I have provided clear explanation to your question
Explanation:
- Definition of ‘Market Concentration’
- Definition: Market concentration is used when smaller firms account for large percentage of the total market. It measures the extent of domination of sales by one or more firms in a particular market. The market concentration ratio is measured by the concentration ratio.
- Description: The market concentration ratio measures the combined market share of all the top firms in the industry. ‘Market Share’ is used as a reference here in the formulae. It could be sales, employment statistics, number of people using a company’s services, number of outlets etc. The value of top firms or top ‘n’ firms may be three or maximum five. If the top firms keep on gaining market share, then we say that the industry has become highly concentrated. To understand market concentration, let’s first understand ‘concentration’. Concentration within an industry can be defined as the degree at which a small number of firms make up for the total production in the market. If the concentration is low, it simply means that top ‘n’ firms are not influencing the market production and the industry is considered to be highly competitive. On the other hand, if the concentration is high, it means that top ‘n’ firms influence the production or services provided in the market the industry then is said to be oligopolistic or monopolistic.
- The most common measure to calculate the market concentration is the Herfindahl-Hirschman Index (HHI). This index is calculated by adding the square root of the percentage market share of each individual firm in the industry. For example in a market consisting of only five firms with shares of 30%, 30%, 20%,20% and 20%, the Herfindahl Index would be 3000 (900 + 900+ 400+ 400+400). The index may rise as high as 10,000 if the market has a monopoly. But, lower the index is, more competitive the market becomes. The indicator could become zero for the perfect competition.
- Advantages and Disadvantages of Competing in International Markets
- Learning Objectives
- Understand the potential benefits of competing in international markets.
- Understand the risks faced when competing in international markets.
The Economist, a well-respected international magazine, has predicted that the economy of China, just 20 years ago a closed economic backwater, will be larger than that of the United States by 2019, based on real GDP growth, inflation, and the appreciation of the value of the yuan, China’s currency (S.C. & D.H., 2014).
Economics
suggests that the core reason for this remarkable growth has been the gradual opening of China’s border to trade. Their initially low salary scale, unlimited labor force, and few manufacturing restrictions have made China a major manufacturing and trade nation. More recently an emerging middle class has begun to fuel national consumption, further increasing the economic wealth of the nation.
Diversification of
Business
Risk
Learning Objectives
- Explain how PESTEL analysis is useful to organizations.
- Be able to offer an example of each of the elements of the general environment.
- The Elements of the General Environment: PESTEL Analysis
- An organization’s environment includes factors that it can readily affect as well as factors that largely lay beyond its influence. The latter set of factors are said to exist within the general environment. Because the general environment often has a substantial influence on an organization’s level of success, executives must track trends and events as they evolve and try to anticipate the implications of these trends and events.
- PESTEL analysis is one important tool that executives can rely on to organize factors within the general environment and to identify how these factors influence industries and the firms within them. PESTEL is an anagram, meaning it is a word that created by using parts of other words. In particular, PESTEL reflects the names of the six segments of the general environment: (1) political, (2) economic, (3) social, (4) technological, (5) environmental, and (6) legal. Wise executives carefully examine each of these six segments to identify major opportunities and threats and then adjust their firms’ strategies accordingly
- P Is for “Political”
- The political segment centers on the role of governments in shaping business. This segment includes elements such as tax policies, changes in trade restrictions and tariffs, and the stability of governments . Immigration policy is an aspect of the political segment of the general environment that offers important implications for many different organizations. What approach to take to illegal immigration into the United States from Mexico has been a hotly debated dilemma. Some hospital executives have noted that illegal immigrants put a strain on the health care system because immigrants seldom can pay for medical services and hospitals cannot by law turn them away from emergency rooms.
- Proposals to provide support to businesses are often featured within political campaigns.
- Meanwhile, farmers argue that a tightening of immigration policy would be harmful because farmers rely heavily on cheap labor provided by illegal immigrants. In particular, if farmers were forced to employ only legal workers, this would substantially increase the cost of vegetables. Restaurant chains such as Subway would then pay higher prices for lettuce, tomatoes, and other perishables. Subway would then have to decide whether to absorb these costs or pass them along to customers by charging more for subs. Overall, any changes in immigration policy will have implications for hospitals, farmers, restaurants, and many other organizations.
- E Is for “Economic”
- The economic segment centers on the economic conditions within which organizations operate. It includes elements such as interest rates, inflation rates, gross domestic product, unemployment rates, levels of disposable income, and the general growth or decline of the economy (Figure 3.5 “Economic Factors”). The economic crisis of the late 2000s has had a tremendous negative effect on a vast array of organizations. Rising unemployment discouraged consumers from purchasing expensive, nonessential goods such as automobiles and television sets. Bank failures during the economic crisis led to a dramatic tightening of credit markets. This dealt a huge blow to home builders, for example, who saw demand for new houses plummet because mortgages were extremely difficult to obtain.
- Some businesses, however, actually prospered during the crisis. Retailers that offer deep discounts, such as Dollarama and Walmart, enjoyed an increase in their customer base as consumers sought to find ways to economize. Similarly, restaurants such as Subway that charge relatively low prices gained customers, while high-end restaurants such as The Keg worked hard to retain their clientele.
- S Is for “Social”
- A generation ago, ketchup was an essential element of every American pantry and salsa was a relatively unknown product. Today, however, food manufacturers sell more salsa than ketchup in the United States. This change reflects the social segment of the general environment. Social factors include trends in demographics such as population size, age, and ethnic mix, as well as cultural trends such as attitudes toward obesity and consumer activism . The exploding popularity of salsa reflects the increasing number of Latinos in the United States over time, as well as the growing acceptance of Latino food by other ethnic groups.
- Sometimes changes in the social segment arise from unexpected sources. Before World War II, the American workforce was overwhelmingly male. When millions of men were sent to Europe and Asia to fight in the war, however, organizations had no choice but to rely heavily on female employees. At the time, the attitudes of many executives toward women were appalling. Consider, for example, some of the advice provided to male supervisors of female workers in the July 1943 issue of Transportation Magazine:
- Older women who have never contacted the public have a hard time adapting themselves and are inclined to be cantankerous and fussy. It’s always well to impress upon older women the importance of friendliness and courtesy.
- General experience indicates that “husky” girls—those who are just a little on the heavy side—are more even tempered and efficient than their underweight sisters.
- Give every girl an adequate number of rest periods during the day. You have to make some allowances for feminine psychology. A girl has more confidence and is more efficient if she can keep her hair tidied, apply fresh lipstick, and wash her hands several times a day.
- The tremendous contributions of female workers during the war contradicted these awful stereotypes. The main role of women who assembled airplanes, ships, and other war materials was to support the military, of course, but their efforts also changed a lot of male executives’ minds about what females could accomplish within organizations if provided with opportunities. Inequities in the workplace still exist today, but modern attitudes among men toward women in the workplace are much more enlightened than they were in 1943.
Subject: Business, Economics
Report