UNIVERSITY OF NEWCASTLE, AUSTRALIA GRADUATE SCHOOL OF BUSINESS GSBS6410 ECONOMICS OF COMPETITIVE ADVANTAGE SCP ANALYSIS REPORT JAY GEE MELWANI GROUP SINGAPORE Report By: Ayush Agarwal (3175597) Hemanand Thanikachlam (3173243) Siva Shankar Manoharan (3173757) Kannan Chennimalai Kumaresan (3173242) Executive Summary: Jay Gee Melwani group is a privately-held company, having their headquarters at Singapore. The group markets and epitomize some of the leading international brands like Aldo, Dockers, Kid style, Levis, signature gallery and many more. The company has now infiltrated in global markets through joint-ventures.
They are having outlets in Indonesia, Malaysia, India, Dubai and Thailand.
Using Structure-Conduct-Performance (SCP) paradigm, a complete and exhaustive analysis of Jay Gee Melwani group has been done. Firstly, a brief scenario about the apparel market in Singapore has been described. According to which we found out that jay gee group is doing its business in a perfect competition market, where there are large number of buyers and sellers. Being a perfect competition economy, the structure of the market influences the conduct of the company and conduct influences the performance of the company.
Using Porter’s five forces analysis tool, the market structure of the company as well as about the whole industry has been described. Later, how market structure influences the company to plan its strategies and policies. Different strategies used by the company to expand its operations in Singapore as well as in global market have been explained with diagrams and flow-charts. Finally, the performance of the company has been evaluated, saying about its growth efficiency and profits. Day to day challenges which company has to face in carrying out operations has also been presented.
SWOT analysis has been used to highlight the major strength, weakness, threats and opportunities of the company. Few recommendations have been given which will help the company to combat market competition and increase its market share. Table of Contents Executive Summary………………………………………………………………………… …i Table of Contents……………………………………………………………………………… ii 1. Introduction1 1. 1 Purpose of the Report2 1. 2 Overview of Jay Gee Melwani Group2 1. 3 Existing Competition in Apparel Retail Industry2 2. Study Methodology2 3. Structure-Conduct-Performance Paradigm3 4.
The Economy of Singapore as well as the Retail sales has started to rebound after a large contraction in the past. In 2010, the Singaporean apparel retail industry grew by 5. 4% at USD$1. 9 Billion. It has been anticipated to grow by 36. % to reach USD$2. 6 Billion by the end of 2015 (Datamonitor, 2010). Table 1 : Singapore Apparel Retail Industries value : $ Billion (2006-2010)| Year| $ Billion| SGD Billion| € Billion| % Growth| 2006| 1. 5| 2. 1| 1. 1| | 2007| 1. 6| 2. 3| 1. 1| 7. 4| 2008| 1. 7| 2. 5| 1. 2| 9| 2009| 1. 8| 2. 7| 1. 3| 7| 2010| 1. 9| 2. 8| 1. 4| 5. 4| Compounded Annual Growth Rate (CAGR): 2006-2010| 7. 20%| Women’s wear contributes to about 48. 6% of the whole apparel retail industry, where as the rest 51% is contributed by men and children apparels (Gereffi & Memedovic, 2010). 1. 1 Purpose of the Report:
In the intense competition among the apparel retail industry, this report uses the SCP paradigm, to showcase the strategies of Jay Gee Melwani Group to survive in the market. Further few recommendations were specified, which would enhance the performance standard of the enterprise. 1. 2 Overview of Jay Gee Melwani Group: Jay Gee Melwani group is a privately held enterprise headquartered in Singapore, who specializes in the representation and marketing of the global labels in fashion and lifestyles apparels. Through several strategic ventures and other Franchisees, Melwani group built their branches across the South East Asia.
