Corporation

Business Level

There are many factors that constitute on how to achieve excellence in management especially in the case of Starbucks under Howard Shultz.  Indeed, management is getting things done, through efficient means that would maximize profit while keeping costs down. In order to be competitive and for an organization to be successful in the field of management and to be productive, there are lots of things to be considered.  Such aspects are the performance of the leaders or managers of the firm and the performance of the firm as whole, safety measures regarding the management, risks that will come along that the organization are going to face and ways to overcome them, and the influence of consultation (Pollock, 2001). 

In line with these factors that management of organization must consider are the needs of the organization.  These needs can be achieved through the knowledge of the management and technological approaches the management would choose (Barclay, 1997).  Dealing with those needs is important and constitute to the excellence in management.

There are lots of experiments on how to achieve excellence in management was done by Shultz in achieving the status Starbucks have today.  Some findings are the need to change strategies, designs that can be used to evaluate the organizations’ success, measures as standard basis, methods and ways to adapt to a complex environment; whether to stay with their current strategies in a constant environment or to change due to the changing environment, and many more (Resources, 2006).

Corporate-Level

 ‘Establish Starbucks as the most recognized and respected brand in the world’(“Starbuck company”, 2007).  This statement embodies the totality of Starbucks Corporation’s goals and thrust for their company’s growth and direction. The company aims to achieve this by using only the finest coffee beans and provide the finest coffee blends thus receive respect and acknowledgment on the world all over.

Since the company has already more than 3,500 stores local and international (Kembell, Hawks, Kembell, Perry, & Olsen, 2002). The company has maintained its 6 principles strictly which is the reason for the company’s success.

The six principles of Starbucks are stated as (“Starbuck company”, 2007).

• Provide a great work environment and treat each other with respect and dignity.
• Embrace diversity as an essential component in the way we do business.
• Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.
• Develop enthusiastically satisfied customers all of the time.
• Contribute positively to our communities and our environment.
• Recognize that profitability is essential to our future success

In the company’s endeavor to be the most recognized and respected brand the company have maintained the quality of their products, the ambiance of their branches even to the music that are being played in their outlets. .

Corporate parenting principle can be applied to the Starbucks scenario. The company aims to maintain in providing only the best coffee blends and products. Achievement of this goal is clearly evident in the quality of their blended coffee products by using only Starbuck’s whole coffee beans which are roasted in the company’s roasting facilities (Kembell, Hawks, Kembell, Perry, & Olsen, 2002).

Ambience in their outlets is also maintained by the management. The company wanted an outlet that busy office people can feel like home (Kiviat, 2006). This is evident in the design and layout of their outlets. Even the music played provided by Hear Music, a former music catalog company which was purchased by Starbucks last 1999.

Other components in the Starbucks outlet working environment are also maintained. The term “Baristas” is attributed to the outlet crew who handles the sales, preparation of the brews and food products and handing out of orders. Their uniform is standard regardless of the store outlet’s location. Even the lingoes that baristas used are standard and suited to the company’s requirement.

Another innovation that Starbucks Company has utilized is having a centralized source of information, news and updates which can be accessed worldwide. The company has utilized the internet and information and news can be accessed via starbucks.com (Kembell, Hawks, Kembell, Perry, & Olsen, 2002). This can be also utilized in gathering customer feedback and suggestions.

Horizontal Growth

Over the years since 1987, the company had a very dynamic strategy for its growth and expansion. Since its incorporation, the company’s first thrust was establishment of additional branches in different locations. With the acquisition of a new Roasting Plants the company has concentrated in their endeavor to open additional outlets within USA with specific targeted number within a targeted time frame.

International branches have been achieved through joint ventures with local business partners who wished to bring Starbucks inside their countries. Today there are Starbucks outlets in Asia, Europe and Australia. As of November 2006 the company has a total of 12,440 outlets worldwide (Kembell, Hawks, Kembell, Perry, & Olsen, 2002). This is a combination of company operated outlets, joint ventures and licensed outlets.

Vertical Growth

The Corporation has not only coffee to offer as its product but also a variety of different things. This has evolved due to the study and feedback from the customers along its many branches. Products available are music, pastries, coffee equipments and items along with its standard product brewed blends (ice and hot) and roasted coffee beans (Kembell, Hawks, Kembell, Perry, & Olsen, 2002).

It is notable to mention one of Starbuck’s signature flavored drink – Frappuccino. This was introduced during 1995 as a result of an experiment of one of the baristas (Kembell, Hawks, Kembell, Perry, & Olsen, 2002).Other products and business ventures were also capitalized by the company. An example would be the retail sales of Starbucks music CD, which is a collection of songs gathered from customers request (Kembell, Hawks, Kembell, Perry, & Olsen, 2002).

