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Understanding the Business
Alienware Dealer Business Idea

Market Structure:
• What is the number of firms in the market and their relative size?
Large firms:
Elkor, Technoland, RD Electronics, SIA ELKO. When it comes to large firms, it seems quite evident that this becomes a monopoly. RD Electronics, as well as technoland simply couldn’t afford to keep so many centres open, of which Technoland closed a large center. The latter two can be added to smaller firms, as Elkor stands tall and remains the monopolistic giant. It is a battle between these businesses; many small ones offer lower prices for a variety of products, while Elkor’s advertising campaign is insanely intense. However, when looking up Latvian buisnesses' top 500 list, a company name SIA ELKO appears to be number three, selling computers and parts, with a turnover of 460,000LVL in 2009.
Smaller firms: finds 210 specialized computer technology dealers, of which many seem familiar. All of these are located in Riga.

• What is the number of firms which might enter the market?
When taking the Barriers of Entry into consideration, one can quite frankly tell that for a small scale business, entry into this market would be quite difficult. Despite ceteris paribus, assuming that there is no crisis in the country at the time, many companies are acting up on anti-competitive measures. Elkor, for instance, has an extreme advertising campaign – they are the most widely advertised tech company on TV and posters. Most other companies, being of smaller size, are only able to afford radio broadcasts and occasional smaller posters. Omitting ceteris paribus, one can also conclude that due to the crisis, there is a lack of finance for many companies and many people have ceased purchasing.

• How easy or difficult will it be for your firm to enter the market or what Barriers to Entry will you be facing? (Purple book p. 299)
Capital costs won’t be an issue that is too demanding, as opening up such a small business doesn’t quite require such great capital. Renting several rooms and purchasing technology all together costs less than buying a car; unlike a car industry, this will turn out to be quite cheap.

Sunk costs don’t appear to be a real threat, as advertising will not be a sector into which this company would invest; it would be quite pointless to attempt to become well known, while giants such as Elkor run several nearly consecutive advertisements every day.

Scale economies appear to be a real barrier to entry in this market. Since the beginning of the crisis, or more like the end of 2009 until now, many companies have been offering incredibly low prices for different technological assets. One example is laptops; machines that used to in a price range of 400LVL, are now being offered for as little as 250LVL. Completely new computers, appearing from many different manufacturers.

This would be problematic for a new small company to enter, as they would be unable to commit to bulk buying; acting like many internet stores which have enormous storage facilities, from which then they deliver to their main offices. Another issue on top of this, is the fact that this is a physical store, not an online store. Online stores often offer prices by at least -10% lower than actual on-the-spot stores do. Many on-the-spot stores possess their own internet stores, making on their behalf, insane deals.

Limit pricing appears to be a predominant strategy of local dealers to attract customers from other companies. Over time, however, most companies offer very similar of the same product for low prices and all end up losing money. A marketing strategy that I have observed, is that many internet stores have developed their own product (offer it), for quite a bit cheaper than it is available elsewhere. While x might cost 10LVL in one store, it costs 12LVL in the other. In the other store, y costs 20LVL, while in the first, it costs around 25LV. Each store has their own product(s), that they attempt to attract customers with.

It seems noticeable how many companies rival one another. One internet store, Dateks, has several categories for PC components, where they provide the option to “Check prices with other stores” – they free the consumer of having to find this information, yet then they are the ones who decide what exactly is entered into that website’s search.

Natural cost advantages. When it comes to these, there are a lot of troubles. In Riga, these good “corner” or “center” locations are very expensive when it comes to rent, not even speaking of purchasing them. These locations are often very helpful for advertising oneself, yet they are only affordable if there is spare capital, or this is just one store of a chain business. The chain “636” has several stores in key locations in Riga, one being K. Barona street. Despite this are being a “hot-zone” this store is only open from 10-19. I believe that this story is simply held up with profits from other stores.

Legal barriers – there appear to be no legal barriers prohibiting opening of many small IT and tech businesses in Riga/Latvia.

Marketing barriers play an important role in the success of such businesses. One important field, in which these businesses advertise, is the internet, from where most people are drawn to buying from them. The internet, unlike posters or any other form of media, leads people to believe things that might not quite be true; people are led to the place where they can purchase directly, and take a good look at “visually enhanced” goods online.

On the other hand, the most expensive advertising method – television – has also proven to be an extremely useful tool for Elkor; they are now widely known as the largest tech world supplier in Latvia. The interesting thing, is that there advertising and size of the store manipulate people so, that they believe that the high prices which Elkor offers are actually quite low. Another marketing trick that many companies use, is setting the initial price ridiculously high – at least 30% higher than in any other store and then holding “price-cuts” every week, making it appear as though the priced off products here, cost less than the same ones at other stores (which have that same price without being price-down)

• What is the extent to which all firms in the market share the same knowledge?
This is also an issue; to many small firms, it is unknown how the giants or other quite small firms can lower their prices by so much. Possibly due to bulk buying, yet it is most no accessible to small firms. According to some research, some of these companies trick people “legally” into buying their goods. They have several priced off products with prices that seem insane, yet this stock “highly limited”. Many of these fraudulent, yet legal methods that these stores used can be observed every day if one pays closer attention. Some say “Priced Off! 98.00LVL from -”, where the previous price is either very small, or not visible at all, and the price hasn’t changed at all. *See marketing barriers*

Rephrasing this in a few words, all companies have relatively equal knowledge, as they are middle men, suppliers. They do not need production secrets, only MARKETING SECRETS

When one looks at service secrets, there aren’t any either; it all depends on how qualified your staff is and how much experience they possess. A crisis economic time is very handy in this situation, with high unemployment. Chances are, that quite experienced tech support staff can be hired in a short amount of time.

Category: IB1 Economics | Views: 57503 | Added by: MartinRazuks | Rating: 0.0/0
Total comments: 4
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