They have acquired the franchisees for the top apparel brands like Levis, Aldo, Dockers and many more. 1. 3 Existing Competition in Apparel Retail Industry: The latest news revels that Singapore is among the top five hot tourist spots, which obviously increases the tourist shopping rate. Because of this reason Singapore retail sector is vastly developed. There exists an elevated competition in the field where Jay Gee Group of Companies has a vital position. Further there are few more important players like Isetan, FJ Benjamin, Takashimaya, Zalora etc plays a key vital role in the Singapore retail market. . Study Methodology: This report in general, makes use of the data sources obtained from the company manual provided by Jay Gee Melwani groups. The secondary data sources like journals, reliable internet materials and other news reads have also been incorporated in this report. To get the comprehensive overview of the S-C-P paradigm, key factors like Measurement of Market Concentration, Number of firms, Firm size etc has been scaled in depth. Further SWOT analyses have been done to acquire the competitive position of the enterprise. 3. Structure-Conduct-Performance Paradigm: Structure? Conduct?
Performance (S? C? P) is an analytical framework, which is employed to study and analyze how the market structure affects the conduct and performance of the company. As per Mason and Bain, Structure of a market directly or indirectly influences the performance of the company. In this report an in-depth Structure Conduct Performance analysis is done on Jay Gee Melwani group of companies. Using Porter’s five force theory it can be explained the factors affecting the market structure. Figure: SCP – Paradigm Source: Scherer, F. M. ,1970. Industrial Market Structure and Eco-nomic Performance, Rand NcNally 4.
Market Structure: As defined by Bain, the Market Structure is the prominent character of the market which persuades the pricing and nature of competition (Scherer ,1970). Depending upon the degree of competition a firm frames its strategies. Jay Gee Melwani Group is operating in a highly competitive market. In order to determine the structure of the market within the paradigm, the following dimensions are considered: 4. 1 Market concentration: If firms are identical, concentration rate is inversely proportional to number of firms. There is intense competition among the firms (Hanson, et al. , 2008).
The sellers have no power whatsoever to affect the price of the product. Now if any seller decreases its price, to increase its market share, the other are also forced to do the same. This high intense competition reduces down the profits to marginal cost levels. 4. 2 Threats from new entrants: In a perfect competition market there is no barrier to new entrants. The existing companies always have a threat from new entrants. It is easy for company to enter in this type of market, and this leads to cut-throat competition (Porter, 1980). Jay Gee Melwani Group was no exemption to this phenomenon.
After 2008, the economy saw a drastic change in the apparel retail markets. There were new brands coming up with new strategies and saturating the apparel market. Due to intense competition the profits have fallen down, recovers marginal costs only. Moreover fixed costs began skyrocketing in past decade. 4. 3 Buyers bargaining power: Buyers are in the driving seat. They have the power to influence the price of the commodity. Moreover buyers are sensitive to price in a perfect competition economy, if same goods are available at cheaper price, they will not hesitate to switch (Fitzgerald, 1988).
The products are not much differentiated from each other, thus it’s simpler for buyers to switch from one brand to another. Jay Gee Melwani Group sells products which are more appealing to young generation, who are willing to pay good price for a good quality. Company is well aware of their competitors, if they charge high price than buyers will be switching to some other brands. They offer attractive discount on goods, so that buyers don’t find any reason to switch to other brands or products. 4. 4 Easy availability of substitutes:
Most important feature of perfect competition market is availability of substitutes or complimentary goods. If the buyers are getting same or similar kind of goods at a lesser price he will quickly switch over to it (Porter, 1980). The Melwani group has cemented their position in the Singapore apparel retail industry. They provide their customers with quality product to provide maximum customer satisfaction. To outperform other brand retailers, it buys goods it bulk quantity and serve its customer with low prices. It makes sure that their customers don’t have to search for cheap substitutes. . 5 Competitive rivalry: Last but not the least, competitive rivalry among existing firms in an industry leads to low profit earnings and Jay Gee group was no exemption to this fact. It happens because of high competition cost. In a perfect competition economy, number of sellers is large and every seller wants to increase its market share. Most of the firms have a perception that by providing goods at lower rate will help them but, it doesn’t happen. The other sellers also reduce the price to save their market share and they do this by sacrificing profits (Hall & Lieberman, 2008). . 6 Summarizing the Market Structure: Singapore market is highly concentrated with brand retailers. Post 2008, the industry has witnessed a robust increase in number of retail dealers and is also a cause for intense rivalry in the industry. The company faces tough competition from other brands. However, Jay Gee group has shown a constant increase in revenue. Buyers get demoralized if they have to incur switching cost. Moreover to curb threats from new entrants Jay Gee Melwani Group provides incentives to its frequent buyers, so customers don’t prefer to switch brand.
