Question 1: How can financial strategies make it more difficult for new firms to enter the industry and compete with your firm?
To existing firms, new entrants are strong threats to them. New firms are tend to bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete. Therefore, incumbents take advantage of financial strategies to prevent from new entrants. There are different financial strategies can help incumbents compete with new firms, such as initial public offer, changing capital structure, patents, capital budgeting and cash management. For example, starting in the 1970s, retailers such as Wal-Mart, Kmart, and Toys “R” Us began to adopt new procurement, distribution, and inventory control technologies with large fixed costs, including automated distribution centers, bar coding, and point-of-sale terminals. During 1970s, Wal-Mart was a first-mover in upgrading and improving its technological capabilities. It used computers, satellite, and information systems in communicating with vendors, electronically purchasing orders, tracking sales and inventory, identifying slow-selling. These investments increased the economies of scale and made it more difficult for small retailers to enter the business (and for existing small players to survive).
Question2: How can the right financial decision help overwhelm or outgun existing competitors? Merger and acquisition activities are useful financial tool to help companies overwhelm other competitors. Merger and acquisition can help companies to achieve growth and increase market power in order to beat other existing competitors. In December 1999, Exxon and Mobil agreed to terms on a $75.3 billion merger and formed ExxonMobil Corporation. Since the deal was announced, Exxon shares have risen a spli0074-adjusted 85%, miles ahead of the 1.4% rise in the S&P 500 and the 21% in the DJIA. By 2008, the combined Exxon Mobil had...
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