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Primark Is A Private Limited Company Economics Essay

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Mon, 5 Dec 2016

According to the information given by the case study, Primark is a private limited company. As it indicates, it has shareholders with limited liability. This type of company may be incorporated under the laws of England, Wales, Scotland, the Republic of Ireland and certain Commonwealth countries. The shares of a private limited company may not be offered to the general public and because they are not on the stock exchange market.

(b)

Private company is limited by shares and is not offered to the general public. Shareholders have limited liability.

A private company must have at least one director who is an individual and a secretary until April 2008.

It has both authorized share capital (the one declared to the Register of Companies) and issued share capital (the total of company’s shares existing hold by shareholders)

Private shares are transferred by private agreement between the buyer and the seller

Public company has limited liability and sells shares to the public. It can be an unlisted or listed company on the stock exchange market. It requires a minimum of two directors, who can be anyone.

Cooperative is a business organization owned, democratically controlled and operated equally by a group of individuals for their mutual benefit (which could be economic, social, and cultural.

Its membership is opened; anyone that satisfies certain non-discriminatory conditions can be member of a cooperative.

The economic benefits are distributed proportionally to each member’s level of participation in the cooperative (by a dividend on sales or purchases, rather than according to capital invested).

(c) Primark is part of the secondary or industrial sector. This sector includes the creation of finished tangible products through using primary sector’s production. Often divided into light and heavy industry, Primark obviously makes part of the light industry of the primary sector.

(d) There are 3 distinct sectors:

The primary sector making use of natural resources. We can enumerate agriculture, fishing or forestry.

The secondary sector are all manufactured and other processed goods (cf1(c))

And finally, the tertiary sector is the one producing services. It’s the sector that produces intangible products through knowledge, time, experience, attention, advice and discussion in order to improve productivity, performance, potential and sustainability.

We can also consider the quaternary sector which includes all the process of information such as education, research and development.

2. (a) My aim according to my appointment as an expert business consultant, is to give some advises to the Primark management in order increase its turnover by reducing some losses through instituting strategies. In order to response to the assessments given to me, I consider to implement 2 different strategies using different aspects which characterize the business actions. These actions will particularly concern the enterprise management. Business strategies are the match between internal capabilities and external relationships. Therefore stakeholders play a crucial role in implementing new and reliable strategies for a company. They describe how the organization responds to its suppliers, its customers, its competitors, and the social and economic environment within which it operates. To well define a company strategy, we need to evaluate and take in consideration its past actions and achievement. We also need to fix its future needs and achievements.

According to our case, it seems that Primark didn’t structure its organization to maximize its advantages. It could be explain by a misunderstanding of its relations between each of its stakeholders. That’s may be one of its principal error is the lack of control on its production but also the lack of distinctive identity according to its product. Those 2 criticisms are linked to its abroad suppliers. Primark choose them in order to make reliable economy on the production of its stuffs. But one of its evident error is to have chosen a non-distinctive production process which removes its production individuality concerning to its products quality. This can be explained through the fact that nowadays, most of the firms used to import their products from Asian suppliers that unify the products on the UK market. This lack of identity may be what explained why Primark can’t impose it on the European market through its other branches.

In order to resolve this problem link to its product itself, the UK firm, should turn its production process to local or regional. That will have for result to reduce some of its expenses link to the new taxations on imports that the UK government plan to levy and it will also create a more significant adding value with European Union label and recognition.

The corporate strategies could select different approaches to achieve its goals, primarily financial. It can axe its strategy on mergers and acquisitions, strategic alliances, joint ventures, tactics for diversification and growth, and the managing of corporate resources and capabilities.

Strategy on mergers and acquisitions

We can denote a distinction between mergers and acquisitions.

When a company takes over another and plainly establishes itself as the new holder, the purchase is called an “acquisition”. From a legal point of view, this means that the goal company still remains the same and the legal entity still remains as autonomous, even if it’s controlled by the new acquirer.

