Characteristics of the Industry the Pty ltd Would Enter - Example

Pty Ltd Business Plan Name: Institution: Course: Date: Introduction The Pty ltd business plan is based on the activities of the company for the fiscal year June 2011 to June 2012. The company’s activity is to transport heavy plant and equipment from the purchase premise to the site where the construction activity is taking place in the Newcastle and Hunter valley region. Pty ltd is a privately owned company registered as per the rules and laws contained in the Australia’s company act. It is also duly registered by the registrar of companies as a well established private company that engage in the transport business. Pty ltd transportation activities of heavy plant merchandise to the sites of construction are limited within the region of Newcastle and Hunter valley. The company targets customers from varied locations in the Newcastle who engage in constructions such as building of houses and construction of roads. The company plan to enter into the market through seeking of tenders in the construction institutions and government enterprises as well as liaising with the sellers of heavy plants and machines. This would assist the company to be informed by the sellers whenever the purchasers of the heavy plants do not have the means of transportation readily accessible to them. The company’s vision is to become the leading transportation company in the Newcastle and Hunters valley with the goal of customer satisfaction through quality service. The company takes seriously the suggestions of the customers to assist in service improvement, an effective and efficient customer service that responds promptly to the needs of the customers and a management that cares for its staff to ensure that they are motivated to diligently respond to the demands of the customers. The main source of the finance for the company would come from the contribution from the shareholders. The company is projected to experience loses from the first few months from the start of the business before it begins to make profits (How to Write Business Plan, June 1991). Nature of the Market The industry the Pty ltd would enter has monopolistic characteristics. In this market, there is one large firm that renders the same service as Pty ltd. A number of firms produce the services that are viewed by the customers as close substitutes. Each firm differentiates their services by making the services unique to the customers that make them view the services as close substitutes. The firms in the industry have legal monopoly on the service and trademarks such that the firms produce differentiated service. The decisions of one firm to its supply output is very significant to the competitors to the extent of how much they would supply and the price they would charge in the market (Korda, 2005). The output supplied and the prices charged by other firms in the industry would determine the amount the firm would supply in the market. This therefore implies that the firm’s demand curve is determined by other firms’ output and the prices they charge on their services. The magnitude of the slope of the demand curve also depends on the extent of similarity of the service a firm produce compared to those produced by other firms in the industry. When the firms in this industry produce the same service, the demand curve facing the firms would be flattened. This means that the price of the service in the industry would be the same to all the firms (Boyes, 2004). Any firm that raises the price above what the other firms are charging would not sell in the market and would end up losing customers. But when the firm has the legal monopoly on the product, it can raise the price of the product beyond what other players in the market charge without losing all of its customers. The customers can switch to the other products offered by the competitors in the market because of the increase in the price but not all of them would shy away from purchasing the product. The extents of the number of customers who switch from purchasing the product depend on the perception by the customers on the similarity of the products. The monopolistic nature of the industry the Pty ltd is entering gives it an opportunity of differentiating its service. The more they are capable of differentiating their service the more they will have monopoly power over the product they are offering which in their case is the transportation of heavy machinery and equipments to the construction sites for its customers. Because of the ability of the Pty ltd to set its own price and as a result would have a market power. At the same time, it must compete for customers with other players in terms of the services they are offering and the price they are charge on them. The firms in the industry are also aware that the barriers to entry are limited and new entrants are free to enter and exit. When the monopolistic industry has no restrictions to the entrance of new players, the demand curves of the firms already in the market would have to change. The demand curves of these firms would shift downwards and would eventually sell fewer products at each price imposed by the firms. When the firms continue into this industry with the intention of making profits the equilibrium condition is satisfied when each firm sell at a price there bears the price and quantity combination in its demand curve. The firms must also be maximizing profits given its demand curve while on the other hand; the free entry of firms into this market should force the firm to earn zero profits. If a firm charges a price less than the breakeven price, it would end up losing money while charging the breakeven price would result in the maximization of profits. The new entrants into the market have to face some challenges related to the market. The entrants go into the industry where the incumbents have created themselves reputation in the market and an established customer loyalty to the product. Persuading the customers to change their habits on the consumption of the product is extremely difficult while on the other hand creates goodwill for the existing firms (Besanko et al, 2010). In an environment where there are no regulations, the incumbent firms because of their size might take advantage of economies to scale to cut down on the prices of their products. The new entrants because they cannot sell beyond the price set by the incumbent firms might incur losses because of their inability to take benefit from the economies of scale. This can make them suffer losses to the extent