MODULE: BUSINESS OBLIGATION

MODULE: BUSINESS OBLIGATION

STUDENT NAME:

ID

1.

1. Middle East Telecommunication Company (METCO)

• Organization profile

Middle East Telecommunication Company (METCO) is a telecommunication company based in Oman. It was established in 1978 as a subsidiary of Towell International Holding, and today it’s among the fastest-growing companies in the region. Its headquarters are located in Kuwait but operates in other countries like Iraq, Saudi Arabia, Sudan, and United emirates Arabs Emirates.

Metco has an average 3.3% annual growth of employees count, and recently it has 152 employees in Oman only and 501-1000 globally.

• Products and services

Metco is a provider of information and communication technology services to telecommunication carriers, government organizations, and private institutions. It provides automated business processes for video, data, contact, and network.

• Market structure

Oman’s telecommunication industry is a significant monopoly led by Oman Telecommunication Company (omantel) with trust in landline telephone and internet access market. Omantel is 70% owned by the government of Oman and 30 % privately.

• Competitors

Barik Telcom, Nasma Telecommunication LLC, and Vodafone Group

1. Factors influencing demand and supply of Metco services in Oman

• Coronavirus pandemic

Metco has been preparing to launch a 5G network in 2020. Due to the pandemic, the project had to be postponed on the premise that maintaining and upgrading the existing infrastructure will be difficult.

On the demand side, it is predicted that consumer spending on Telcom services is likely to drop due to large- scale job loss and increased constraints on disposable income. (Research and market, 2020)

• Competition

In 2020 the Vodafone Group, in collaboration with a local consortium of investors, agreed to form a third mobile network operator in Oman. This strategy is meant to build a fibre-based network, and by 2040, it projected that every home and business would be connected to national broadband infrastructure. (Market watch, 2020). Such improvements will trigger rapid changes in demand and production of Metco services in the near future.

• Prices of related goods and services

When the price of a commodity goes high, the demand drops; this is evident in telcom business after the launch of a new product such as 4G or 5G network. Moreover, Metco responds to competition by adjusting the prices of the products in accordance with the competitor’s price decisions.

• Consumer tastes and preference

The main drive of Metco plans to deliver a 5G network is due to the new norm of consumer’s choice for a more upgraded network like in other developed countries.

• McDonald’s restaurants’ competition strategy
• Strategic location – most of their restaurants are located in or near gas stations and in busy cities creating a good opportunity to reach the targeted busy workers in towns.
• Prudent organization – McDonald restaurants have an advisory council that is mandated with providing recommendations on nutrition. Moreover, all restaurants have a similar outlook, design, production processes, and similar commodities, which makes them be easily identified.
• Wide based consumer choice – consumers can select their food in accordance with their needs and requirements from a wide range of varieties,
• Essential information provision – McDonald’s products are filled with nutritional information that presents better consumer choices and breaks autonomy.
• Quality products –its restaurants offer innovative products such as whoppers, French toast sticks, Caesar salads, veggies, and burgers. In addition, customers do not have to wait for long to be served since the production process is by far extend automotive.

2. MARKET STRUCTURES

A market can be defined as a place where buyers and sellers interact with the aim of exchanging goods and services.

A market structure is the degree of competition for the goods and services of a firm. Market structure can be categorized into perfect competition, monopoly, monopolistic competition, and oligopoly.

Monopoly

A monopoly is a market organization with only one seller, and many buyers and the commodity engaged have no close substitutes. For example, in the 1980s, Microsoft had a monopoly on PC software and charged a high price for Microsoft Office.

Sources of monopoly power include large economies of scale, sole ownership of resources, and legal rights.

(Public Authority for Consumer Protection (PACP))    (Competitive Market Review (CMR) in 2018)

Features of monopoly

• A single seller – the seller is the price maker and the sole producer of the commodity either due to some natural conditions prevailing in the market or due to ownership of some legal rights.
• Restrictions of entry for new firms – this may be due to ownership of essential raw materials or ownership of rights mandated by government licensing.
• Non-substitutable products – the elasticity of demand for goods produced by a monopoly is inelastic since consumers are forced to consume the products due to a lack of close substitutes.

Disadvantages of monopolies

• Low customer surplus – prices by a monopoly are greater than marginal cost hence high prices that only a few customers can afford.
• Relatively high prices than in competitive market structure – due to inelastic demand and lack of product alternatives prices are likely to be high
• Fewer considerations to efficiency – monopolies face no competition and can profit without many efforts; thus, efficiency weaknesses can be overwritten by large profits.

Monopoly and resource allocation

Monopolies are price makers and can set prices to maximize profits as a result of allocation resources inefficiently. Unlike perfect competitive markets that set prices equal to marginal revenue and marginal cost, monopolies set their prices higher than marginal revenue and marginal cost. This enables monopolies to enjoy abnormal profits in the long run and reduce consumers’ welfare known as deadweight loss as shown below

The deadweight loss is equal to the loss of consumers’ surplus, and this demerit concludes that monopolies underutilize and misallocate resources and reduce consumer welfare.

