Introduction To Business Topic 3 PDF

Introduction to Business Topic 3: Business Environment V1.0 Competition and Market Structures © NCC Education Limited  Introduction to the Module Topic 1 - 1.2 Learning Objectives What is: Competition Market Structures © NCC Education L...

Introduction to Business Topic 3: Business Environment V1.0 Competition and Market Structures © NCC Education Limited  Introduction to the Module Topic 1 - 1.2 Learning Objectives What is: Competition Market Structures © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.3 What is Competition? General: Business: Any rivalry Businesses acting independently to offer the consumer the most favourable terms © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.4 Competition This creates a healthy Businesses operate in business environment that competition with each benefits both businesses other and the customers. © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.5 Why Competition is Important? If there is only one retailer the product may not be competitively priced. If there are several retailers each retailer will lower the price in an attempt to win customers. © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.6 Class Exercise Think about a local company with which you are familiar and discuss: who their competitors are how these might effect them and their customers 10 minutes © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.7 Definition of a Market A market is an arrangement whereby goods or services are exchanged for money. © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.8 Barriers to Entry into a Market High start-up costs or other obstacles that prevent new competitors from easily entering an industry or area of business These benefit existing companies already operating in an industry because they protect revenues and profits from being reduced by new competitors. © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.9 Some Examples of Barriers Technological patents Patents on business processes Strong brand identity Strong customer loyalty High customer switching costs Trademarks High funding requirements © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.10 Low Barriers If only a small amount of capital is needed to set up business in a market the barriers to entry in that market are low. Likely that many firms will be operating in that market so… Likely that competition will be high © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.11 High Barriers In markets where a large amount of capital is needed to start up operations, the barriers to entry are said to be high. Likely that only a few firms will be operating so… Likely that competition will be low © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.12 For Example If you want to open a fruit and vegetable shop, it is relatively easy to do so; the barriers to entry are low. If you wanted to become a manufacturer of cars, the barriers to entry are considerable. You will need several billion dollars to be able to compete with existing firms in the market. © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.13 Market Structures Market structure refers to the state of a market with respect to competition. Broadly, there are four major market structures: Perfect Competition Monopoly Oligopoly Monopolistic Competition © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.14 Perfect Competition Many buyers and sellers Sellers have to accept the market price Individual seller cannot influence price All companies sell the same product Free entry and exit to industry © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.15 Examples of Perfect Competition Although a perfectly competitive market is never found in practice, the following all have a lot of the characteristics: Currency Markets Stock Exchange Agriculture Bond Markets © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.16 Monopoly A monopoly is when all, or nearly all, of the market is dominated by one seller, producer or group. The business may make higher profits. Noted absence of competition which may lead to: - Higher prices - Low quality products - Less choice © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.17 Examples of Monopolies Utilities such as: Gas Electric Cable Water Television Companies © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.18 Oligopoly May be large number of firms in the industry Industry is dominated by small number of very large producers Competition amongst the few High Barriers to entry Price stability Abnormal Profits Interdependence between firms © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.19 Examples of Oligopolies Supermarkets Broadcasting Medicinal Drug Companies Banks and building Oil companies societies © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.20 Monopolistic Competition Many Buyers and Sellers The product differs from other products in some way. The exact product cannot be obtained from another source. Some control over price Brand loyalty Can raise prices without losing all of its customers Tiny monopoly over product Relatively free entry and exit © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.21 Examples of Monopolistic Competition Restaurants Cereal Shoes Clothing © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.22 Class Activity Monopolistically competitive markets can be found in a wide range of industries: One major area is in clothing retailing, and other small businesses. Many service markets are monopolistically competitive, e.g. restaurants and shoe shops. Make a list of other examples 10 minutes © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.23 Porter’s Five Forces Supplier Power Barriers to Competitive Threat of Entry Rivalry Substitutes Buyer Power © NCC Education Limited V1.0 Porter’s Five Forces: Barriers to Introduction to the Module Topic 1 - 1.24 Entry Absolute cost advantage Sup plier Access to inputs Power Government policy Barriers to Economies of Scale Entry Competitive Riva lry Threat of Sub stitute s Capital Requirements Brand Identity Buyer Power Access to distribution Expected retaliation © NCC Education Limited V1.0 Porter’s Five Forces: Supplier Introduction to the Module Topic 1 - 1.25 Power Supplier concentration Importance of volume to supplier Supplier Differentiation of inputs Power Impact of inputs on cost or differentiation Barriers to Competitive Threat of Entry Rivalry Substitutes Presence of substitute inputs Threat of forward integration Buyer Power Cost relative to total purchases in industry © NCC Education Limited V1.0 Porter’s Five Forces: Threat of Introduction to the Module Topic 1 - 1.26 Substitutes Switching costs Buyer preference for Sup plier Power substitute Price performance Bar riers to Entry Competitive Riva lry Threat of Substitutes Trade-off of substitutes Buyer Power © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.27 Porter’s Five Forces: Buyer Power Bargaining leverage Sup plier Buyer volume Power Buyer information Bar riers to Competitive Threat of Brand Identity Entry Riva lry Sub stitute s Price Sensitivity Threat of backward Buyer Power integration Product differentiation © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.28 Class Exercise Imagine you are entering the fast food industry, starting a chain of high-end street food restaurants in a country of your choice. Perform a Porter’s Five Forces analysis. What could you learn from this analysis to help you decide how to enter the industry? © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.29 Conclusions Businesses operate in competition with each other and this creates a healthy business environment. Market Structures comprise of perfect competition, monopolies, oligopolies and monopolistic competition. © NCC Education Limited V1.0  Introduction to the Module Topic 1 - 1.30 Topic 3 Any questions? © NCC Education Limited V1.0