to use the inventory for which it originally paid $750,000? If it decides to sell the inventory, it will receive at the most only $550,000,if it decides to go ahead with the project, the incremental cost of using the inventory will be $550,000 and not $750,000. And the $200,000 difference between these two sums is sunk cost to the firm. Incremental cost is the part of cost that is affected by the decision.
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For example, a new technology suddenly rendering the entire inventory of chips obsolete.In this event, no one would want to buy the chips at any price, and the value of this inventory would be reduced to zero. The entire $750,000 investment in inventory would considered a sunk cost to the firm. 3.2.4. Variable and fixed costs Fixed costs is the costs that remains the same even when the activity level changes, but fixed cost per unit goes down as activity level goes up. Independent of output level
examples:
cost of borrowed money rental or mortgage payments on office/factory space depreciations. Time payment for labour,

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Variable costs is the cost that changes as the activity level changes, but variable cost per unit remains the same over wide ranges of activity. Depend in some way on production levels within the organization
- examples:
materials some labor (depends on the contract) power

Note that the line between fixed and variable costs is not always sharp and costs may be fixed for one analysis and variable for another
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Cost Classifications
Table 3-1
Summary of Variable and Fixed Cost Behavior
Cost Variable In Total Total variable cost changes as activity level changes. Total fixed cost remains the same even when the activity level changes. Per Unit Variable cost per unit remains the same over wide ranges of activity. Fixed cost per unit goes down as activity level goes up.

Fixed

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3.2.5.Direct and Indirect Costs

Direct costs
Costs that can be easily and conveniently traced to a product or department.

Indirect costs
Costs that must be allocated in order to be assigned to a product or department. Example: cost of national advertising for an airline is indirect to a particular flight.
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Example: cost of paint in the paint department of an automobile assembly plant.

3.3.5.Marginal Costs and Average Costs

The extra cost incurred to produce one additional unit. The total cost to produce a quantity divided by the quantity produced.

Marginal and average costs are largely a function of cost behavior -- variable and fixed costs.
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 d hiu phn ny v cc phn trn, chng ta nghin cu v d sau y: Table3-2

Khon mc Doanh thu (10.000SP) Chi ph kh bin gm: Ga vn hng ho Vn chuyn Bao b, ng gi Lng b phn bn hng Hiu s gp (= DT-kH BIN) Chi ph bt bin Gm: Thu nh Thu my mc, TB Khu hao TSC Qung co Lng qun l Li trc thu v li vay (EBIT) Tng s (triu) 50 30 20 3 3 4 20 15 2,5 1,5 4 4 3 5 1 sn phm (ng) 5.000 T l % 100

2.000

40

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Theo s liu bng trn ta c: - Tng chi ph Total cost : 45 tr. - Chi ph kh bin- variable cost: 30 tr. - Chi ph bt bin- fixed cost : 15 - Chi ph b/q - average cost : 4.500 Trong v d trn, nu sn xut thm 1 sp, tc l sp th 10.001 th chi ph khng cn l 45 triu m chng hn s l 45 triu 200 ngn, th chi ph cn bin (marginal cost) ca sp l:200 ngn.Nu khi sx sp th 10.002,tng chi ph l 45triu 390 ngn th chi ph cn bin (marginal cost) ca sp l:190 ngn. Vi gi bn v chi ph kh bin tnh cho 1 n v SP khng i,khi tng s SP ln 10%, ta xem li v cc mi quan h s ra sao?
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Bo co thu nhp trong 2 trng hp, (3-2)

Khon mc
Doanh thu 10.000 SP Chi ph kh bin Hiu s gp(DT-CPKB) Chi bin ph bt Li trc thu v li vay (EBIT)

S liu gc
50 tr. 30 20 15 5-

KhI lng tng 10%

55 tr. 33 22 15 7-

Tc tng
10% 10 10 c nh 40 -

Nhn xt:
- Hi s gp= Doanh thu-Chi ph kh bin (Contribution margin = Revenue- Variable cost) - Tc tng ca chi ph kh bin v hiu s gp bng vi tc tng doanh thu (trong /kin gi bn v chi ph kh bin n v khng i). - Trong khi li nhun tng gp 4 ln so vi tc tng doanh 106 thu.

