Best Buy gets its supplies from a wide variety of both domestic and international vendors. The five companies that supply Best Buy with products and are well known globally are Sony, Hewlett Packard, Samsung, Apple and Toshiba. The company believes that global sourcing is an important aspect to the success of the business which affects the financial performance of the company. It also allows Best Buy to have a competitive edge over other retailers because of its affiliation with well known brands.
Finding qualified vendors has proved to be a challenge because they have to meet Best Buy standards and supply products effectively and efficiently. This is especially difficult for those countries that are outside the United States. To deal with this problem, Best Buy operates a global sourcing office in China which enables it to purchase products directly from the manufacturers in Asia. This office has improved the product sourcing efficiency process (United States Services Commission, 2009).
Best Buy is facing competition from home-improvement retailers who are expanding their products to cover an assortment of appliances for many home owners across America. It also competes against independent dealers, regional chain discount stores, mobile phone service carriers and other specialty retail stores based in America. The competition coming from mass merchants is as a result of them increasing their product range to those products that are easy to sell, install and use. Mass merchants have also been able to expand their product offerings to the higher end categories (United States Services Commission, 2009)
The Internet is also a form of competition since more people now are downloading, music, music software, movies and computer software directly from the Internet. The retail business is basically highly competitive. Best Buy has to compete for customers, employees and products with other local, regional and international retailers. This forces price reductions or an increase in cost of operations due to pressure from competitors who have a greater market presence and financial resources (United States Services Commission, 2009).
Price control is the government’s imposition on the prices of goods and services that are being offered by companies to the consumer market. It is frequently used by the government for political and economic reasons. According to Bowbrick (1976) the economic reason for price controls is to slow down the rate of price increases by controlling the cost of goods while the political reason is to convince people that a section of the society is not making excess profits and that there is controlled inflation.
Price control on Best Buy is meant to maintain the affordability of electronic products to the many consumers who might be in need of a refrigerator, digital television or DVD players. It therefore prevents giant retailers like Best Buy or Circuit City from exploiting consumers when it comes to the cost of goods.
Baumol and Blinder (2009) noted that a key requirement for preserving a monopoly is the exclusion of potential rivals from the market. A way to achieve this is to create impediments that prevent new entrants to the industry. Such impediments are known as the barriers of trade. Examples of barriers of trade include patents, Government restrictions, economies of scale and the firm’s assets. Michael porter (1998) describes government restrictions as barriers that come in the form of restricting competition by granting monopolies and regulating industries. Utility industries are considered natural monopolies because it is considered more efficient to have one utility provider than two.
Patents and intellectual property serve as a barrier restricting entry into an industry. The government issues exclusive production rights to a company for a specified period of time to produce certain products. As long as the patent is in effect, the company has monopoly in the production of the product (Baumol & Blinder, 2009).
Best Buy has invested in intellectual property by using trademarks, service marks and trade names to differentiate its products. Some of its intellectual property includes Best Buy Mobile, Future Shop, Geek Squad, Napster, Pacific Sales, and The Phone House. Best Buy’s trademarks and service mark registrations have a ten year renewable term and they play a significant part in the marketing of the company’s products (United States Securities Commission, 2009)
Asset specificity is the extent to which a firm’s assets can be used to produce a different product. When an industry requires specialized equipment, potential entrants will find it difficult to meet such requirements. Firms that already have specialized assets will resist efforts by other companies from taking the market share (Porter, 1998). Economics of scale are a barrier when large firms have a higher cost advantage over small firms because of their size. This makes it difficult for any new entrant in the electronic industry in the U.S. to compete with a large firm like Best Buy (Baumol & Blinder, 2009).
Best Buy’s gross profit increased by 0.5% which was driven primarily by the inclusion of Best Buy Europe. During the fiscal year of 2010, Best Buy expects to open 65 new stores in the U.S. Europe, Mexico, Canada, China and Turkey. This will increase its market share both locally and internationally and also improve its profits, revenues and earnings (USSEC, 2009).
Bowbrick, P. (1976) Market-margin investigations and price control of fruit and vegetables. Irish Journal of Agricultural Economics and Rural Sociology. 6 9-20 FundingUniverse (n.d.) Best Buy Co. Inc. Retrieved 29 April 2010 from http://www.fundinguniverse.com/company-histories/Best-Buy-Co-Inc-Company-History United States Securities and Exchange Commission, USSEC (2009) Best Buy Co. Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Fiscal year ended February 28, 2009. Pp.4, 10, 12, 14 Baumol, W.J & Blinder, A.S. (2009) Economics: principles and policy. 11th Edition. United States: South western cengage learning. Pp.219-220 Porter, M.E. (1998) Competitive strategy: techniques for analyzing industries and competitors. United States: Free press