It is worth noting that two economic consequences are likely to occur, particularly in the event of a V-shaped recovery. The first is that the Federal Reserve is going to wait to increase rates until the last possible moment, in the hopes of spurring greater investment and therefore job growth. This means that inflation is expected at some point this year. This inflation means that factor inputs will increase in cost. Larson can gain advantage over competitors if it can hold its wholesale cost stable in the face of an increase in the cost of factor inputs, since competitors may be forced to increase their prices. Careful control over its cost structure will allow Larson to do this while maintaining profitability.
Another potential economic consequence is a decline in the value of the Euro. Normally, Larson exporting products from America to Germany would be fairly easy given Germanys current account balance, but the troubles in the Eurozone are putting downward pressure on the value of the Euro. This will make American exports more expensive in Germany, reducing the attractiveness of this or any other European market from an export perspective. It is unlikely that Larson will be able to differentiate its batteries to a degree that would give it pricing power strong enough to overcome the exchange rate disadvantage that it would face vis-a-vis Eurozone producers. The following chart illustrates the decline in the Euro since the crisis with Greece has hit full force:
courtesy Yahoo! Finance
It is recommended, therefore, that Larson focus its energy on the U.S. market.
The company should pay close attention to cost control. When the cost of inputs increases, the gains in cost control that Larson makes will allow it to maintain pricing stability at the wholesale level, something that its competitors likely will not be able to do. This tactic should give Larson the opportunity to grow market share by undercutting its competitors during the inflationary stage. The risk to this tactic is that if the double dip materializes, the inflationary period is unlikely to occur. Not that cost savings are a poor strategy, but they are only the ideal strategy if they can be used to leverage competitive and advantage and build out market share at the expense of competitors. Also, if the economy does recover, then Larson should be ready with a next-generation battery to meet the needs of next generation devices, which are likely to see a surge in demand as consumers who had delayed such purchases during the recession come back into the
CNN. (2010). Battle for downtown Bangkok hits economy. CNN. Retrieved May 15, 2010 from http://edition.cnn.com/2010/Business/05/14/battle.bangkok.economy/index.html?hpt=T1
Kirschbaum, E. (2010). Euro in danger of becoming unstable. Reuters. Retrieved May 15, 2010 from http://www.reuters.com/article/idUSTRE6150N020100206
Federal Reserve Bank of New York. (2010). Federal funds data. Federal Reserve Bank of New York. Retrieved May 15, 2010 from http://www.newyorkfed.org/markets/omo/dmm/fedfundsdata.cfm
BEA (2010). Personal income and outlays, March 2010. Bureau of Economic Analysis. Retrieved May 15, 2010 from http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm.