The world's funniest economics stories

Chapter 31 Good business depends not on collisions but on skills (1)——
Managerial Economics

1. Airline in low season - fixed costs and variable costs

Ms. Milan is a shareholder of an airline company.Once, when she took her own company's plane, she accidentally discovered that there were only 200 people in the 40 seats in the cabin.Subsequently, she encountered several similar situations during this period.So, she began to worry about the company.Worried, she finally decided to talk to a friend who studied economics, and asked him to help analyze whether it was time to sell the company stocks she held.

In response to Milan's worries, her friend Charles, who studies economics, made an analysis from the distinction between short-term and long-term economics.In economics, short-term and long-term are not the concept of the length of time as generally said, but the variability of factors of production.In the short run, factors of production are divided into fixed factors of production and variable factors.

Fixed production is a factor of production that does not change as variables change.As far as airlines are concerned, aircraft, staff, etc., regardless of the number of flights and the number of passengers, these factors of production are constant.

Variable factors of production are factors of production that change with changes in output.Such as the fuel consumed by aircraft flight and the factors of production generated by changes in the number of passengers and the number of flights.

In the long run, all factors of production are variable. The more flights and passengers, the more planes can be purchased and more staff can be hired.When it is difficult to maintain operations, staff can be fired or aircraft can be sold.For each enterprise, because the fixed and variable factors of production it uses are more or less different, the difficulty of adjustment is different, and the short-term and long-term time lengths are also different.For civil aviation companies, the long-term time is longer.

Therefore, long-term and medium-term costs are variable, but short-term and medium-term costs are divided into fixed costs and variable costs.Expenditures for fixed factors of production [such as aircraft maintenance fees of civil aviation companies, staff wages] are fixed costs, and expenditures for variable factors of production [gasoline fees] are variable costs.The sum of the two is the short-run total cost.The cost allocated to each passenger is the average cost, including the average fixed cost and the average variable cost.

Like other companies, if in the long run, the airline's revenue exceeds its cost, it will be profitable; if its revenue equals its cost, it will have no profit; if its revenue is less than its cost, it will go bankrupt.It can be sustained as long as the benefits are equal to the costs.Everyone understands this truth, but the key is in the short term, what are the conditions for airlines to survive.

Charles told Milan that the airlines in which she held stocks were still in operation, which meant that the ticket prices must be high, at least equal to the average variable cost.The planes bought by the company cannot be sold in the short term, and the staff cannot be fired.Even if you don't fly, you still have to pay for aircraft depreciation and wages.Although there are not many passengers, but the benefits brought by these passengers are greater than or equal to the gasoline and other expenses during the flight, they can continue to fly.

Variable costs, within a certain range of sales, costs that do not change with the increase or decrease of sales are called fixed costs.The cost that changes synchronously with the increase or decrease in the quantity of products sold is called variable cost.

Variable costs typically include commissions and bonuses, postage, shipping, some taxes [VAT], transportation, advertising and sales promotion, etc.

2. Marriage of interests or big fish eat small fish -- cooperation and mergers need to be cautious
In the history of Li Ka-shing's fortune, the acquisition of Hutchison Whampoa with his subsidiary Cheung Kong is undoubtedly a successful feat. This feat paved the way for him to become the richest Chinese businessman.

Hutchison Whampoa is composed of two parts, one is Hutchison & Co., and the other is Whampoa Dockyard. In August 1975, in order to enrich capital, Hutchison received a capital injection of 8 million Hong Kong dollars from HSBC at the price of one-third of the equity.HSBC reorganized it into Hutchison Whampoa Limited in 1.5.

Li Ka-shing also started his own acquisition plan during this period. He knew all this well, but he was not in a hurry to acquire Hutchison Whampoa immediately. With the current liquidity, he may not be able to purchase enough stocks to ensure an absolute controlling position. Therefore, Li Ka-shing secretly met with the then shipping tycoon Yu-Kang Pao, and proposed that he transfer Wharf shares to Yu-Kang Pao, and Yu-Kang Pao gave Li Ka-shing 1000 million shares of Hutchison Whampoa, and helped Li Ka-shing acquire Hutchison Whampoa, at this time Li Ka-shing's purpose became clear, and his acquisition was half completed.

What Li Ka-shing did next showed his wisdom even more. He followed suit and gave up the acquisition of Wharf without offending HSBC.Now Li Ka-shing controlled the Hutchison Whampoa of HK$7.1 billion with his own assets of only 9000 million, becoming the first Chinese in Hong Kong to control a foreign firm.Since this incident, Li Ka-shing's career has embarked on the road of superiority and prosperity.

This little story that reflects Li Ka-shing's extraordinary economic mind reveals to us a truth: cooperation and mergers must be cautious.

Mergers and reorganizations refer to corporate mergers and equity transfers that are carried out in accordance with certain procedures when some companies cannot continue to operate normally due to certain reasons, taking into account the interests of employees and other aspects, so as to realize the transformation of the company and achieve the goal of corporate reorganization. Purpose.

The above short story is a good example of a cooperative merger.In the story, Wharf is a family business. Acquiring it means that it has to deal with various obstruction problems. At the same time, it will offend its peers, and the price it will pay will be very high.However, as a public enterprise of Hutchison Whampoa, as long as the interests of all aspects are properly handled, the takeover will be smoothly completed and the acquisition will be completed.If mergers and reorganizations are not done correctly, a company may be destroyed. The key lies in the level of acquisitions and the ability to integrate assets after acquisitions.