Sellers have to be very careful while pricing their goods because if they charge higher price compared to other sellers, than it will lose its market share. 4. 7 Structure affects Market Conduct: Above mentioned factors play an important role for Jay gee group to plan its functions and strategies. Based on the market structure, managers plan their operations and strategies. With the help of market structure, they plan their marketing strategy; decide their operating level, when to buy goods from suppliers, pricing strategies, diversify into different business and many more factors.
In this industry, market structure influences market conduct of the company. 5. Market Conduct: According to theory of contestable markets, the retail strategies are not determined by the market structure alone, it also necessitates the Conduct of the market in the current situations (Porter, 1980). Market Conduct is the behavioral framework or strategies adopted by the enterprise in an exertion to adjust with the existing market scenarios in which they operate. The few dimensions of Conduct include diversification strategies, pricing strategies, value chaining, collusive behavior, merger etc.
Jay Gee Melwani group functions with the basic strategy of wider in operation and leaner in structure. They bound their operations nothing beyond retails and hence work in a controlled aggressive manner (obtained from Space Matrix analysis) in the market. In order to survive in the market, the enterprise changes its strategies with the change in retail customer’s tastes and trends. Below an in-depth analysis is done on various strategies of Jay Gee Melwani group’s market conduct: 5. 1Strategic Positioning:
In the present era of globalization, due to intense rivalry and unstable market, it creates more complexity for an organization to sustain long-term success (Aaker, 1989). Initially Jay Gee started its business engaging with the footwear apparels and it finally veered towards the multi brand clothing and other apparels targeting youth retail trend lovers. Now the enterprise clearly focuses on the “Fresh Fashion” by changing its various positioning strategies. With the Research on the customer type visiting their stores, the enterprise alters their pricing and supplementary strategies to attract them as prospective consumers.
The below table shows the target customer profile and the competitive advantage they enhance for their clients: Target Customer profile| Competitive Advantage| End Customers : Youths and StudentsAge : 18 to 25Economic Status : Medium and HighLiving : Urban | * All kind of apparels and wide range designs under single roof * Latest trendy Collections of goods * Attractive pricing and offers on products * Store Ecology and In store ambience| 5. 2Diversification Strategies:
In business, Diversification is often considered as a high risk approach. Looking into Jay Gee groups, they have adopted immaculate diversification strategies without giving up their quality standards (Rumelt, 2006). They initially started their business on a small scale as a foot wear dealers and subsequently watching the growth in modern organized retailing, made them to expand their operations in various apparels. Before planning for the related diversification, the company carefully assessed its abilities of competencies in the market. 5. 3 Pricing Strategies:
In order to survive and thrive in this high competitive retail market, every retailer has to be more attentive and meticulous with their pricing (Lazear, 1984). The financial success of every industry purely depends on their cost strategy. Customers insist to have reasonable prices in exchange of their business. So in order to draw the new consumers as well as to keep hold of the existing consumers it’s vital for an enterprise to have good pricing strategy. With the ubiquitous difficulties from lessening margins, rising costs, and competition, charming in the retail arena nowadays demands a better strategy.
Jay Gee groups follow the stage wise approach in achieving the pricing strategy as shown in the below figure: The enterprise offers with various types of schemes which are categorized as follows: * Values pricing This pricing is incorporated when external factors like rescission or increased competition forces the company to add values to the product and retain sales. * Promotional Pricing It is a common kind of offer provided by all kind of retailers. It involves offers like “Buy one get one” or “Buy two get one”. Physiological Discounting Organization used this approach when product has emotional values rather than rational value. For an examples pricing a good as $99 instead of $100. * Time Pricing By providing some kind of special offers during festivals and other occasions will increases the attraction of the consumers. 5. 4Value Chaining: Jay Gee Groups keenly focuses on creating value for their clients by having innovative strategies in their operations and also creating differentiated products in varying trends (Hoskisson, 2008).