that they have no other choice but to exit from the industry. In order to greatly profit in a monopolistic industry, a firm ought to employ modern technology that improves on efficiency and capacity to cut down on prices. The new entrants who do not have the capacity to employ new technology in this kind of market would be disadvantaged, in the sense that the rest of the players who operate on new technology might find it cheaper to produce and hence reduce their prices. Service Analysis The service offer by the Pty ltd would have a great opportunity in the market. From the analysis of the industry, the hire companies are experiencing a raise in the sales. This would result in the increased demand for the transportation service and this would open up the market for the Pty ltd. Since Pty ltd is entering the market at the time when the demand for the service is on the rise, they would most likely incur a reduction of the effect of competition in the market where competitors try to differentiate their services and engage in price wars when price differentiation is minimal. Instead of the competitors focusing much of their efforts on competing Pty ltd, they would rather be trying to meet their demand. This presents a great business opportunity to the Pty ltd to venture into the market without encountering many barriers to entry. The strong ethical code of the company makes Pty ltd a competitive in the industry. Pty ltd strongly value virtues of honesty, integrity, timeliness and proper customer service for quality service for the customers. It creates positive linkage between the company and the customers that develops a bond and a lasting legacy. Demand is also expected to be sluggish at the beginning of the business fiscal year but expected to pick up as the time continues. At the end of the month of July in the year 2011, the company is expected to encounter losses but by the third month of October in the same year it is expected that it would have started to make positive net operating cash flows. The pricing strategy that would be adopted in this industry should match to the pricing by other competing firms in the industry. Pty ltd would set its price to equalize the price level of the other firms in the market offering the same service. Setting the price above the rest of the firms would make the business less competitive and end up losing money while on the other hand, setting the price the below the breakeven price would make the business make loss and may result in a shutdown (Indersta & Wey, 2007). The business is expected to grow over the fiscal year 2011/2012 with an average growth rate of 26 percent. The stimulant of growth is the increase in service provision and customer base that would lead to an increase in the level of income received. The company would manage to keep the cost constant other than the wages that result in additional workers required for effective and efficient provision of service to the customers. Buyers in the Industry The industry of transportation of heavy plants has both the large buyers such as the Griffiths transport and Hogan’s Haulage and small buyers. There are benefits that accrue in being considered a large buyer and disadvantages of being a small buyer. Large buyers usually purchase their products in bulk and this guarantees them the power to negotiate with the seller on the basis of discounts, credits as well as the amounts payable to the seller. It is also easier for a large buyer to establish itself in the market because of its high propensity to be trusted by the customers. Their services would also be found in most locations within the Newcastle region and therefore brings convenience to customers because of its nearness to them. The small buyers on the other hand do not have the power and therefore limited in negotiation of the price. They would be subjected to follow what the large buyers have set as prices because of that limitation. Opportunities and Threats In the heavy plant industry, there are few substitutes which significant reduce the buyer power. The rail network in the Newcastle region is not enough to enable supply of deliveries in the whole region of within 200km. The study of the heavy plant industry has showed that buyers have been increasingly unable to cancel heavy transport deliveries. There is also a threat of the adverse weather conditions in the area (Australia competition and consumer commission, July 2010). Globalization The industry faces challenges that originate from within and outside the region. It faces a serious problem of piracy along the coastal region of Somalia on its imported merchandise of machines and equipments. Insuring them has proved very expensive because of the dangers involved for their safety delivery. The industry is also faced with the challenge of steady rise in the international price of fuel. This would translate to increase in the overheads in the firms and a possible increase in the price of the plants. Recommendations and Conclusions The Pty ltd should pursue closer ties with the customers as well as adopting efficient methods of consumption of fuel. They therefore invest in technology (Australia Institute of Petroleum, 2010). The monopolistic characteristics of the industry make it hard for the Pty ltd to establish a competitive edge compared to other firms due to other strong players in the market. To obtain a competitive advantage, the firm should create a good reputation amongst the customers and market their service to differentiate it from the rest creating loyalty and monopoly power. References Australian Competition and Consumer Commission (2010, July) Petrol and Other Fuels Viewed on April 10 2011 from http://www.accc.gov.au/content/index.phtml/itemId/11938 Australian Institute of Petroleum (2010, July) Average Weekly Retail Prices for Diesel Fuel, Week Ending Sunday, 18 July 2010. Viewed on April 10 2011 from http://www.aip.com.au/pricing/retail/diesel/index.htm Besanko, D., Dranove, D., Shanley, M. & Schaefer, S. (2010). Economics of Strategy 5th Edition, New York: John Wiley & Sons. Boyes, W. (2004) the New Managerial Economics, Boston, USA: Houghton Mifflin Company. How to Write a Business Plan (June, 1991). Small Business SuccesS. Indersta, R. & Wey, C. (2007) Buyer Power and Supplier Incentives, European Economic Review, 51(3) 647-667. Korda, M. (2005, September) Transport Industry: Industry Vitals. Viewed on April 10 2011 from http://www.kordamentha.com/downloads/ResearchUnit/Publication%20505%20-%20Transport%20Industry%20-%20Industry%20Vitals%20-%20September%202005.pdf Read More