Functional Level

One design that will constitute on the excellence in management of an organization is through the giving incentives to the individual.  This will be dependent on their performance in their field of work.  This is called the pay-for-performance system (William K. Redmon, 2005). Starbuck’s Coffee won one of the dealings on the supply chain excellence; speed.  To measure the excellence in management of the Starbuck’s Coffee, a checklist was made with all the criteria of being excellent in management as the standard basis.For the simple reason, the aim for additional income, the Starbucks’ development can be achieve by doing this coupled with diversification strategies.  By doing this, the gap in the Starbucks’ goal and the organizational goal can be lessen or even better, will be gone.  In addition, the costs of goods and services are also in its minimal due to the incentive pays that motivates employees.  This motivation factors makes employees to become more productive.  In fact, some of the companies are now changing their way on how to pay their employees, from normal salary basis and or hourly basis wage systems, to payment based on the employee’s performance (pay-for-performance system).

As of this time, Starbucks are having difficulty recruiting baristas.  This may be due to the minimum wage salaries that they offer. The strict maintenance of the quality of Starbucks baristas can also be attributed for the slow pace of employment in Starbucks operations especially overseas.  Because of this reason, the Starbucks Corporation and other organizations are thinking of ways on how to attract new workers and to retain the old ones.  Other companies have the way of increasing the employee’s salaries, thus making an addition to their expenses and labor costs.  In addition to this, performance of these newly hired workers cannot be said to have reached the organization’s needs.  Then the need for performance improvement are then on the play.

Here comes the study on how to management motivates employees that will become a great use in achieving organizational goal.  Organizations have used incentives using incentives such as additional pay depending on the performance of individual employees (Studies, 2004).  What others have done is to give those who are in the hard work for the organization’s goal some incentives in the form of not a monetary value but for the recognition of their behaviors.  Such examples of non-monetary value incentives are promotions.  Most organizations do such things like this for motivating their employees to be more productive.  Together with the individual’s aim for promotion, is the organization having greater profit and lessens the costs of services.  Other non-monetary value incentives are recognition of the employees, for example, employee of the month award, best employee of the year, and many more.  Such behavioral way of motivations is of great help in achieving excellence in management of an organization.

Global Level

After acquiring Seattle’s Best and Tazo Tea in 2003, implementation of a goal through goal-setting program can be used by management to evaluate employee’s performances.  Feedback program especially when Starbucks opened its overseas operation in Japan in 1995 was added and to this method.  Feedback may be of good or bad based on the goal settled by the organization.  For employee’s perception of this settled goal may have different effects depending on the individual.  Some respond to the better productivity, while others have done absenteeism.  An increase in productivity means the goal settled by the management served as a challenge and thus motivates the employee for better work.  On the other hand, this served as constraints for other workers.  Feedbacks however are used to chase away criticism but are used for employee performance evaluation.  That’s for the reason that criticisms are agents of exploitation that management didn’t want to interfere with the management.  What feedback supposed to do is to give an evaluation, whether it may be bad or good, that will serve as constructive criticism to employees.  If the feedback was bad, that doesn’t mean that the employee was bad at all, but to show the deficiency the employee have and to overcome for the employee to overcome this.  If the feedback was good, that means that the employees work was recognized and then the tendency of being a more hard-working employee will come up to the mind of the employee.  This is how behavioral management in Starbucks Corporation plays.

References

1. Kembell, B., Hawks, M., Kembell, S., Perry, L., & Olsen, L. (2002). Catching the Starbucks Fever.   Retrieved June 24, 2007, from http://www.academicmind.com/scholarlypapers/business/marketing/2002-04-000aag-catching-the-starbucks-fever.html
2. Kiviat, B. (2006). The Big Gulp at Starbucks.   Retrieved June 24, 2007, from http://www.time.com/time/magazine/printout/0,8816,1568488,00.html
3. Pollock, N. (2001). Knowledge Management: Next Step to Competitive Advantage – Organizational Excellence.   Retrieved June 24, 2007, from http://findarticles.com/p/articles/mi_m0KAA/is_5_30/ai_80747127
4. Resources, B. (2006). Developing an Accessible Technology Plan.   Retrieved June 24, 2007, from http://www.microsoft.com/enable/business/plan.aspx
5. Starbuck company. (2007).   Retrieved June 24, 2007, from http://www.starbucks.com/aboutus/overview.asp
6. Studies, F. (2004). Federation Study 2001: A Study of the Incentive Merchandise and Travel Marketplace Retrieved June 24 2007, from http://www.incentivecentral.org/Federation_Study_2001__A_Study_of_the_Incentive_Merch.457.0.html

European corporate law has enjoyed a renaissance in the past decade. Fifteen years ago, this would have seemed most implausible. In the mid-1990s, the early integration strategy of seeking to harmonies substantive company law seemed to have been stalled by the need to reconcile fundamental differences in approaches to corporate governance. Little was happening, and the grand vision of the early pioneers appeared more dream than ambition.

