The Micro Perspective of the Individual Firm - Essay Example

EMAAR Part The Micro Perspective of the Individual Firm Main products and characteristics of demand and supply EMAAR is one of the public joint company’s in Dubai, due to its active growth it is listed in the Dubai Financial markets. EMAAR is a real estate’s company; it is propelled by the rapid economic growth of Dubai in the recent past (Group, 2008). The growth of Dubai is characterized by massive demand for infrastructural growth ranging from roads and largely on buildings and specifically housing. This has lead to an emergence of several construction companies of which EMAAR comes to be among them in a market where competition is so stiff. EMAAR has about 6 business segments and about 60 companies that are distributed across the world from Middle East right through to America (Group, 2008). EMAAR has its headquarters in Dubai (United Arabs Emirates). Despite the above growth, EMAAR has still been in the verge of discussing new prospects of growth which entails geographical expansion to new and virgin lands most so the far east and North Africa (Group, 2008). The other strategy is that of product segmentation. It deals in variety of products ranging from the housing industry, hospitality and tourism industry. The company has also invested much in the Education Sector and the Health sector where it has built schools and hospitals as well as investing in the best facilities for the buildings (Group, 2008). The company as well deals in the financial instruments in the financial markets of Dubai, where last year (2010/2011) alone it traded in a turnover of over 29 billion AED in stocks (Group, 2008). The company’s total sale of apartments in the year 2010/2011 has been estimated to be Dh 583; this has been stated as a decline of about 86% of the previous year’s sales (Group, 2008). This may be because of the economic hard time, which even caused a crush in the western economies. The revenue from such sales was estimated to be about $ 1.52 billion last year, which is still a drop of about 10%, the previous year’s revenues. The drop in revenue is attributed to and depicts a slash in prices due to stiff competition in the industry. Two major products that the company deals in are the apartments and the villas. The apartments are the largest income-generating unit with a revenue of Dh 183 in the last quarter of last year. Villas on the other hand made good sales, the sales was about Dh126.4, this was a drop though of some few percentages (Group, 2008). EMAAR does not operate as a monopoly in its business. Just as I have mention previously it operates in a highly competitive environment where there are several players. The Daily metro rails corporation is one such competitor in the properties industry. Another is the Mmk Corporation within the same industry (Group, 2008). However much it may experience competition, it is not that much simply because EMAAR in itself is a corporation consisting of about 60 companies operating in different markets and on different products. This in a way makes EMAAR behave like a monopoly in some aspects due to its power to influence the market at times. The industry of which this firm operates has several costs associated with it. The major and fundamental ones are the material costs, labor costs and overhead costs. Raw material costs are the costs for raw materials to use in the building themselves. They are normally quite high. Labor in Dubai is not that much though it constitutes a bigger share of the fixed costs. The moderated price of labor is because all labor laws were done away with hence only subject to regulation by the government, which has so many loops. Overheads may be fixed and variable. The values of these only depends on the rate of activity, the higher the rate of activity, the higher the variable overheads (Group, 2008). Demand and supply analysis is used to determine prices and quantities in the market where there is no monopoly. That is a competitive market where freedom exists for both buyers and sellers. If demand exceeds supply, then prices will go up due to pressure on such prices to go up. If quantity supplied goes up, it only means that prices will go down due to the reduced pressure on the market. DDo in our diagram shows original demand while DD1 shows increased demand after a shift. SSo shows original supply while SS1 depicts supply level after the shift in the supply curve. Qo, Q1, Q2 respectively shows the various equilibrium quantities after changes in the equilibrium positions. Po, P1, and P2 are their respective equilibrium prices. If income increases and the increase in quantity demanded shifts outwards, then the good in question is a normal good. In case of an inferior good, the demand curve would shift inwards because of an increase in income (Group, 2008). A reduction in income leads to a reverse in the effects above. Competing products either may be complementary or substitutes. In case of complementary goods, if the supply of one increases, that of the complement also increases. The substitutes behave differently since an increase in supply of one leads to a reduction in the other. Improvement in technology leads to efficiency in production and therefore leads to increase in supply and vice versa. Increase in number of consumers has a direct impact on demand and an indirect impact in the supply. If number of consumers increase, the demand of goods and services go up and eventually leads to forced increase in supply if production is efficient. Increase in the number of competitors leads to increased