The enterprise shows keen focus in modifying their strategies in every aspect, beginning from the good import to after sales support for the customer. The below figure illustrates the elaborated value chain framework of Jay Gee group of company. 5. 5 Summarizing the Market Conduct: With the perfect competition in the market, it’s utterly a complicated task for an enterprise to survive who lack in proper strategic planning. So Jay Gee group solely focused on various strategies to withstand their position in the retail business. They had an outlook of keep modernizing their market strategies with changing trends.
The enterprise intensely concentrated on their diversification strategy, pricing strategy and value chaining to fulfill the needs of the existing customer and attract new customers. 5. 6 Market Conduct influences Performance: The Market conduct of an enterprise has a high impact on its performance (Fitzgerald, 1988). In order to achieve profitability its mandatory for an organization to understand its consumer’s need and offer services for them in a better manner than the competitor does. So appropriate strategic positioning and competitive advantage plays a vital role in deciding the performance of an enterprise. . Market Performance: The Performance of an enterprise can be termed as the outcome or encompass of end results of an organization in the market due to its Structure and Conduct (Porter, 1980). Market Performance can also be referred in terms of how well the enterprise accomplishes definite social and private objectives. These comprise the Cost level and Cost Stability in the Profit levels, Efficiency, long and short run terms and quantity and quality of goods sold. The Key dimensions of the Market Performance are its Profitability and Efficiency, which is discussed below in depth. 6. 1 Profitability:
The rate of return on capital measures the profitability of an enterprise, thus it’s noted as the key indicator. In a perfect competition market structure, the production and the performance of will be set at the level, where the Marginal cost will be equal to its price i. e. MC=P (Rumelt, 2006). So Jay Gee groups delicately increased their profitability levels through various strategies in their operations. The table given below states the financial details of the enterprise. Particulars| 2011| 2010| 2009| | (In Millions)| (In Millions)| (In Millions)| Sales| 340| 323| 301| Other Income| 1. 7| 1. 3| 2|
Profit Before Tax| 13| 12. 5| 11| Income Tax| 2. 3| 2. 2| 1. 95| Profit After Tax| 10. 7| 10. 3| 9. 05| Table: Financial standings, Jay Gee Groups 6. 2 Growth Efficiency: Jay Gee group have good pricing strategies, which help them to compete with other retailers in the market. Through values pricing, Promotional pricing, Physiological discounting and Time pricing, Jay Gee group is able to attract new customers (Hoskisson, 2008). The company has posted good profits during the past years. In 2010, the group profit after tax increased by 9% (y-o-y) and in 2011 it posted net increase of 8% in profits.
Moreover, total turnover of the company has also increased, in 2010 there was a net increase of 6% (y-o-y) and in 2011 it increase by 6. 25%. Jay Gee group implemented its diversification strategies accurately and were successful in doing so. Starting from shoe business they moved to apparels and fashion, Swiss watches. So now the company deals with all kind of lifestyle goods starting from head to toe. 6. 3 Product differentiation: Company is solely involved in lifestyle and apparel goods. The goods are not much differentiated from each other.
Moreover, they need to update their stock with the changing preferences of the consumers. Jay Gee group keeps in stocks which are the latest trend or is more demanded by the youngsters. 6. 4 Challenges faced: 6. 4. 1 Intense competition: Being a perfect competition market, there is always a threat of new entrants. The new entities will be ready to sell goods at lower price to increase market share. Due to this, Jay Gee group face loads of difficulties to maintain their market share without losing profits. Graph 1 – Short Run Profit Graph 2 – Short Run loss 6. 4. 2 Inflation:
Inflation rate is another factor about which every firm is worried. If inflation rate is high than the cost of raw materials like cotton yarns, blending, bleaching etc will rise, ultimately results in high manufacturing cost of end product. In long run, it gets more difficult to earn economic profit in such industry. Graph 3 – Long Run Equilibrium 6. 4. 3 Changing demands: Firms have to adapt quickly to the changing trend in fashion industry. People prefer to buy latest and most trendy items. Companies having old stocks, for them it becomes a challenging task to sell those goods first.