In the logic of the term, a merger happens when two firms agree to go forward as a sole new organization rather than remain separately owned and operated. This kind of action is more precisely referred to as a “merger of equals”. The firms are often have the same characteristics such as the same size, assets etc.

A merger is an agreement between both CEOs to join together for the best interest of their companies and when the deal is unfriendly (that is, when the target company does not want to be purchased) it is always regarded as an “acquisition”.

A merger could have the effect to improve financial performance through these followings:

Economy of scale: the joint company can reduce its fixed costs by removing duplicate departments or operations, reducing the costs of the company relative to the equal revenue stream, which have the outcome to increase profit margins.

Economy of scope: refers to demand-side changes by increasing or decreasing the scope of marketing and distribution of different types of products.

Increased revenue or market share: assumes that the buyer will captivate a major competitor and as a result increase its market power to set prices.

Cross-selling: the new joint company could touch new type of market by associated its activities and respective sectors. It can acquire and sell complementary products.

Synergy: may concern managerial economies such as the improved opportunity of managerial specialization or purchasing economies due to increased order size and associated bulk-buying discounts.

Taxation: an acquisition or a merger can have the aim to reduce tax liability. This can then be a save of money.

Vertical integration: Vertical integration occurs when an upstream and downstream firm merges (or one acquires the other). One reason is to internalize an externality problem, for example, the double marginalization which can occur when both the upstream and downstream firms have monopoly power and each firm reduces output from the competitive level to the monopoly level. Subsequent to a merger, the vertically integrated firm can reduce losses by setting the downstream firm’s output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable.

Hiring: some companies use acquisitions as an alternative to the normal hiring process.

Absorption of similar businesses under single management: similar portfolio invested by two different mutual funds namely united money market fund and united growth and income fund, caused the management to absorb united money market fund into united growth and income fund.

Types of M&A by functional roles in market

We can identify different mergers and acquisitions according to the functional roles in the market.

A horizontal merger between two companies in the same business sector.

A vertical merger represents the buying of supplier of a business. The vertical buying is aimed at reducing overhead cost of operations and economy of scale.

Conglomerate merger and acquisition deals within two irrelevant companies. The objective may be diversification of capital investment.

Strategic Alliance

A strategic alliance is a relationship between two or more parties to chase a set of agreed in the lead of goals or to meet a significant business need while remaining independent companies.

Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property.

The alliance is cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the union will be better than those from individual efforts. It often involves technology transfer, economic specialization, shared expenses and shared risk.

Strategic alliance has the advantages to permit each partner to focus on activities that best go with their capabilities, to learn from partners and develop competencies that may be broadly exploited somewhere else and finally appropriate the resources and competencies of a company for it to continue to exist.

The four types of strategic alliances are

Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

Equity strategic alliance is which where two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage.

Non-equity strategic alliance is which where two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage.

Global Strategic Alliances working partnerships between companies (often more than two) across national boundaries and increasingly across industries, sometimes formed between company and a foreign government, or among companies and governments.

A joint venture

A joint venture is a temporary business contract in which parties agree to develop a new entity and new assets by contributing equity. They apply control over the enterprise and consequently share revenues, expenses and assets.

The venture can be for one specific project only or a continuing business relationship.

In a joint venture, both parties are equally invested according to money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify.

Diversification

The diversification seeks to increase profitability through better sales volume which will be the results from new products and new markets. Diversification can occur either at the business unit level or at the corporate level.

At the business unit level use to expand into a new segment of an industry that the business is already in whereas acting at the corporate level is generally established via investing in a potential business outside of the scope of the existing business unit.

The strategies of diversification can include internal development.

Three types of diversification may be noted: the concentric diversification, the horizontal diversification, and the conglomerate diversification.

The concentric diversification means that there is a technological similarity between the industries. The firm is able to influence its technical knowledge to increase some advantages.

The company could look for new products that have technological or marketing synergies with existing product lines to attract new group of customers. This strategy also helps to gain the part of the market which remains untapped, and which presents an opportunity to earn profits.

Horizontal diversification

The company adds new products or services that are often technologically or commercially different from current products but that may be asked from current customers. This strategy tends to add to the firm’s dependence on certain market segments.