The merger and reorganization of enterprises must follow certain principles, adhere to the principle of mutual voluntary consultation between enterprises, and not be restricted by the affiliation of regional ownership industries; must comply with relevant national laws and regulations and industrial policies, and based on complementary advantages, it is conducive to optimizing the structure and improving the economy. Benefits; the merging party has the ability to assume the debts of the merged company and increase capital investment in the merged company, revitalize the stock assets, and invigorate the company; it must not harm the public interest, the rights and interests of creditors and employees, and must not form a monopoly or hinder fair competition ; Conform to the direction of establishing a modern enterprise system, operate in accordance with the new enterprise management mechanism, promote the reform, reorganization and transformation of state-owned enterprises, and strengthen enterprise management.

Corporate culture integration refers to the process of consciously sorting out different cultural tendencies or cultural factors in an enterprise and combining them into an organic whole. It is a process of integrating cultural propositions, cultural awareness and cultural practice.In order to achieve from disorder to order, corporate culture must be consciously integrated.

Corporate culture innovation means that as a business entity based on the combination of people and people, its business behavior must eventually be personified. people to execute.

It is precisely because of this that the system innovation and business strategy innovation of the enterprise will eventually be reflected in the value concept of people, that is, in the form of corporate culture.The corporate culture mentioned here, as far as its form is concerned, it belongs to the category of human thought and refers to the value concept of human beings; as far as its content is concerned, it refers to the activities related to enterprises such as corporate system and business strategy. A reflection of the human mind.Therefore, corporate culture is also an extremely important issue for the efficient development of enterprises.

There are five main forms of mergers and reorganizations: assuming debts, that is, the merging party assumes all the creditor’s rights and debts of the merged party, receives all the assets of the merged party, and arranges all the employees of the merged party, thereby becoming the investor of the merged company; The merger mode means that the merging party contributes to purchase all the assets of the merged party; the holding mode means that the merger party obtains the controlling right of the merged company through acquisition or asset conversion; the authorized operation mode means that the investors of the merged party will be merged All the assets of the enterprise are authorized to be operated by the merging party; in the merger type, two or more enterprises are merged by signing an agreement to form a new enterprise.

3. Products are like people, and they also have birth, old age, sickness and death--looking forward to the product life cycle
In the 20s, there were very few types of toothpaste on the market, far from the rich variety on the market today.All you can buy are those types, so the toothpaste market is not very prosperous.

At this time, a daily chemical factory in Beijing developed a medical toothpaste with great foresight. They incorporated Chinese herbal medicine into the toothpaste, making the ordinary toothpaste more health-care, so they promoted the product to the market .Once the product was promoted, it aroused a lot of praise from consumers, and the sales volume was also very good.

Mass production of this medicated toothpaste began in 1978, and the product has since become one of the few best-selling brands of toothpaste on the market.In this case, manufacturers should expand production capacity, increase the number of products, meet market demand, and strive for more profits and praise for themselves.However, at that time, there were problems in the decision-making of the leaders of the manufacturers, and the cash flow was cut off, which made the expansion of production capacity a bubble.

It was not until 1982 that the pharmaceutical toothpaste began to expand its production capacity, but it took them as long as 3 years from product launch to maturity.During this period, the medicated toothpaste industry sprung up. This medicated toothpaste remained on the market for about 3 years. By 1985, the product was unsalable and entered a premature decline.After this difficulty, this medicated toothpaste tried to occupy the market at a low price, but due to the rise in raw material prices, the production cost of enterprises increased, and the production of medicated toothpaste began to gradually lose money.

This little story reveals an economic principle - the product life cycle.

Product life cycle, referred to as PLC, refers to the market life cycle process that a product goes through from entering the market until it finally exits the market.A product's market life cycle begins only after it has been researched and developed, tested for sale, and then entered the market.When a product is withdrawn from the market, it marks the end of the life cycle.

The product life cycle is divided into four stages: "introduction", "growth", "mature" and "decline", and each stage must have a specific marketing strategy.If only one method is used to treat the product, it is easy to make the product face the danger of being eliminated.

In the short story above, the manufacturer did a particularly good job in the first stage of the product life cycle, making a new product enter the market and gaining high praise and profits.

In the first stage of the life cycle, many customers are very interested in emerging products, so at this stage, the turnover is relatively high.However, manufacturers do not do well in the last three stages of the product life cycle. In the second stage, customers are already familiar with the product, a large number of new customers start to buy, and the market gradually expands. At this stage, manufacturers should increase their products. Production volume, so that more goods enter the market to meet consumer demand.But at this stage, the manufacturer did not expand the production capacity, which made the manufacturer give up such an excellent opportunity.In the last two stages of the life cycle, as more competitors in the same industry join the production, the cost of the product is reduced. The improvement of technology makes the product unsalable, and finally becomes impossible to continue to develop.

Grasping and understanding the life cycle of a product is very important for an enterprise. Many products are withdrawn from the market because the decision-makers have not grasped this rule well, making the product no longer popular.

The stages and characteristics of the product life cycle:
(End of this chapter)