T nhn xt trn, ta c khi nim n by kinh doanh (OL- operating leverage) dng o s bin i ca li nhun trc thu v li vay,trc s thay i ca khi lng hot ng, m s bin i ny li ph thuc vo c cu chi ph, tc l t l chi ph bt bin (hay kh bin) so vi tng chi. H s n by OL= Hiu s gp/ EBIT Trong trng hp trn: OL = 20/5= 4. iu ny c ngha l tc tng li nhun gp 4 ln tc tng khi lng hot ng.Li nhun c l 5 triu, li nhun mi s l:5tr.(1+40%) = 7 triu. l khi tng doanh thu, nu DT gim 10% th li nhun cng gim 40%. Do vy nhng DN c t l chi ph bt bin cao, khi tng 107 khi lng hot ng (sn xut c v bn c)

th t l li nhun tng rt nhanh, nhng khi th trng gp kh khn th cc doanh nghip loi ny kh xoay tr hn v nhng DN c t l chi ph bt bin thp s c ri ro thp hn. Ta minh ho bng s sau y. 1- Loi DN c t chi ph bt bin (FC/TC) cao th ng cong chi ph rt dc, tc l chi ph gim nhanh khi khi lng hot ng tng, nhng khi lng thp th chi ph cao. 2- Loi DN c t chi ph bt bin (FC/TC) thp th ng cong chi ph rt thoi, tc l chi ph gim chm khi khi lng hot ng tng, nhng khi lng thp th chi ph cng khng cao.
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Average cost proportional to output Average cost

1-FC/ TC higher

2-FC/TC lower

Output
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3.3. The relationship between production and cost The law of diminishing returns The key to understanding the pattern of change in quantity (Q), Average product (AP) and Marginal product (MP) is the phenomenon known as the law of diminishing returnsMarginal product (MP) = Total product/ changing amount of the variable input used in the production process.

This law states: As additional units of variable input are combined with a fixed input, at some point the additional output (i.e., marginal product) starts to diminish. 110

Quy lut li ch (ci thu c-u ra...) gim dn: Khi lng b sung ca yu t u vo thay i gn vi mt u ra xc nh th n mt mc no lng u ra tng thm ( tc l sn phm cn bin) s c chiu hng gim xung. Ta c v d bng sau,s liu trn bng cho thy rng, khi tng yu t u vo th tng sn phm tng,sn phm cn bin cng tng, nhng hai yu t ny khng tng mi khi u vo tip tc tng, m l gim dn. chnh l do tc ng ca qui lut li ich gim dn khi tng y t u vo. Quy lut ny p dng giI thch cc mi quan h tng gim gia cc i lng c lin quan vi nhau.
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Table3-3
Variable Input (X) 0 1 2 3 4 5 6 7 8

Production Function Q, MP,AP

Total Product (Q or TP) 0 8 18 29 39 47 52 56 52 Marginal Product (MP) Average Product(AP)

8 10 11 10 8 5 4 -4

8 9 9,67 9,75 9,4 8,67 8 6,5

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Total product

50
40

30 20
10

1 2 3 4 5 6

8 9

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The relationship between production and cost It has been proven that when the total product (Q) increases at an increasing rate,total variable cost (TVC) increases at an decreasing rate. When Q increases at an decreasing rate,TVC increases at an increasing rat . It was indicated in the table .. below . Now it is assumed that the weekly wage rate is $500,total product-Q, total variable cost TVC,marginal costMC,L- Labor(units) MC= TVC/ Q, MPL= TP/ L

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Table3-4 Relationship between production and cost

Total input(L) Q TVC MC (Lx$500) ( TVC/ Q) Q

0 1 2 3 4 5 6 7 8 9

0 1,000 3,000 6,000 8,000 9,000 9,500 9,850 10,000 9,850

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

0,50 0,25 0,16 0,25 0,50 1,00 1,42 3,33 -3,33

500 2000 3000 2000 1000 1500 350 150 - 150

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3.4.Pricing and Output Decision After studying the relationship between production and cost and the law of diminishing returns,managers of any company must decide: how much to produce and at what price and whether it is worthwhile for the firm to supply this product.It is called Pricing and Output Decision.