Ultimately, they sell out these goods in huge discount offers where they earn no profit or might incur lose. 6. 5 SWOT Analysis on Jay Gee Enterprise: In order to throw some light on the strengths and weaknesses of the Jay Gee group, SWOT analysis is engaged in this study. This examination gives the clear picture of the enterprise, in terms of where they stand in the competing market and further used to improvise their strategies and performance accordingly. SWOT Analysis for Jay Gee Melwani Groups (Lockett & Thompson, 2001) 6. 6 Summarizing the Market Performance:
Company has posted good profits in the past few years this shows the growth efficiency of the company. Using the SWOT analysis major opportunities, threats, strength and weakness of the company has been presented. Different challenges which the firm faces in day to day operations and how they act to solve those issues 7. Conclusion: From the various types of concentration measures, conclusions regarding the SCP-Paradigm can be drawn from Absolute, Relative and Summary measures. The variations in the measures led to different results, because of the uncertainly in data.
Since the variables of SCP-Paradigm are closely related with each other which makes it complex to conclusively specify whether structure leads to performance or vice versa. Therefore, we can conclude that the drive to profitability of an enterprise is vital framework of Market behavior. 8. Recommendations: Based on the analysis and findings employed in this report, we would like to suggest few recommendations for Jay Gee Melwani groups to perk up their operations in better approach among its competitor in the market. Reference: * Aaker, D. 1989, Strategic Brand Management, Prentice Hall, United States Of America. Besanko, D. , Dranove, D. , Shanley, M. & Schaefer, S. 2007, Economics of Strategy, John Wiley & Son (Asia). * Corporate team. 2007, Company Report and Manual, Jay Gee Melwani groups. * Davidson, R. & Mackinnon, J. G. 1993, Estimation and Inference in Econometrics, Oxford University Press, New York. * Datamonitor, 2010, Retail in Singapore-Industries profile, viewed on October 29 * Fitzgerald, T. J. , 1988. Understanding the differences and similarities between services and products to exploit your competitive advantage. Journal of Services Marketing, 2(1), pp. 25-30. * Hanson, D. , Dowling, P. & Hitt, M. 2008. Strategic Management: Competitiveness & Globalisation,Australia: Cengage Learning. * Hall, R. and Lieberman, M. , 2008. Microeconomics: Principles and applications. 4th ed. New York: Thomson South-Western. * Hoskisson, R. E. , 2008. Competitive for advantage. Mason: south- western * Gereffi, G. , Memedovic, O. , 2010. The Global Appareal value chain:What prospects for upgrading by Developing countries?. 14(3), pp. 45-48 * Kotler,P,. 1999, Marketing Management, Prentice Hall, India. * Lazear, P. E. ,1984. Retail pricing and clearence sales, Retail Management, 62(4),pp. 42-47 * Lockett, A. amp; Thompson, S. , 2001. The resource based view and economics. Journal of Management, Volume 27, pp. 723-754. * Porter, M. E. 1980. ‘Industry Structure and Competitive Strategy: Keys to Profitability’, Financial Analysts Journal , 36 (4), pp 30-41. (Dequech, 2001) * Rumelt, P, R. , 2006. Diversification Strategy and Profitabilty. Strategic Management Journal, 3(4), pp. 365-369. * Scherer, F. M. ,1970. Industrial Market Structure and Eco-nomic Performance, Rand NcNally,Chicago. * Shank,K & Govindarajan,V. , 2007. Strategic cost management:The new tool for competitive advantage. Cost Accounting, 4(4), pp. 96-102.a
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