Yet since then, a combination of adventurous decisions by the Court of Justice, innovative approaches to legislation by the Commission, and disastrous crises in capital markets has produced a headlong rush of reform activity. The volume and pace of change has been such that few have had time to digest it: not least policymakers, with the consequence that the developments have not always been well coordinated. The recent 2007/08 financial crises have yet again thrown many – quite fundamental – issues into question.

In this article, we offer overview of Key concepts of Corporate Governance in European countries based on EU law. Corporate governance is traditionally defined as the system by which companies are directed and controlled 1 and as a set of relationships between a company’s management, its board, its shareholders and its other stakeholders 2 . The corporate governance framework for listed companies in the European Union is a combination of legislation and ‘soft law’, including recommendations 3 and corporate governance codes.

While corporate governance codes are adopted at national level, Directive 2006/46/EC promotes their application by requiring that listed companies refer in their corporate governance statement to a code and that they report on their application of that code on a ‘comply or explain’4 basis. Supervisory Function: A supervisory board or supervisory committee, often called board of directors, is a group of individuals chosen by the stockholders of a company to promote their interests through the governance of the company and to hire and supervise the executive directors and CEO.

Corporate governance varies between countries, especially regarding the board system. There are countries that have a one-tier board system (like the U. K. ) and there are others that have a twotier board system like Germany. Boards of directors have a vital part to play in the development of responsible companies. And in many respects, the role played by the chairperson seems to have a considerable impact on the board’s functioning and success. Read about Corporate Governance at Wipro.

Roles for NEDs: In 2007, the European Commission published a report on Member State implementation of Recommendation 2005/162/EC (the “Recommendation”). This Recommendation addresses the role of non-executive or supervisory directors of listed companies and that of the (supervisory) board’s committees. It was adopted to promote standards ensuring that the boards of listed companies offer sufficient guarantees of independence. In doing so, it promotes the convergence.

Report of the Committee on the Financial Aspects of Corporate Governance

For a list of EU measures in the field of corporate governance, see Annexes. This approach means that a company choosing to depart from a corporate governance code has to explain which parts of the corporate governance code it has departed from and the reasons for doing so.

of the national corporate governance codes enacted in the Member States, so that investors may benefit from an equivalent level of protection and transparency within the European Community. In addition to contributing to the business efficiency in the internal market, the Recommendation is also a response to recent corporate fraud scandals. As the Member States were invited to implement the Recommendation by June 30, 2006, the purpose of the Report was to evaluate whether Member States have developed the necessary legal framework to give effect to the Commission’s key proposals.

In Recommendation 2005/162/EC on the role of non-executive or supervisory directors “in order to ensure that the management function will be submitted to an effective and sufficiently independent supervisory function, the supervisory board should comprise a sufficient number of committed non-executive or supervisory directors, who play no role in the management of the company or its group and who are independent in that they are free of any material conflict of interest.

In view of the different legal systems existing in Member States, the proportion of supervisory board members to be made up of independent directors should not be defined precisely at Community level”5 The Idea of Disclosure: Transparency is letting the truth be available for others. Today the new concept of transparency includes action or motion, putting new responsibilities on the company. New concept of transparency requires not only letting the truth be available but imposes to disclose it to every stakeholder.

For the market, Strong transparent disclosure regime is pivotal for market based monitoring of companies and central to shareholder ability to exercise ownership rights. It can be powerful tool for influencing companies and protecting investors. It can help to attract capital and maintain confidence in the markets. And weak disclosure can contribute to unethical behaviour and loss of market integrity, costing not only company but also economy as a whole.

Insufficient or unclear information may hamper ability of markets to function, and then increase cost of capital and result in poor resource allocation The Action Plan for Disclosure: 5 Commission Recommendation of 15 February 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board (2005/162/EC) Disclosure requirements are a highly effective market-led way of rapidly achieving results. It is of highly necessity to enhance corporate governance disclosure.

Two examples taken from the Action Plan can well illustrate it: All listed companies will be required to include in their annual documents a coherent and descriptive statement covering the key elements of their corporate governance structure and practices. This should include, inter alia, the operation of the shareholder meeting and its key powers, the composition and operation of the board and its committees, and a reference to a code on corporate governance, designated for use at national level, with which the company complies or in relation to which it explains deviations.

Companies will be obliged to be more transparent in the way they operate. They will have to demonstrate that they comply with accepted standards on Corporate Governance or explain why not. Disclosure is enforced further by our proposals in the Takeover and Transparency Directives. The second example relates to institutional investors who play a key role in the governance of companies in which they invest. There is presently very little clarity or transparency in the way they operate.

We consider that they should therefore be obliged to disclose their investment policy and their policy on the exercise of their voting rights. They must disclose, and hence justify, to their beneficial holders how these rights have been used in a particular case. In 14 September 2010 actions were brought to the court in the case of Stichting Corporate Europe Observatory verses Commission (Case T-395/10) . The Applicants were Stichting Corporate Europe Observatory (Amsterdam, the Netherlands).

