Use of Sector Matrix Framework in the Analysis Demand and Supply - Essay Example

? Use of ‘sector matrix’ framework in the analysis demand and supply linkages in an industry. Introduction Several frameworks for carrying out product market analysis have been on the rise in the recent past. Many scholars are researching on what companies should do to attain a competitive edge in the market. The concept of sector matrix originates from the context of financialization. The pressure for the corporate financial results that built in the stock market rendered the concept of chain and industry outdated. This resulted from managers who could not easily satisfy the growing demands of the capital markets, which heralded new ways of doing their businesses. On the supply side of the old thought, the production technology employed was unique to both within and outside markets. Another alternative thought detailed the firm as a unit that consolidates financial surplus from the different profit sources both inside and outside a given economy matrix. On the demand side, the old issue was also winning the name plate competition between substitutable end products. The emerging trend is about capturing expenditure on a function as it trickles down from the firms and households into substitutable and complementary products and services (Froud 2006, p.7). At this juncture, the sector matrix is a form of opportunistic and multifaceted thinking on the side of management spearheaded by financialization and starting from a totally different set of assumptions to the concept of supply chain industry (Froud 2006, p.100). Some of these assumptions detailed: that the household and corporate demand for the related products and services will be the starting point of the analysis; the boundary of the matrix is to be defined by the unique function, for example, motoring, healthcare and mobility; the boundary might have a tendency of shifting with time, as it responds to regulatory, social and economic changes (Froud 2006, p.101). This is based on the assumptions that the financial firm is persistently looking to increase its profits; that there is no restriction of competition only to group of firms producing similar products, although there is extension also to other firms that aspire to position in the matrix (Froud 2006, p.100). Analysis of motoring matrix The major illustration of sector matrix is a motoring matrix. It highlights the new used car relation as well as the overall importance of non manufacturing activities. The matrix allows us to give a new definition to the competition that is common in car companies. It clearly shows that this is not a contest the manufacturing systems. It also highlights that it is not a competition between social; settlements so that the Americans and Europeans must lose due to their high salaries and social costs. It then affirms that the car business is merely a business contest (Froud 2006, p.257). This is to see how these logic and assembly can be modified through the consolidation of non-manufacturing activities. Breaking from the value chain approach requires adoption of two wider assumptions in the process of constructing a matrix of framework. First, on the demand side, rather than limiting this to expenditure on the new product by an individual consumer, the definition should include all the household expenditure. Secondly, on the supply side, rather than limiting the definition of a business operating in an industry defined by the same technology and identical finished products, the definition should be widened in such a way that the definition of the business is by financial consolidation of a range of activities cutting across all industrial sectors (Froud 2006, p.95). Extended examples illustrating sector matrix From the above analogy, another grid can be drawn for any complicated product. This centers on whether it requires supporting infrastructure or needs consumption coupled with ancillary services. A healthcare matrix is such an example. Here in the matrix, the primary and secondary healthcare can replace the new and used cars respectively (Froud 2006, p.152). The ancillary support, services could include ethical drug manufacture, pharmacy, laboratories and equipment supply. All arranged on the bottom row. The sector matrix concept cannot be mechanically applied to the healthcare or any other sector due to complications arising from embedding, low definition and the locked demand (Froud 2006, p.153). This can be compared with the motoring sector embedded in a well defined mobility matrix. Here, all the motorists must purchase a combination of services to keep the car on the road. In contrast, the remedial health care is a less well defined health matrix. We can notionally say that it is inclusive of the preventive fitness through the gyms and sport clubs. A further setback to the remedial health is that most remedial health care purchases are only for (but not directly by) individual consumers. At some point, the motoring matrix is unique represented by a neat diagram in a way that is less satisfactory in other demand areas. However, the bottom line of the overall approach is that it highlights the possibility of the matrix moving to allow companies gain sales and profits from those activities functionally related to the existing operations (Froud 2006, p.8). In the case where the business has access to both business and domestic customers, it can anticipate gaining a greater share of the functional expenditure. In many instances, the sector matrix moves from the starting point and stops with high or low price adjunct to the higher price. The sector matrix analysis can also be extended to other areas of household expenditure and the other sectors that this business will sustain on the supply side. These sectors are not unique water tight partitions. In the supply side, there is a possibility of a surplus. This surplus can be consolidated through a competition process whereby various corporate actors emanate from many diverse business sectors (Syam 2005 p.569 ). The diversified and multinational firms’ success hinges on the determination of its viability by the ability to see and maximize any financial opportunity. The surplus thereby obtained can be incorporated and consolidated into a report and then the accounts. In the U.K, the food retailers move into the motor services through petrol retailing into motor services and then into financial services is a good illustration. Therefore, the global bus is no respecter of a linear national chain. Within the context of a restless pursuit of surplus, these chains will be fractured and broken as previously segregated demand versus supply links increasingly interfere with each other. The corporate actors both from inside and outside the sector matrix