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Pricing and output decision involves 3 key factors: 3 key factors

1- market structure

competition customers cost

2- demand
3- cost

The three Cs of pricing

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3.4.1. Market structure. Market structure refers to the

number and relative size of the buyers and sellers in a particular market. The four basic market structure Perfect competition
1- Large number of seller and buyers 2- Standardized product 3- Complete information about market prices 4- Easy entry into and exit out of market

Monopoly
1- One-firm industry 2- Unique product (no close substitutes) 3- Absolute control over supply within a price range 4- Entry into industry restricted by law or very difficult in practice 118

Monopolistic competition 1- Large number of seller acting independently

2- Product differentiation 3- Partial Large number of seller (and limited) control over product price 4- Easy entry into and exit from market

Oligopoly
1- Relatively few sellers 2- Either standardized or differentiated products 3- Control over price closely circumscribed by independence of the competing firms 4- Relatively difficult to enter.

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3.4.2. Pricing and Output Decisions in Perfect competition. To enter to this market the firms managers must find answers to the following questions: 1) How much should we produce? 2) If we produce such an amount, how much profit will we earn? 3) If a loss rather than profit is incurred, will it be worthwhile to continue in this market in the long run (in hopes that we will eventually earn a profit) or should we exit?

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How do cost concepts relate to pricing? Price should never be below marginal costs. Can it make sense for price to be above marginal cost but below average costs?
-Yes, but do not renew your investment in this case. This is a situation where you can stay in the business but it was a mistake to get into it in the first place.

In this case we cover variable costs but dont recover fixed costs.

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 Breakeven:
Breakeven occurs at the output level at which total cost equals total revenue. Let P(N) be the price at which N units can be sold. Then breakeven means: P(N) . N = FC + VC(N) We had known Contribution margin = RevenueVariable cost (slide.)
Break even point in units Fixed costs = ------------------------------------ (3-1) Contribution margin per unit

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Prove: At break even p = FC/R+vc (pprice per unit; R amount of unit, vc--variable per unit), pxR = FC + vcxR R(p-v) = FC FC R= ------- (p-v)--- Contribution margin per unit (p-v) FC R = --------------------------------------------- ( 3-2 ) Contribution margin per unit
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Cost

Average total cost

Price Marginal cost,constant at Output level Break even output,given the price
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One-product Break-Even Point

To illustrate this,we use the figures of table (3.1) and formula (3.1). The question is at what level of revenue of the company will be the break-even point in condition of the revenue of 50,FC 15, AC 30 million?. By using these we will find the break-even point at the revenue of 7.500 products.(Please prove it by yourselves).

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Multiproduct Break-Even Point

To illustrate this, assume that D Company sells three products: A, B, and C. Management wants to estimate the company's break-even point for the next month. Unit selling prices for the three products are: Product A . . . $5 Product B . . . $ 8 Product C . . . $ 4 Because the sales mix is the ratio of 4 units of A to 2 units of B to 1 unit of C.
(more conveniently expressed as 4:2:1)
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The selling price of a unit consisting of the three products is calculated as follows: 4 units of Product A @ $5 per unit $20 2 units of Product B @ $8 per unit $16 1 unit of Product C @ $4 per unit $4 Selling price of a composite unit $40 The company's fixed costs are $48,000 per month and the variable costs of the three products are:

Product A . . . . $3.25 Product B . . . . $4.50 Product C . . . . $2.00

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Thus, the variable costs of a composite unit of the products are: 4 units of Product A @ $3.25 per unit $13 2 units of Product B @ $4.50 per unit 9 1 unit of Product C @ $2.00 per unit 2 Variable costs of a composite unit 24 Contribution margin per composite unit = Selling price Variable costs = $40 $24 = $16