Santoro, lawyer) and the defendants were European Commission. Form of order sought: – Annul the implied refusal of the applicant’s confirmatory application; – Order the Commission to pay the applicant’s costs. Pleas in law and main arguments were as such: By means of this application the applicant seeks annulment of the Commission implied decision rejecting the applicant’s request, pursuant to Regulation No 1049/2001, of the access to certain documents relating to the trade negotiations between the EU and India. In support of its application the applicant puts forward three pleas in law.

First, it claims that the Commission infringed the Regulation No 1049/2001 by failing to reply to the confirmatory application within the prescribed time. Second, the applicant contends that the Commission infringed the Regulation No 1049/2001 and the Treaty by constructively rejecting a confirmatory application without giving any reasons or without giving reasons to the standards required by the Treaty and by the Court. Third, it submits that by failing to reply to the confirmatory application the Commission infringed an essential procedural requirement and/or committed an error of law.

Several power bases on the board: Corporate governance systems play a central role in economic performance because they provide mechanisms affecting the returns on suppliers’ investment of external finance to firms. The task of modernizing company law and enhancing the quality of corporate governance poses itself in all industrial countries. It is estimated that within the European Union, the contents of up to 80 per cent of all legislation in the field of business law is determined by the legislation in Brussels.

One of the core features of the corporate governance is investor ownership; it means that shareholders have a significant right of control over their companies. The second characteristic is delegated management, which implies that shareholders generally exercise this control indirectly, by participating in the selection of directors, for example. Regarding the company forms, there is a different aspect between continental European corporate laws and UK company law. The first one generally distinguishes ‘open’ corporate forms with freely transferable shares, and ‘closed’ forms, in which transferability is restricted.

On the other hand, UK company law uses the term ‘closely held’ to define corporations whose shares do not trade freely, and term ‘publicly held’ for corporations that adopt the open corporate form. One of the most important aspects of corporate law is the shareholders’ position. At first sight it could be concluded that the rules in this field are based on different strategies: the appointment rights strategy, decision rights, trusteeship, incentives, constraints, and affiliation rights strategies. The appointment strategy is the dominant way of protecting the shareholders’ interests.

A corporation called Techno-Corp issued 200,000 shares of stock. Mallory who is the President and Chairman of the Board bought 60,000 shares of Techno-Corp stock. Him and six other shareholders who owned 10,000 shares each made up the board of directors. The remaining 80,000 shares belonged to 40 other investors who each owned 2,000 shares of Techno-Corp stock. These shareholders were never invited to the annual shareholders meetings.

While serving as both President and Chairman of the Board, Mallory ordered the corporate treasurer to cover his mortgage payments of $20,000 per month using Techno-Corp funds. Subsequently, when Techno-Corp began to have financial trouble Mallory borrowed a $1 million unsecured loan in the corporation’s name from Milhouse, a wealthy investor. Mallory was given express authority to borrow money for Techno-Corp; unfortunately, he has defaulted on this loan.

Is Techno-Corp or Mallory liable to Milhouse for the $1 million corporate loan?

The general rule is that shareholders, board of directors, and corporate officers are not liable for the debt of corporation. An exception is allowed, however, when such is to prevent abuse of the privilege of corporate status during which courts sometime pierce the corporate veil to expose shareholders and directors/officers to liability. The factors considered by the courts to determine whether to pierce the corporate veil include; commingling of funds and other assets, unauthorized diversion of corporate funds to use other than the benefit of the corporation and contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability.

In this case, Mallory knew that he was insolvent at the time he commingled corporate funds to cover his mortgage payments of $20,000 a month. Due to the fact, that Mallory was commingling corporate funds he then precariously borrowed a $1 million loan in the corporation’s name.

Therefore, it can be considered that he had the intent to avoid performance by using Techno-Corp as a shield against personal liability. The presence of these facts justify the act of the court in piercing the corporate veil, thereby making Mallory personally liable for the $1 million loan that he borrowed from Milhouse.

JetBlue Airways Corporation is a low-fare, low-cost airline that offers high-quality customer service mainly on point-to-point routes (JetBlue Airways Corporation, 2003). It intends to maintain a disciplined growth strategy by increasing frequency on their existing routes and entering new markets. JetBlue Airways Corporation derives its revenue mainly from transporting passengers on their aircraft. Passenger revenue was 97% of their operating revenues at the year ended December 31, 2002 (JetBlue Airways Corporation, 2003).

The company endeavors to increase its passenger revenue by increasing its load factor. Other revenues are composed chiefly of the $25 charge to change or adjust a customer’s reservation. Other mechanisms include excess baggage charges, mail revenue, revenue from the sale of liquor in-flight, commissions from website travel sales, and concession revenues at the company’s terminal at John F. Kennedy Airport. JetBlue offers the customers a differentiated product, including reliable operating performance, low fares, new aircraft, pre-assigned seating, leather seats, and free LiveTV at every seat.