Conglomerate diversification (or lateral diversification)

The company adds new products or services that have not technological or commercial synergies with current products but that may asked from new groups of customers. The main reasons of adopting this strategy are to improve the benefits and the flexibility of the company, and to get a better reception in capital markets for the company to get bigger. Even if this strategy is risky, it can provide growth and profitability.

Resource management

In organizational studies, resource management is the efficient and effective deployment of an organization’s resources when they are needed. Such resources may include financial resources, inventory, human skills, production resources, or information technology (IT).. Resource management is a key element to activity resource estimating and project human resource management. Both are essential components of a comprehensive project management plan to execute and monitor a project successfully.

The Human Resource Management has the aim to well-managed the working resources through administrate them as its best.

The Corporate Resource Management Process mainly guarantees that resources are never over-allocated across multiple projects.

The resource management techniques have the aim to reduce both excess inventories and shortages.

We can also acting linked to marketing processes through two approaches; one with the goal to attract new customers which will increase the sales and the other one to make actual customers being loyal to the brand and its products.

One of the principal ways to attract people is to design numerous advertising campaigns to get new customers coming in the shop. This strategy include advertise on billboards, TV, radio, magazines, newspapers, flyers and all other different ways to make the brand and its products better known by the public. This strategy has the advantage to touch different types of the population using different means of communication. On the other hand, put this strategy into action may be a loss of money and time.

A different way to attract new customers but also to preserve and make actual clients become loyal is to improve the quality of all the proposed stuffs. Improve the sales process through its seven steps : the product knowledge, the prospecting, the approach, the needs assessment, the presentation, the close and the follow-up, and the conditions

Sometimes, people have a bad image of an enterprise. Remodeling the brand of a company may change the image. They can do some sponsoring or donation to some associations showing its civic responsibility.

Make some market research to find new segment and according to understand the competitors strategies and find their Unique Selling Proposition through surveys and questionnaires.

Implement interval periods of discounts using this action as a promotion (a way to be known by much more person attracting other people).

New marketing techniques such as websites, social networks etc., can improve the sales without increasing as much the costs.

They need to invest in designers and stylists who can often renew the styles according to the trends and the customers’ desires.

They may need to implement a special program for the frequent customers (like fidelity card, reduction etc.)

To conclude I’ll say that there are many strategies to response to the demand of the company’s goal. We can focus on business strategies but also marketing strategies but in the most of the case, this will include some investments which could very significant, that are why it’s really important for Primark to well evaluate the more efficient strategy.

(b) The two main reasons that may explain the raise of import taxes is the desire of the UK government to:

Firstly, protect the local producers. The import products are generally cheaper than the domestic one, that’s why the importation can be at a higher level. In order to always make more profits, local enterprises can focus on the aboard supplies in disfavor of the domestic ones. Increase the import taxes can make the local products cheaper and avoid the boycott of national suppliers.

And then, increase its revenue. Since a decade, UK stopped exploit a majority of its local resources which encouraged the importation. Increased the import taxation, unlike the product taxation, can permit a significant raise of its revenue.

The ultimate consequence of this measure could be the rebalancing of the UK trade balance. Too much importation are named “net importer” that make the trade balance negative. In order to reestablish equilibrium between import and export, the government raises the taxes which will reduce the importations.

(c) Taxation is to impose a financial charge or other levy upon a taxpayer which can involve individual or legal entity (i.e. enterprise) by a state or a functional equivalent and sub national entities of a state. Failure to pay the taxes is punishable by law. They consist of direct or indirect tax. It may be paid in money or as its labor equivalent.

Direct taxes are charge by the government on the income, property, or wealth of an entity (people or enterprises). A direct tax is totally bear by the entity that pays it, and can’t be transfer to another entity. We can state corporation tax, income tax, and social security contributions.

Direct taxes are founded on the ability to pay principle but they sometimes work as a discouragement to work harder and earn more because that would mean paying more tax.