Perfect competition market     

A perfectly competitive market is a structure where there are many buyers and sellers in a market endowed with homogenous products. As a result, forces of demand and supply determine equilibrium prices.

Characteristics

• Many buyers and sellers – each seller contributes a small quantity of the total market, and none of the parties can influence the price level hence perfectly elastic demand curve.
• Perfect knowledge – information about the market is free, and both buyers and sellers have complete information about the market
• Mobile factors of production
• No government restrictions – the government does not interfere with the market, only forces of demand and supply determine the market equilibrium.
• Free entry and exit to the market – there are no barriers to exit or entrance to the industry.
• Product homogeneity – all sellers sell identical commodities that are hard to differentiate.

Demerits of perfect competition market

• Few barriers of entry to the market – any firm can enter the industry; therefore, old firms are always at the risk of losing the market share/
• Business location disadvantage – firms at best locations are likely to enjoy more profits than firms not located in prime areas.
• Fewer incentives for innovation – In this market, the profit margin is fixed, and sellers cannot charge higher than the price set by market forces, therefore sellers keep selling standardized products.

Efficient resource allocation

Allocative efficiency occurs when the price of a good or service equals the marginal cost or the value which consumers place on a product equals production cost.

In a perfect competitive market resources are allocated efficiently as long price equals marginal cost. With price equal to marginal cost and free entry and exit to the market no firm has reasons to adjust their quantity of output and therefore each firm earns only normal profits

In the long-run equilibrium market conditions are strictly satisfied at the minimum average cost curve with 6 units of quantity demanded at the equilibrium price 20 as shown in figure 2. At this state the economy cannot utilize resources for production more efficiently.

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3. Mixed economy

A mixed economy is an economic organization with both market economy and command economy. In a market economy private institution are freely allowed to operate but under the regulation of the government while in command economy is the sole producer of all goods and services and the owner of all factors of production. Examples of mixed economies include Iceland, Sweden, France, Russia, India, etc.

A mixed economy has two baselines,

1. A free market where entrepreneurs are able to make profits, individuals are free to open up businesses, prices are determined by market forces and some degree of private ownership exist.
2. Government intervention whose main role is to regulate businesses, provide public goods, tax demerit goods and promote equality.

Advantages of a mixed economy

• Incentives to be efficient

Private owned organizations are motivated by profits and this ensures such companies minimizes cost and increasingly become innovative. Government corporations tend to be inefficient due to free rider problem especially in public good consumption hence the need for private organizations in an economy like Royal Dutch shell, an oil dealing company.

• Market failure minimization

Absence of government intervention in an economy can lead to market failure, such, high prices by monopolies and environmental pollution by industries. It is therefore the government role to regulate monopolies powers as well as taxing and regulating goods and services with negative externality.

• Promote societal equality

A mixed economy allows entrepreneurs and innovators to enjoy financial rewards of their creativity. It is also a safety net for low class households as governments are able to reduce absolute poverty levels and protect citizens against capitalism exploitation.

• Enabling macroeconomic stability

The government has the power to control macroeconomic variable like inflation, economic growth and balance of payment. For instance in times of high inflation and recessions, the government through the central bank can use expansionary fiscal and monetary policy to correct the market disequilibrium.

The impact of mixed economy in Muscat Oman

• Economic pride

Today Oman is ranked 6^th among the 14 countries in Middle East and North Africa countries with the freest countries. This score is slightly above the regional and the world averages. Oman is also ranked the 62^nd out of 137 nations in the international market position.(Competitive index, 2018)

• Economic growth and development

The economy of Oman has been steady since the last 25 years of a mixed economy. Moreover the government of Oman is working on developing a nonoil economy and a new bankruptcy and insolvency laws which would aid increase foreign investment inflows.

• Efficient utilization of resources

The existence of a strong governance enabled Oman to achieve a 31 billion worth of income from hydrocarbon which accounted for 66% of Oman’s exports and 39% of its gross domestic product. (Central bank of Oman, 2017).

• Comparative advantage

Oman enjoys large oil reserves than its neighbors due to the resource endowment. Oman’s proven oil reserves are about 5.5 billion barrels. Moreover, it is also possesses more gas reserves despite being a non-member of Organization of petroleum exporting countries (OPEC). (United States Energy Information Administration, 2018). Through a mixed economy the government has been able to regulate the non-renewable minerals in Oman like oil which could not be possible I a market economy.

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References

Books and journals

Websites

1. https://www.researchgate.net/publication/337399007_MARKET_STRUCTURE
2. https://www.omanobserver.om/end-nigh-power-supply-monopolies-oman/