On September 27, 2002, JetBlue bought all the membership interests of LiveTV, LLC (LiveTV), for about $80 million. LiveTV provides in-flight entertainment systems for commercial aircraft, including live in-seat satellite television, wireless aircraft data link service and cabin surveillance systems. Other services and products offered by JetBlue Airways include the following: online hotel booking and car rental, geographically diversified flight schedule including both long-haul and short-haul routes, free airport parking, SuperShuttle travel pass, and travel gift certificates.

Additionally, JetBlue in-flight crewmembers have first aid training. By 2003, JetBlue Airways has generated $344 million of equity capital, which has enabled the company, among others, to acquire a fleet of new, single-class Airbus A320. Moreover, by the end of 2007, JetBlue will have an additional 48 new A320 aircraft to their operating fleet of 39 aircraft in 2003 (JetBlue Airways Corporation, 2003). In addition, one characteristic of JetBlue is that it has low operating costs.

JetBlue Airways has low operating expenses because it works with a single type of aircraft and a single class of service with a high utilization. In addition, it has a productive and high-performing workforce and uses the latest technologies. Much of JetBlue’s operating expenses go to aircraft fuel and employee salaries, wages, and benefits, including provisions for profit sharing plan (JetBlue Airways Corporation, 2003). JetBlue’s distribution costs are lower compared with those of other airlines on a per unit basis since many customers book through JetBlue’s website and its own reservation agents.

The airline industry is highly competitive and JetBlue expects competition to continue in the future. For the past few years, unfavorable economic conditions have continued to pressure the airline industry; so much is the pressure that 11 major airlines in the US went in bankruptcy. Moreover, responding to the growth of low-fare airlines in the market share, a number of major airlines have declared efforts to meet the ever-growing demand of fare-conscious travelers (JetBlue Airways Corporation, 2003).

The principal competitive factors in the airline industry are customer service, fare pricing, flight schedules, routes served, safety record and reputation, types of aircraft, in-flight entertainment systems, code-sharing relationships, and frequent flyer programs. JetBlue’s competitors and potential competitors include other low-fare airlines, major US airlines, regional airlines, and new entrant airlines. In 2004, the competition was particularly felt.

Fare-conscious passengers shifted away from large US airlines, prompting these companies to undertake broad cost-cutting measures. Early in 2005, Delta reduced and simplified its fare structure, eliminated many of its ticketing restrictions and reduced change fees to $50. However, the company retains its competitive advantage. While Delta’s one-way maximum domestic coach fare of $499 is much lower than its previous maximum fare, it is still higher than any fares charged by JetBlue (JetBlue Airways Corporation, 2003).

JetBlue’s major marketing strategy is to attract new customers by widely communicating value proposition that low fares and quality air travel need not be mutually exclusive (JetBlue Airways Corporation, 2003). Services and products are marketed through advertising and promotions in the media, and through targeted public relations and promotional efforts. The company also relies on word-of-mouth to promote the brand. Furthermore, the company also largely depends on its website.

In order to attract customers to their website, the airline provides double TrueBlue points to customers who book reservations online. In order for JetBlue to be competitive in the industry, and in order to achieve an effective and efficient bricks and clicks operation, JetBlue should conduct a training program for computer programmers in charge of conceptualizing, designing, and maintaining the website. The training program must ensure that the values of the company are deeply ingrained in the minds of the employees so that these values are reflected in the website.

For example, JetBlue’s homepage should be developed into a more user friendly website, and should have additional features. Moreover, JetBlue’s website should be always available in order for potential passengers to make some bookings any time of the day. Training employees and updating existing technologies are a daunting and costly task. However, benefits will outweigh costs in the long-term.

Reference

JetBlue Airways Corp (200). http://sec. edgar-online. com/2003/02/18/0001047469-03-005952/Section2. asp

1. What new and innovative mechanisms, laws or practices could corporate America put in place to address the corporate misconduct that we often find in the news? The law already makes the board of directors liable to the corporate America to insure that their officers are acting in a legal and prudent manner while running their corporations. One method of insuring that the board of directors are compelled to check on the mysterious activities of their corporate officers is to make use of the internet.

If corporate America would require that all corporations should make their important business transactions such as work biddings won or major sales available for public viewing through the internet, then we are given an automatic handful of eyes watching at them. The public records should provide the reasons why the bids were chosen or the reason behind the sales. So that for the corporate misconduct that we often find in the news like the Boeing scandals involving Boeing Chief Financial Officer Mike Sears and Darleen Druyun, chief acquisitions officer at the Air Force.

“Druyun said at her sentencing hearing in 2004 that said she favored Boeing on multiple contracts because of favors granted by the company, including hiring her daughter and son-in-law” (Gates & Mundy, 2006). Corporate America can compel the board of directors to investigate officers involved in misconducts or face legal sanctions themselves. The officers in turn are liable to run their corporation legally and in a prudent manner.