Concerning income tax, we can mention:

Progressive tax: that takes a larger percentage of a larger income and a smaller percentage of a smaller income. For example, a tax on luxury cars.

Proportional tax: Income tax that takes the same percentage of all incomes, whether large or small. Also called flat tax.

Regressive tax: Taxation that takes a larger percentage of a lower-income and a smaller percentage of a higher income. For example, a tax on the basic necessities (which form a larger percentage of the expenditure of the lower income population) is a regressive tax.

Indirect taxes are charges levied by the government on consumption, expenditure, privilege, or right (taxes on imports, production, sales and VAT).

(d) Perfect competition: is an extreme market structure. In theory, to be in perfect market or a pure competition market, the following conditions must be bring together: “(1) buyers and sellers are too numerous and too small to have any degree of individual control over prices, (2) all buyers and sellers seek to maximize their profit (income), (3) buyers and seller can freely enter or leave the market, (4) all buyers and sellers have access to information regarding availability, prices, and quality of goods being traded, and (5) all goods of a particular nature are homogeneous, hence substitutable for one another.”

Advantages :

Optimal allocation of resources

Competition encourages efficiency

Consumers charged a lower price

Responsive to consumer wishes (change in demand, leads extra supply)

Disadvantages :

insufficient profits for investment

lack of product variety

lack of competition over product design and specification

unequal distribution of goods & income

externalities e.g. pollution

A monopoly market situation is defined by the presence of one producer (or a group of producers acting in together) that controls supply of a good or service, and where the entrance of new producers appeared difficult and can be very restricted. Monopolist firms (in order to maximize their profits) keep high price and restrict the output, and demonstrate a few or no responsiveness to the requests of their customers.

Most governments for that reason try to control monopolies by “(1) imposing price controls, (2) taking over their ownership (called ‘nationalization’), or (3) by breaking them up into two or more competing firms.”

Although monopolies exist in varying degrees (due to copyrights, patents, access to materials, exclusive technologies, or unfair trade practices) almost no firm has a total control in the time of globalization.

Advantages :

Sufficient profits for investment (Research and Development)

Economies of scale.

International competitiveness means that a firm may have Monopoly power in its domestic country but face effective competition in global markets.

A monopoly firm being efficient and dynamic is a sign of success not inefficiency.

Disadvantages :

Higher Price and Lower Output than under Perfect Competition

Productive Inefficiency

Less incentive to cut costs

Supernormal Profit

Higher Prices to Suppliers

Higher average costs because it gets too big (diseconomies of scale)

Monopolistic competition is the halfway between the extremes of perfect competition and monopoly, and exhibiting features of the both. In such situations enterprises are free to enter a highly competitive market where numerous competitors offer goods that are close (but not perfect) substitutes and, then, prices are at the level of average costs (a feature of perfect competition). Also, some consumers have a preference for one product over another that is strong enough to make them keep buying it even when its price increases, thus giving its producer a small amount of market power (a feature of monopoly). Monopolistic situation is a common situation in all free markets.

Advantages :

Promotion of competition (lack of entry barriers)

Variety of product (differentiation)

Product and service quality – development

Knowledge of the products by the customers

Disadvantages :

Wasteful (excess capacity)

Allocatively inefficient

Higher prices

Advertising

Oligopoly is the market situation close to, and more frequent than, perfect competition and monopoly. Oligopolistic markets are managed by a few independent suppliers who can in consequence manage the price. They offer mainly similar products, differentiated by heavy advertising and promotional disbursement.

Advantages :

Big businesses gain massive profits

Ability to determine prices

Long term profits

Disadvantages :

Power in the hands of a few

Lack of creativity (innovation)

Setting prices

Duopoly is the market situation in which only two sellers supply a particular product to many buyers. Moreover seller can apply some control over the output and prices, but must consider the reaction of its only competitor (except if both have formed an illegal collusive duopoly).

Advantages :

Close competition

Competition in prices as a direct reaction to the other producer

Interaction

Simplicity

The disadvantages are:

In some cases, prices will not drop.

Barrier to entry

Lack of new products (innovation)


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