The management then uses the $16 contribution margin to determine the company's break-even point in composite units. The break128 even point is found as follows:

FC $48,000 R = -------------------------------------= ------------= 3,000 units Contribution margin per unit $16 According to this calculation, D Company breaks even when it sells 3,000 composite units of its products. To determine how many units of each product must be sold to break even, the number of units of each product in the composite unit is multiplied by 3,000: Product A: 4 x 3,000 . . . . 12,000 units Product B: 2 X 3,000 . . . . 6,000 units Product C: 1 x 3,000 . . . . . 3,000 units
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SUMMARY OF THE PART 3 1- Cost Classifications.Distinction and function of fixed,variable, average, marginal,opportunity, sunk costs.Understanding and using these categories of cost. 2- The law of diminishing returns--- The key to understanding the pattern of change in quantity (Q), Average product (AP) and Marginal product (MP). 3-The relationship between production and cost. Pricing and Output Decision.
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-Marginal cost is either the change in total variable cost or the change in total cost with respect to the change in output, because the total fixed cost component of total cost never changes as output increases. MC= VC/ Q or MC = TC/ Q -When the firms marginal product is increasing, its marginal cost of production is decreasing; when its marginal product is decreasing (i.e., when the law of diminishing returns takes effect),its marginal cost is increasing. 4- Management should known How to find breakeven point. 5-Management must pay attention to the operation leverage of own company in making decision of changing volume of product.
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Exercises and case studies Ba tp v nghin cu tnh hung

132

Part 4
Improve your business
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4.1.What business environment we operate on?

The differences between old and new economy these following statements ought to be discussed: Old economy Organize by product units New economy Organize by customer segments

Focus on profitable transactions

Look primarily at financial scorecard Focus on shareholders

Focus on customer lifetime value

Look also at marketing scorecard Focus on stakeholders (employees, customers, suppliers, distributors) Everyone does the marketing
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Marketer does the marketing

Build brands advertising

through Build brands through performance

Focus on acquisition

customer Focus retention

on

customer

No customer satisfaction Measure customer measurement satisfaction and retention rate Over-promise, deliver under- Under-promise, overdeliver
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-New technological advances and new market forces are

creating a new economy. Companies and marketers need to add new tools and practices if they hope to be successful. -The new economy is shifting several old economy business practices toward organizing by customer segments (instead of only by products), focusing in customer loyalty and customer relationships. One talks about getting everyone, all employees despite position to do the marketing, building brands through behavior and not only in advertising.

136

Companies also become skilled in Customer Relationship Management (CRM), which focuses on meeting individual needs of valued customers. The skill requires building a customer database and doing investigations, research, surveys to detect trends, segments and changes in customer demands.
-The new economic structure is characterized by a more

integrated organization where the operational areas are linked together with the suppliers.

137

Business to business relationships are in the new structures based on saving costs by incorporation between suppliers and companies. The benefits are lowering in administration costs for all parties and increase business efficiency and joint understanding between supplier and business to customer line.

138

4.2.The challenges in a new economy? A substantial increase in buying power: Buyers today are only a click away from comparing competitors prices and product attributes. They can get answers on the Internet in a matter of seconds. A greater variety of available goods and services: Today a person can order almost anything over the Internet. This means that buyers in countries with high prices can reduce their costs by ordering in countries with lower prices. An ability to compare notes on products and services: Today customers can enter a chat room focusing on some areas of common interest and exchange information and opinions.
139

A great amount of information about practically anything: People can read almost any newspaper in any language from anywhere in the world. They can access online medical information, movie ratings, consumer reports and countless other information sources. A greater ease in interacting and placing and receiving orders: Today buyers can place orders from home, office, or mobile phone 24 hours a day, 7 days a week, and the orders will be delivered to their home or office quickly.

140

4.3. Competition We can learn a lot from our competitiors. Your competition plays a large role in your business and in your marketing efforts, so don't ignore them. There is an old saying, "Keep your friends close, keep your enemies closer". In this case, your enemy is your competition. You shouldn't look at your competition as an enemy, but, as a guide or a valuable tool.