The Sears and Druyun Boeng scandal led to jail terms for Mike Sears and Darleen Druyun. If the major transactions of Boeing were made public through the internet, then there is a big chance that a handful of people have detected such an anomaly prior to it becoming a big problem. Sears and Druyun would also be prevented from doing such anomaly knowing that there is a possibility that people are looking at their transactions. 2.

Can you think of any protective practices that the corporation could include to better protect against deceptive and destructive business practices of bad corporate officers? One effective practice is transparency across all members of the corporations, from board of directors, corporate officers, employees to shareholders. A corporation should require transparency, meaning all major business decisions and transactions made by corporate officers are made available to all members of the company with proper explanation of purpose and reasons.

Transparency eventually promotes honesty and prevents destructive business practices of bad corporate officers. References Gates, D. & Mundy, A. (2006). Boeing lawyer warns of company’s legal peril. Retrieved on April 24, 2007 from the SeattleTimes online web site: http://seattletimes. nwsource. com/html/businesstechnology/2002772936_boeing31. html The attached module8notes. pdf was used as the main reference.

In today’s world Microsoft Corporation is considered as a monopolistic firm, a firm that does not allow competition in the market or the industry. This paper discusses the techniques, strategies and the method that Microsoft Corporation uses to maintain its standards, top position and monopoly. To eliminate and create monopoly the company creates certain barriers for entry for the companies to enter. These barriers include: economies of scale and scope, product differentiation, brand loyalty, low costs, ownership, legal protection, mergers and acquisitions.

All of these are discussed in the paper with reference to the Microsoft Corporation. Microsoft Corporation Microsoft Corporation is a multinational computer technology company that is involved in the development, manufacturing, supporting and licensing of a wide variety of computer soft wares. It’s headquarter is in Redmond, Washington, USA. The most profitable products of Microsoft include Microsoft Windows operating system and the Microsoft Office Suite. In 2009 Microsoft Corporation was ranked as the third largest company in the world. And today it is considered as one of the largest technological corporations in the world.

Microsoft successfully captured a place in every personal computer by putting at least one of its product in every personal computer. Due to the success and market penetration Bill Gates the founder of Microsoft has become one of the wealthiest and famous businessmen in the world. (Funding Universe, n. d) History: Microsoft Corporation came into existence on April 4, 1975 by the partnership between Bill Gates and Paul Allen. But later Paul Allen resigned and left the company. in the initial years the company had to face hurdles and rough times.

The company also developed associations with IBM (MS-DOS) and Apple (program for Macintosh) on various occasions and products. With the Associations with IBM and Apple the company survived the difficult times. One major problem that the company had to face, is facing and will have to face in the future is that of piracy of its soft wares and programs. Throughout its history the Company has been the target of criticism, the most famous of the criticism that the company had to face were that of monopoly, anti-competitive strategies and the violation of the anti-trust laws.

(PIE Software Inc, 2001) Vision, Mission and Values at Microsoft: The vision and values at Microsoft is to help people and businesses from all over the world to recognize and realize their full potential and capabilities. The company as a whole and the individuals there value integrity, openness, honesty; constructive criticism, continuous elf-improvement, mutual respect and personal excellence. They are committed to their customers and strategic partners. They take in challenges and fulfill them properly.

They honor their commitment to customers, shareholders, partners and the employees and strive for highest quality. (Microsoft, 2010) Microsoft and Monopolistic Competition Microsoft is criticized all over the world by different organizations, NGOs and Government for its Monopoly in the market. Few points are being discussed below which enlightens why and how Microsoft successfully creates Monopolistic Competition. Barriers to Entry: Barrier to entry is a valuable market concept for an inventor because it protects them from competition in the market.

It is a physical or an intellectual barrier that creates problems and difficulties in entering a market or selling the product in the market. The barriers for entrance in a market are designed in order to stop or block the potential competitors from entering the market. Their purpose is to protect the monopoly of the existing or already present company in the sector or industry. This leads to super normal profit in the log run. (tutor2u, n. d) There are many ways through which companies creates barriers to entry some of them are as follows:

1. Economies of scale and scope:

Economies of scale relate to the phenomena that with the production of more units of a good or service less input cost is incurred at a large scale. On the other hand Economies of scope relate to the phenomena that with the increase in number of different goods produced the total average cost of production decreases. (Bar, 2006) Microsoft enjoys the economies of scale in the industry by producing larger output at lower cost. This is supported by the consumers who are benefited by the low prices.

