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where he could locate a second shop. While he was evaluating several sites, Mervyn ran into an old friend, Max Guthrie, who indicated that he was looking for a business to start.
After some discussion, it was decided that Max and his wife Kristin would form an equal partnership with the Joneses and start a business selling items similar to those sold at Peggydale, in Arrowtown. Arrowtown is only 18 kilometers from Queenstown and is itself a tourist destination. The major attraction is the buildings and shops that have been restored to reflect Arrowtown's gold mining past. Town officials note that, "Arrowtown is an ideal central point for the Southern Lakes tourist area with the bright lights of Queenstown only 15 minutes away. Arrowtown itself has many attractions to offer with an array of shops and services, eating houses, hotels and accommodations, craft outlets, and historical points of interest."
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The new business, the Golden Fleece, is in a leased building about half the size of the Peggydale shop and is already producing revenue in excess of $600,000 (see Exhibit 5). It can be seen from the balance sheet that the partners did not incur much bank debt to start their new business (see Exhibit 6). While the Golden Fleece is only in its third year of operations, it appears that the business will be quite successful for both the Guthries and the Joneses.
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PROBLEMS
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Peggy dale and the Golden Fleece are currently quite profitable, but there are at least two trends which concern the Joneses and the Guthries. The first is the general slowing of the New Zealand economy. Since deregulation, privatization,
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and restructuring began in the early 1980s, there has been a general downturn in the economy. Inflation is decreasing, but unemployment is high (about 11 percent), and the government is cutting spending in all areas. Reacting to this downturn, many New Zealanders are also spending less money, especially for non essentials. If this trend continues, sales at both Peggydale and the Golden Fleece could decrease.
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The other trend, a decrease in international tourist spending, is of more concern to the Joneses and Guthries than is the slowing economy. To maximize profits, the Joneses and Guthries need to be able to anticipate their inventory needs and purchase accordingly. Not being able to forecast tourist visits makes it difficult to determine inventory needs. Compounding the problem is the changing mix of international tourists visiting New Zealand. According to Mervyn, tourists from different countries do not necessarily have similar tastes. For example, items that appeal to Japanese may be of no interest to Americans, and items bought by Singaporeans may be ignored by West Germans.
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The Joneses and Guthries know that they can do little about the slowing economy, and they cannot do much about the tourist business. However, if their businesses are to continue to prosper, the Joneses and Guthries need to devise ways to keep Peggydale and the Golden Fleece growing