141

- Who Are Their Affiliates Another way to take advantage of your competition is to find out who their affiliates are. If you offer an affiliate program, this may be an ideal strategy for you. - Spying On Your Competition When you pay a visit to your competition's web site, the first thing you want to know is, what their weaknesses and their strengths are. Your competition will never know you are there or what your doing there.

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Competitive strategies To make effective competitive marketing strategies, the company needs to find out all possible information about their competitors: Products, prices, channels, and . Step 1. To identify competitors of the company: The companies offering similar products and services to the same customers at similar prices. As all firms making the same product or class of products.

143

Competitors might include all companies making products that supply the same service and, competitors might include all companies that compete for the same consumer money Step 2. To determine the competitors objectives. What does each competitor seek on the market and what causes each competitors behaviour? Step 3. To identify the competitors strategies. Step 4. Assessing the competitors strengths and weaknesses. By comparing the companys products and services to those of competitors, you can find ways of improving quality and performance.

144

Step 5. Estimating competitors reaction patterns. Each competitor reacts differently to actions like a price cut, a promotion increase, or a new product introduction. Step 6. Selecting a competitor to attack or avoid. The company must decide which competitors to compete against most vigorously. Most companies prefer to aim their shots at their weak competitors but other companies will compete with the rivals that resemble them the most.

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4.4. Attack strategies The fundamental principles involved are: - Avoid areas of likely confrontation. A flanking move always occurs in an uncontested area. - Make your move quickly and stealth fully. The element of surprise is worth more than a thousand tanks. - Make moves that the target will not find threatening enough to respond decisively to. 1. Frontal attackTn cng trc din 2. Flanking attackTn cng cnh sn 3. Encirclement attack-Tn cng bao vy 4. By-pass attack Tn cng chia ct 5. Guerrilla attackTn cng du kch
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Choosing a specific attack strategy - Price discount

The challenger can offer a comparable product at a lower price. This is the strategy of discount retailers. Three conditions must be fulfilled. First, the challenger must convince buyers that its product and service are comparable to the leaders. Second, buyers must be price sensitive. Third, the market leader must refuse to cut its price in spite of the competitors attack.

-Lower-price goods
The challenger can offer an average- or lower-quality product at a much lower price. Firms whose prices are even lower, however, can attack firms that establish themselves through a lower-price strategy.
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Practical pricing policies - Cost-plus pricing - Target pricing - Historical pricing - Range pricing - Competitive pricing - Marked based price - Selective pricing

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- Prestige goods:
A market challenger can launch a higher-quality product and charge a higher price than the leader.

- Product proliferation
The challenger can attack the leader by launching a larger product variety, thus giving buyers more choice.

- Product innovation
The challenger can pursue product innovation. Companies typically enter new markets by introducing a product improvement or breakthrough.

-Improved service
The challenger can pursue product innovation.

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-Distribution innovation
A challenger might develop a new channel of distribution, for example door-to-door selling, web-selling, instead of selling in conventional stores.

-Manufacturing-cost reduction
The challenger might achieve lower manufacturing costs than its competitors through more purchasing, lower labour costs, and more modern production equipment.

-Intensive advertising promotion

Some challengers attack the leader by expenditures on advertising and promotion. promotional spending, however, is usually not strategy unless the challengers product or message is superior. increasing Substantial a sensible advertising

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4.5. Marketing plan

(There will be separate subject)

4.6.Making differentiation
Important: The difference delivers a highly valued benefit. The matter is not only you must do best but also differently Distinctive : The difference is delivered in a distinctive way Superior :The difference is superior to other ways of obtaining the benefit Pre-emptive: Competitors cannot easily copy the difference Affordable: The buyer can afford to pay for the difference Profitable: The Company will find it profitable to introduce the difference
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A company can differentiate its market offering along seven dimensions: - Product:size;features;performance levels -Service:know your customers;explore new market;ordering ease; delivery;installation; maintenance and repair. - Price:more value, more services for the same price;
giveaway;free shipping; discounts

-Personnel:competence;courtesy;credibility;reliability;
Responsiveness;communication.