This has resulted in less competition and has created a barrier to entry for other competitors who have high cost products. But this barrier can easily be overcome by the competitors if they offer superior economic benefits to the customers. For Microsoft’s window program there are alternative programs such as the Apple and Linux. In the same way there could be many other alternatives for the operating systems with only one condition i. e. superior economic benefits. (Armentano, 2000)

2. Product differentiation:

Product differentiation is a strategy used by companies in order to create and exploit differences between their own products and that between the competitors product. These differences provide a competitive advantage if the customers perceive and prefer the product for the difference. It is important for the companies to communicate the difference through advertisements, public relations and sponsorships. (Google docs, n. d) Product differentiation can be achieved from a wide variety of factors which include distinctive products, product quality, reliability, durability, product design and the style.

Microsoft uses the product differentiation strategy based on product distinction. In the year 2001 Microsoft’s Windows XP won the award for “Technical Excellence” . The product of Windows XP, windows kernel that uses a Microsoft operating system is considered as the most stable. Other special features of Windows XP include a new wizard that facilitates the configuration settings on the internet and local net. Windows XP also have firewall software for security. In 2002 Microsoft was raked number three in the Fortune Magazine. (Entrepreneurship zone, 2010)

3. Brand loyalty:

Brand loyalty is the extent of faithfulness of the customers or consumers to repeatedly or continuously purchase a particular brand irrespective of the marketing pressures generated by other competing brands. Microsoft enjoys brand loyalty to a great extent because of the good quality and updated products. Microsoft has customers all over the world who are loyal and satisfied with the services and the products of Microsoft.

4. Lower costs:

Microsoft provides lower costs for its products as compared with that of the competitors. The best example in this regard is Microsoft’s Internet Browser.

Microsoft introduced a high-quality browser in Windows and offered it to the consumers and OEM’s at no extra or explicit rate. This created difficulty and problems for the competitors to compete and gain market share. On the other hand if Microsoft would have launched an expensive or non-functioning Browser it would have made it easy for the competitor to penetrate and gain the market share. The low price and efficiency of the Microsoft’s Internet Browser has enhanced consumer welfare but eliminated competition. The issue has been taken by Judge Jackson as the Violation of Anti trust laws.

(Dominick Armentano, 2000)

5. Ownership:

Resource ownership is a fundamental barrier to entry in an industry. It is the control and ownership on the crucial inputs used in the production. This limitation in the ownership creates barrier to entry in the industry for others. Microsoft is the giant in the technology industry it doesn’t have many competitors. It is believed that it has monopoly in the market and does not let others enter it control most of the resources needed in the production, design and manufacturing of the soft wares and programs.

6. Legal protection:

Legal restrictions that prevent firms from entering and competing are also considered as the barriers to entry. These regulatory exclusions can restrain trade and can also harm the consumers. The legal barriers eliminate competition and give the consumer only few choices and less welfare and benefit. The legal barriers also protect the profits and the inefficiencies of the already present or the existing suppliers and for this purpose they exist. (Dominick Armentano, 2000)

Patents, copyrights and trademark are the names given to the legal protection provided to a company. These also forms barrier to entry for other companies. Microsoft Corporation also has many patents, copy rights and trademarks in the market that provides it legal protection and because of which it enjoys monopoly in the industry. It implies that no one can copy any of the matter or make ant thing like Microsoft other wise they will have to face legal actions.

7. Mergers and acquisitions:

Mergers and Acquisitions is a technique used by companies to eliminate or reduce competition.

Microsoft has acquires 128 companies, made 24 divestments and purchased stakes in 60 companies. 99 companies that were acquired were US based companies. Following is a list of the most prominent and major Acquisitions done by the Microsoft Corporation:

• On June 29, 1987 Microsoft Acquired Forethought.

• On December 31, 1997, Microsoft acquired Hotmail. It was the largest acquisition of all times.

• On January 7, 2000 it acquired a Seattle based Visio Corporation.

• On July 12, 2002 Microsoft purchased Navision.

• On August 13, 2007 it acquired aQuantative an advertising Agency.

• On April 25, 2008 Microsoft acquired the Norwegian enterprise a search company and Fast search and transfer (Hasen Fay, 2000) These were only a few of the acquisitions done by the Microsoft Company. Besides these there are a lot of small acquisition done by the corporation. from the year 1087 till 2005 the corporation acquired more than 10 companies. In the year 2006 it acquired 18 firms including Onflio, Lionhead Studios, Massive Incorporated, ProClarity, Winternal Softwares and Colloquis.

Not just that the corporation made some acquistuions worth 1 billion dollars which includes the acquisition of aQuantive, Fast Search & Transfer, Navision, and Visio Corporation. Profit Maximization under Monopoly: In a monopolistic firm the profit is maximized where MR=MC i. e. where the marginal revenue is equal to the marginal cost. At this situation the monopolist firm the maximum price the consumers are willing to pay. The monopolist makes profit at the point where the price exceeds the average total cost. The market power of the monopolistic company allows them to above normal profit.