are, therefore, forced to recombine activities in order compete for the operating surpluses and the capitalization of activities that buttress cost recovery and cash generation (Punzo 2005, p.11). The case for a sector matrix approach to business analysis applies to most of the forces for those products that require complicated support infrastructure and complementary services like pharmaceuticals and monitoring (Froud 2006, p.105). Another argument is that many basic commodities are bundled with services. This will enable the analysis of the sector matrix value chain to get a vast application. The value chain analysis has a wide application especially in the retailing sector. The limits of an industrial chain set on the demand side by competition between finished products and also on the supply side by the common technology applied by man. Industry value chain analysis mainly emphasizes on the supply side because of it's location on the vertical linkages between suppliers and the final distributors. This analysis usually notifies the strategic decision making by suggesting how a series of interventions or reorder of the value chain can bring a benefit. Demand and supply linkages in the industry On the demand side, weak horizontal linkages suggest pegging the definition of competition on decisions of the organization in the final production stage. This implies that the competition on the demand side is between car assemblers that produce the same product. The assumptions made in this model of analysis are that it captures the required relevant information to inform the strategic business policy. If we look at the car business, we can note that the basis of a business strategy is on value chain best suited to generate competitive advantage (Perez, 2007). The lesson of matrix fusion is one that many organizations can strategically give a trial and reproduce a similar model (Colacchio 2003, p.75). For instance, one U.K mixed retailer known as Marks and Spencer launched its financial services business ten years ago. At the moment owns the rapidly growing store in U.K. or to the loyalty card and is among the top ten in Europe. The company now offers personal loans and finance opportunities to save through unit trusts and is also preparing to offer Life and Pension funds. At financial levels, the generation of cash flow from other tasks e.g. finance reduces the impact of cyclicality and the market maturity which will affect the core business. Matrix fusion into financial services is an option that for some but not all. Fiat and Toyota have been unable to develop their financial services division. The problem facing many of the European players is the fact that there is limited selling for credit by conservative private customers. These customers usually buy on cash or make their own credit arrangements (Goodridge 2007, p.32). From this matrix point of view, it is the finance rather than manufacturing the product that will ensure strong financial returns. This opportunity can be exploited by some other strong players who are outside the matrix. These may include finance houses, banks and other financial institutions. These strong finance providers are likely to likely to migrate into the matrix and appropriate the financial surplus that can be extracted from the provision of finance (Booth 2002, p.141). On the supply side, the sector matrix analysis widens the field of the visibility because of an observation that firms can migrate into other more profitable ventures. A matrix financial analysis treats the business as a harmonization of the various business sectors, and this widens understanding of the supply side of the business (Akerlof 2002, p.412). In connecting how firms transferred to other segments, the social and institutional context allows us to appreciate the reason why migration is feasible in other sectors and economies. From the supply side perspective, the narrow the value chain or the supply analysis establishes that the problems facing car producers is the mature new car market. The shift from value chain analysis to a sector matrix opens up a more complex web of demand and supply side relations. The household expenditure determines the cost recovery opportunities for the corporate sector of any economy (Akerlof 2002, p.411). Within or across the country’s boundaries there are large differences in the household incomes and the expenditure patterns. Within the economic and financial space created by this household expenditure, actors from within the matrix or outside the matrix compete to benefit from the cash extracted from expenditure within the matrix. The corporate relations that exist and consolidate financial results within this sector matrix space are relatively unstable given that they are extremely competitive. This emanates from the instability of patterns and growth in household expenditure, and the intensive nature of competition within the matrix to grain from the surplus. Conclusion An analysis in the demand side of a sector matrix is likely to bring a wider insight as it pursues to understand the pattern and distribution of household expenditure within and across the national boundaries. It is the households that consolidate the income from those who are economically active in the labour market. We can deduce that, within the national economies, household incomes are not equally distributed. Therefore, this income inequality of income impacts on the corporate sector in terms of the patterns and composition of household demand. The pattern of income distribution affects the pattern of household expenditure. Within the unstable space, the operating architecture of a business cannot always withstand the intensity of competitor interaction from actors within and outside the matrix. This yields competition to match the surplus within the financial space created by household expenditure. As a result, this establishes the conditions for a supply side consolidation of rationalization of business activities where the bundling and unbundling of assets becomes a common scenario. References List Akerlof, G. A. (2002). Behavioral Macroeconomics and Macroeconomic Behavior. American Economic Review, 92(3), pp. 411-433. Booth, A. (2002). The Economic Development of Modern Japan. Business History, 44(4), pp. 141-45. Froud, J. (2006). Financialization and strategy: Narrative and numbers, London, Routledge. Goodridge, P. (2007). Multi-factor Productivity Analysis. Economic & Labour Market Review, 1(7), pp. 32-38. Perez, P. et al. (2007). Business cycle affiliations in the context of European integration. Applied Economics , 39(2), pp. 199-214. Punzo, L. et al (2005). New tools of economic dynamics, Berlin, Springe. Syam, N. et al (2005). Customized Products: A Competitive Analysis. Marketing Science, 24(4). pp. 569-584. Read More