Marginalization of companies is the coming together of two or more companies that offer similar goods and services to form one legal entity. Several companies merge for the maximization of profits from their products, and reduce competition from other companies that perform similar duties. Over the years, several fashion companies have merged in the fashion industry. However, government involvement in the market economy aids in controlling and protecting both the consumer’s and the fashion industry itself. Role of government in market economy
Government plays a crucial role in the market economy by ensuring the laws and regulation are abide by, and control the production of the private sectors, although, over the years its efforts in controlling such economies are minimal and insignificant. Market forces of demand and supply play a major role in setting trends that such market economies follow. Economic growth, inflation, interest rates, wage rates of workers and unemployment rates are some of the fields the government takes part in controlling, to boost the Gross National Product (GNP) of the state.
The government solely protects the rights of the employees and consumers and offer of public goods. Government spending and expenditure are one way by which the government control market economies, with increased spending to increase cash flow in the economy, and increased expenditures to minimize cash flow in the economy. Such increases spending and expenditures aid in the control of inflation rates in the economy, in order to stabilize the fluctuating currency. This can be achieved by controlling the inflation rates and ensure price stability in all products produced, to benefit both low and high income earners.
Government spending and expenditure involve payment of taxes to and fro manufacturing industries, transfer payments, subsidies to various fashion institutions, transfer payments from the working in fashion industries to the retired and increased purchases. This, either directly or indirectly, increase or decrease the cash flow in the general economy.
Fiscal and monetary policies set, by the government, to control the inflation rates, by controlling the demand by the consumers on products. Fiscal policies aims at directly reducing the aggregate demand and includes; cut in government spending, increase in products taxation, introduction of new taxes and lowering the government borrowing.
Monetary policies set by the government aims at reducing the money supply in the economy with reduction of economic growth rate. Monetary policies include; restriction of direct lending to the government, increase of liquidity ratio of financial institutions, increase of rates on the cost of borrowing money and increase of the cost of borrowing by the commercial banks and larger financial institutions (Bouini, O., Coricelli, F. and Lemoine, F., pg44-45).
Public goods and services, which are rendered universal, are only best supplied by the government. Security of institutions, such as, patent rights and copyrights, are only offered, by the government, to protect the stealing of ideas or products from the original company.
Public products are best offered by the government since private sectors will aim at maximizing profits with low quality or counterfeit products, unlike the government which aims at offering best services to the public, equally with no discrimination to all. Infrastructure, education, health facilities and services are the principal supplies by the government in the state. Such services aims at equal distribution of resources at affordable prices and available to all. Government ensures fair allocation of resources by correcting any market failures in the economy and checks on the merits and demerits of goods supplied in to the market economy.
This ensures that no counterfeit and substandard goods are released into the economy. Also, allocation of resources by the government is achieved by controlling monopolies industries, such that such industries do not exploit the consumer’s by setting high prices for the benefit of the industry. The government also checks on externalize, both positive and negative, in the production and consumption of products in the economy. Difficulties faced during self expansion
As much as the advantage of monopoly, reduced competition and high profits witnessed under merging of different fashion firms, still, such merges face threats. Managerial and planning problems are the leading threats in merges, which can be overcome by single self expansion rather than merging of two different managed firms.
However, self expansion has several complexities, which especially relate to capital. Self expansion faces the threat of potential net loss in the sense of self or individual firm. New opportunities in the existing market structures are ought to be sought, which might render difficult for single firms, which is more expensive than merged fashion firms.
Such industries feel less prepared to face present and current expected challenges to face future goals, which minimize the firm’s efficiency. Such challenges can be overcome by increased expenditure in employing experts to determine the expected trends for the expansion of the firm. Financially, self expanding firms renders it difficult while expanding, as compared to merges (Abrams, D., Hogg, M.A. and Marques, M., pg117).
Convergent of different forces Upon the merging of different firms with a leading goal, managers and stockholders should have common, convergent decisions for the effectiveness of merge. Interest of the both parties should be considered for competiveness cognitive and development of the partnership formed. Stake holders of firms aims at maximizing profits, and their key aim is the returns on the profit the partnership will make. Rules under which the partnership works under are set by the legal board set, and lay out what ought to be achieved.
Managers and directors of such firms make decisions that aid in proper financial management of the firm in maximizing profits. Managers have the central power in the partnership, although, the main objectives to e achieved by the managers are set by the stalk holders. Board of directors is set, with each stalk holder’s representative. The board is the eye of shareholders, and aids in the proper and effective working of managers in order to achieve the interest of the partnership. The strict interest of shareholders and those of employees are considered under the working condition of managers.
Upon the merging of two or more firms, the interest of the shareholders comes first. The shareholders set the guidelines on which the managers should strictly follow. The board is composed of shareholder’s representatives, who watch the activities carried out by the managers and directors of the partnership. As much as the industry aims at maximizing profits, the shareholders interests play a leading role (Clarke, T., pg301).
Merges of different firms aiming at a common goal have an advantage over self expanding firm, in that, the merge will face minimal competition and are in a better position to finance projects in expanding the merge. The main aim of such merges is maximizing the profits of the industry, with shareholder’s interest as the key aim. Objectives laid by such merges are meant to be abide by, under all working conditions, and all core decisions made by the managers and directors should be as per the shareholders.
Although, with time, the government does not take crucial role in controlling the market economy, its efforts are required in every economy. Government ensures proper allocation of resources, redistribution of opportunities and stabilization in the market economy. Although government intervention in the market economy by the government is minimal, proper supply of quality goods at affordable prices is maintained.
References Abrams, D. H. (2005). The Psychology of Inclusion and Exclusion. New York: Psychology press publishers. Bouini, O. C. (1998). Different Paths to a Market Economy. Balton: OECD publishers. Clarke, T. (2009). European Corporate Governance. London: Taylor and Francis publishers.