Microsoft Corporation is a prominent and classic example of monopoly. It does not let the competition stay in the industry. As soon as it identifies any competition it acquires the competitor and makes it a part of the company. The aim of the company is to maximize the profit and sell the products to consumers all over the world. It sets the price as high as the consumers can pay and afford to pay. Conclusion: Microsoft Corporation is a multinational corporation that is famous all over the world for its excellence in the field and the introduction of new soft wares and technologies.

In spite of this it has always been the center of criticism by different Agencies, organizations and government for monopoly and the violation of the Anti-trust laws. It is a proven fact that Microsoft has created monopoly in the industry and does not let the competitor stay in the market. Microsoft works on the strategies that creates the barrier to entry for the competition, these barriers include: economies of scale and scope, product differentiation, brand loyalty, low costs, ownership, legal protection, mergers and acquisitions.

All these barriers as discussed above in detail with reference to the Microsoft Corporation. Today it has become very important to promote competition and end the monopoly in this respect a major role has to be played from the Government side. It has become very important that the government should take the initiative by removing the legal barriers to entry and exchange in the market. In this way the public (consumers) will also be benefited they will get a wide variety of products at minimum price because of competition. Monopoly is an unhealthy phenomenon and must be eliminated as soon as possible.

References

Dominick Armentano, 2000, Barriers to entry. Ludwig Von Mises Institute. Available form < http://mises. org/daily/509> [April 11, 2010]

Entrepreneurship zone, 2010, Product differentiation strategy Success stories. Available from < http://www. entrepreneurship-online. co. cc/2009/02/product-differentiation-strategy-1. html> [April 11, 2010]

Ezra, Bar, 2006, economies of scale Vs economies of scope. Available from< http://www. articlealley. com/article_38647_15. html> [April 11, 2010]

Funding Universe, n. d, Microsoft Corporation. Available form <http://www.fundinguniverse. com/company-histories/Microsoft-Corporation-Company-History. html > [April 11, 2010]

Google docs, n. d, Product Differentiation. Available from <http://docs. google. com/viewer? a=v&q=cache:freKbXfXiHoJ:www. sm. au. edu/uploadfiles/1184016243_Differentiation. pdf+product+differentiation&hl=en&gl=pk&pid=bl&srcid=ADGEESilm26FwwAL5Z9yeaxaLD4z0xCbhMUKJSH_Tmf3C9JVYAiyWHwkYCGrix2fSx4BujhMfCDdAex9teJIhvm8aVNblfLO5O8wOwyQ41S6DP8ZfvoqUrur1SbMjs5omLHOX2NH6CjY&sig=AHIEtbSwQM7wDE0P0jBZ3uxnFJOfKXphng> [April 11, 2010]

Hasen Fay, 2000, Global Mergers and Acquisitions Explode.

Business credit. Availible from< http://www. allbusiness. com/finance/597296-1. html>[April 11, 2010]

Microsoft, 2010, our mission. Available from<http://www. microsoft. com/en/us/default. aspx> [April 11, 2010]

PIE Software Inc, 2001, the history of Microsoft. Available from< http://www. piesoftwareinc. co. uk/textonly/microsoft. html> [April 11, 2010]

Tutor2u, n. d, Barriers to Entry. Available from <http://tutor2u. net/economics/content/topics/monopoly/barriers_to_entry. htm> [April 11, 2010]

Sloman, J and Hinde, K, n. d, Economics for Business. 4th edition. Prentice Hall.

As a Joint Stock Company I have Chosen The British East India Company. It was granted a royal charter in 1600 with the intention of securing trade with India for England by Elizabeth I.

A Joint Stock company has two or more individuals own all the shares of a company. Shares of stock are given in return for each financial contribution and the shareholders are free to transfer their ownership at any time by selling their shares to other share holders. These are known as private companies and the shares are not open to public sale or trading. Any corporate losses have to be paid by the shareholders so there is unlimited liability. Encyclopedia Britannica)| Limited Liability Company| Basically a limited liability corporation means if the company goes belly up, the wealth, and possessions of the owners cannot be taken to repay any debts of the business, only assets in the name of the business can be used to pay off the debt. To my amazement I found that McDonalds is a Limited Liability Corporation. (McDonalds, LLC Corporate home)| Partnership| A partnership is just as it sounds two, or more, people own a business equally.

They share all responsibility for the business between them. An example of a Partnership could be the original Johnson and Johnson Company. Now it is a LLC and sells stock, but originally it was a very small company started by 3 brothers in 1886 making surgical dressings. When originally started this was a partnership. (Johnson &Johnson )| Sole Proprietorship| A sole proprietorship is a one man show. Owned, operated, and responsible for all debts by one person.

This does not mean they might not have employees, but all the operations of the business are the responsibility of the owner. A good example of this that we might know of is The Dallas Cowboys. Jerry Jones owns the stadium, the team, and the contracts with the players, and all the rights to the team and the name including the cheerleaders’ name. (NFL 2011)| National Football League Dallas Cowboys. com Johnson and Johnson Corporation McDonalds USA Encyclopedia Britannica inc. copyright 2011