- Customers:deliver fast;before/during/after-sale
support;guarantee;warrantee

- Channel:distribution channels coverage; distribution channels

expertise;distribution channels performance

-Image:identity; image, identity and image need to be

distinguished

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Summary: 10 good advice to the entrepreneur 1. Do not give up. Whatever people in your surrounding say, do not give up. Keep on trying and developing your business. 2. Expand your knowledge. If you learn more, your business will benefit. Read, ask questions and listen to colleagues. 3. Flexibility. Everything changes rapidly. You must be prepared to adapt new. 4. Good order better control. With a good order including bookkeeping and stock control you will have a better overview of your business. A welldefined structure from the beginning will help you develop the business when it starts growing.
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5. Sales orientation. You must always think in terms of what you can sell and how you can sell additional products/services to the same customer. 6. Quality. Your products must always be of the highest possible quality in relation to the price the customer is ready to pay. 7. Service and attitude. A high service level could justify a higher price than your competitors are offering. 8. Vision think ahead. Once you relax, satisfied with what you already have achieved, your competitors are probably there just behind you. Never stop developing your business.
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9.Take care of your customer. Learn to understand his or her needs. Once you have a customer, you should do your best to keep him or her. It is much more costly for your business to attract new customers than to keep and do additional business with the ones you already got. 10. Sell, sell, sell. Once again: Do not stand there waiting for the customer to come. Go find him (or her).

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Exercises and case studies Bi tp v nghin cu tnh hung Exercise 1

Looking for solution for Company VICTORY Company VICTORY produces instant noodles. There is financial report of Company VICTORY: -The company can make 6.000.000 packet per year (capacity of the company). - Market price for company products (instant noodle) : 1200 VN D/packet-- (market acceptable price and all of products has sold) 1- Pay for rent of workshop: 100.000.000 VND/Year 156 (It had paid)

2- Amount of money (sum) that Company have to pay for credit of the Bank: 100.000.000 VND/Year 3- Depreciation of the rest assets: 200.000.000 -4- The other fixed expenses: 20.000.000 -5- Material expense: 400 VND/ packet

6- Pay 700 -7- The other operative expenses: 70 --

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PLEASE: 1- Find out the problem that the company faces 2- Look for short- term solution for the company 3- For increasing the company` capacity to get 8.000.000 packet per year and for increasing quality of product a investment sum of 140.000.000 VND to be required and in this case market acceptable price for company`s product will be 1300VND/packet. How many product (packet of instant noodle) the company must make to get beak event (in sense of finance) in said above situation?
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Exercise 2
Answer to the Questions: 1. Which among the bullet points of the Old respectively the New economies are related to the market your company are operating on? 2. Are there any particular statements that you are missing in this list? If there are, in which way do they limit your companies marketing operations?

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Exercise 3 New way of thinking The next step when you have found your niche is to define your business idea. A business idea should be more that just selling one or several products. After all, the product could come out of fashion. A business idea should start from the point that you are fulfilling a need. One example: When cars started being produced in the early 20th century, a producer of horse-drawn carriages was asked: which consumer needs YOU was fulfilling?. His answer was: Horse carriages of good quality. Please, comment his answer. How you would answer?
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Exercise 4
Company Delta sells 4 products: A, B, C and D. Management wants to estimate the company's breakeven point for the next month. Unit selling prices for the three products are: Product A . . . . $4 Product B . . . . 8 Product C . . . . 5 Product D . . . 6 The sales mix is the ratio of 5 units of A to 3 units of B to 2 unit of C and to 1 unit of D. (more conveniently expressed as 5: 3:2:1),.

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The company's fixed costs are $92,000 per month and the variable costs of the three products are: Product A . . . . $4.20 Product B . . . . $3.00 Product C . . . . $2.50 Product D .. $2.00 Please, 1) estimate the break-even point of the Company Delta for the next month 2) and determine how many units of each

product must be sold to break even?

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THANK YOU

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