efficiency in production which results to increased supply. Productions cost increase is a constraint in production, it cuts down on supply hence shift of the supply curve inwards reducing quantity supplied (Group, 2008). Price elasticity of demand shows the responsiveness of price change due to a relative change in Quantity demanded. In the unitary region, a change in unit price leads to an equal change in quantity demanded (Group, 2008). On the elastic region, a unit change in unit price leads to a more than proportionate change in quantity demanded, while in the inelastic zone a change in price leads to a less that proportionate change in quantity demanded. In our products such as that of the apartments, if the prices of apartments increases by 1 unit then equal sales will be made under the unitary zone, more than equal sales made in the elastic zone and less than proportionate sale in the inelastic zone. 1. Market structure of the firm The market structure of EMAAR is the perfect competitive form of structure. Under this form of market, there is free entry and exit of buyers and seller. The forces of demand and supply dictate prices i.e. free market forces. The buyers and sellers are numerous and they have perfect information about the market. This form of market structure also exhibits perfect knowledge of the market (Group, 2008). The two major entries that prevent affirm from entering the market are, lack of an efficient competitive strategy as well as lower level of technology. This is because when these two factors miss, then there is high risk of loss in a perfectly competitive market given the conditions and rule which govern the market. The companies that operate in this market are mere price takers since the free market forces of demand and supply dictate prices (Group, 2008). Part 2 - The Impact of the Industry on the Macro Economy The performance of similar businesses in the industry has not been that significant since EMAAR has almost swallowed most of the firms in this sector through its wide geographic coverage and business segmentation (Group, 2008). Meanwhile, EMAAR real estate’s company has influenced both positive and negatively to the economy. Positively, the industry has lead to a massive growth of infrastructure in form of buildings and even roads. Electrification is also enhances widely. The company has also lead to enhanced living standards; as a result, the life expectancy of the UAE citizens went up. This is through the provision of social services such as recreation, education fundamentals, and health facilities. If citizens are able to equitably access such services cheaply and at convenience then it is the health standards that is enhanced and ultimately living standards is busted (Group, 2008). The industry also has a few setbacks to the macro economy. This is derived from the fact that it may be responsible for the inflation rates in the UAE economy since there is the influx of the foreign currency from the branches of the company based abroad. The company is also exploitative in the provision of wages to its employees. Cheap labor in Dubai does not have regulations hence exploitative to the workers who are as well desperate for work (Group, 2008). GDP is the total wealth that is found within the boundaries of a nation be they for foreigners or the citizens. They are important since they are the indicators of economic growth. the building industry has contributed much to the GDP of Dubai since demand for housing was highly (Group, 2008). The real estate’s sector alone contributes to about 12% of the GDP of which EMAAR has single handedly contributed around 4% to the share in the last year alone. The GDP was estimated to be 383.15billion dollars for the year 2010. The industry has again affected the macro economy positively by providing vast employment opportunities to the citizens who earn their livelihood from such sources of income. Employment comes directly in the building industry where masons and engineers get jobs. The companies as well provide jobs indirectly through the facilities they have established for the students in case of schools and doctors, nurses and the support staff who are the integral lot (Group, 2008). Consumer price index (CPI) is a measure of inflation. It employs a technique where prices get measured when the consumers deal with the consumable commodities. It’s the most modern form of determining inflation and their causes. Inflation in the Dubai has been largely contained within the relevant range with a decline for 3 consecutive years from the year 2008 until the year 2011 when it has gone up by about 4.8%. Increase in prices of both the villas and the apartments sale resulted into a realization of reduced revenue. Part 3 - The Impact of the Macro Economy on the Industry The Dubai macro economy is so big and the macro economy that surrounds the EMAAR is even much wider since it as well deals with foreign trade. The economic situation of Dubai is that which is mostly able to provide its companies with technical expertise, both skilled and unskilled labor, the large population experienced in Dubai provides this. Dubai is also soon joining the league of the developed countries hence facilitates businesses with better infrastructure, which enhances both transportation and communication within firms (Group, 2008). All these strategies by the economy are geared towards raising costs of production, which is unhealthy for firms who are not able to compete hence unproductively. Reference list Group, O. B. (2008). The Report: Dubai 2008. Dubai: Oxford Business Group. Read More