Environment Conditions on Australian Gambling Industry - Case Study Example

Management and Evaluation Analysis Case Study xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Australia Gambling Industry xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Institution xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Introduction Over the past few decades, Australian gambling industry has received continuous growth. This growth has been greatly attributed by introduction of electronic gaming machine in the early 90’s. The governing bodies of gambling in Australia are Lotteries commission and Totalisator Agency Board (TAB) which has also contributed to tremendous increase in the number of gambling activities in Australia. Laws and policies governing gambling are frequently reviewed and redefined at regular intervals so as to be at par with dynamic economical and technological conditions. Components of gambling in Australia comprise majorly of horse racing, lotteries and lottery products, electronic gaming machines in casinos and hotels, wagering and other varied activities. Research has revealed that participation of gambling by the general public in the past decade has been on the decline. The gambling industry has been under threat with a rise on the level of expenditure on the already existing activities and little returns since the industry barely attracts a large group of the population (Rumelt 1991). Research findings have indicated that majority of the citizens have been forced to cut down on luxurious spending following the global financial crisis. This problem has not only been felt in Australia but by other countries such as Japan, Macau and Las Vegas. Consequently, entertainment industries with the inclusion of gambling have suffered adverse effects of reduced profits. Having pointed out that the gambling industry is one of the greatest contributors of revenue in Australia, the government has intervened to try and rectify the situation by firstly participating in national campaigns aimed at reviving the sector and secondly reducing the taxes imposed on gambling products (Rumelt 1991). Other stakeholders in the industry such as suppliers of the gambling industry have also been victims of the harsh conditions facing the industry. In this case, they have been forced to cut down their future expectations in terms of revenues. The essay will discuss some of the external as well as internal aspects affecting the gambling industry in Australia. It will further examine the Porter’s 5 forces model with special attention on how attractive the industry is towards new entrants and the implications they might have on the industry (Neuman 2003). Environment conditions on Australian gambling industry Organizational environment/external environment refers to institutions or forces outside the organization that have either positive or negative implications on the performance and decision making process of the organization. Specific environments have a direct link to attainment of organizational goals and objectives and they include suppliers, customers, pressure groups and competitors. On the other hand, general environments are the broader external factors that affect an organization (Hawke 2000). Specific Environment Customers: Originally, the gambling industry had numerous oppositions from civic groups due to moral and ethical issues that were attached to it. However, this has changed over the years with more people getting involved in the activities. The number of gambling customers has gradually dropped over the past decade due to the harsh economic conditions (Porter 1985). Competitors: Despite massive competition from other entertainment industries in Australia, gambling has been able to achieve an almost monopoly with introduction of numerous products. Managers have developed policies to deal with competitors such as pricing of new products and introducing incentives to attract new customers. Suppliers: In order to achieve its goals, the gambling industry needs to have a reliable and steady flow of supplies in terms of financial supply, human resource supply, material supply and information supply (Porter 1985).. Pressure groups: It is crucial for the managers of the industry to recognize the interested groups and associations that attempt to operations of the industry such as trade unions (Palmer & Worthington 1992). General environments Political and legal bodies: The Independent Gambling Authority (IGA) is responsible for regulation of commercial gambling in Australia. In addition to this, the role of Australian government in gambling is to ensure implementation of policies that regulate responsible gambling. Socio-cultural trends: With the ever changing cultural and social trends the industry has had to redefine and redesign its strategic plans so as to incorporate upcoming fashions and trends. Economic conditions: Global economic crisis has adversely affected the gambling industry in Australia. High rates of inflation affect the rate in which customers spend their money and this has led to reduced levels of consumption (Palmer & Worthington 1992). Technology: The industry has invested a lot in technological innovation with the aim of achieving a competitive advantage over its rivals. The electronic gaming machine has boosted the growth of the industry since they are more interesting. Communication and technological advances has enabled international trading of gambling activities (Slater and Olson 2002). Porter’s 5 forces model According to Porters Five Forces risk adjusted rates of return should be constant across the industries however; different industries can sustain different levels of profitability. This is said to be influenced by five forces which Managers seek so that they can be a level higher from the rival firms (Porter 1980). It is a very useful tool for it helps one understand the strength of the current competitive position and the position one is aspiring to achieve. Which a clear understanding of where the strength is, one can take advantage of that strength to improve on the weakness and avoid taking wrong steps. This makes new entrants a step ahead in the gambling industry (Siaw and Yu 2004). The five forces involved in this theory are: 1. Threat/Barrier to entry. If the industry earns on capital in excess of its cost capital, them firms will be yearning to be in the idea. In an industry with no barriers to entry, prices and profits get to the competitive level, not considering the number of firms within the same industry (Porter 1980).. New entrants do not have equal terms with those that have been in the industry. The amount of establishing the business in terms of unit costs measures the height of barriers to entry and determines the extent to which the industry can enjoy above the profit above the competitive level. The only barriers to entry are the capital requirements economics of scale, cost advantages, governmental and legal barriers and retaliation. High entry barriers tend to earn above average rates profits. These barriers can avoid by adopting innovative strategies. New entrants can take this advantage and penetrate the market to their advantage (Porter 1980). 2. Rivalry determinants. Competition is the major determinant of profitability and the general level of firms within the industry. When competition is stiff, sometimes the prices are pushed below the level of cost and industry and losses are incurred. In other cases, price competition is silent and rivalry is focused on advertising, innovation and other ways that do not incur the firm any cost. Concentration, competitor’s diversity, excess capacity, exit barriers and cost conditions play an important role in determining the nature and intensity of competition amongst firms in the same industry ((Porter 1980).). 3. Bargaining Power of Buyers In industries like gambling, there are two types of market for inputs and markets for outputs. In input purchases are made inform of components, labor services and financial. Outputs are the services sold to customers. Transactions create value for both buyers and sellers but how this value is shared between them in regard to profitability depends on their relative economic power. The strength of buyer power that firm will face is determined on buyers’ price sensitivity and relative bargaining power (Porter 1980). 4. Bargaining Power of Suppliers this are the inputs needed in order to provide services in gambling industry. Suppliers bargaining power is high when the market has few large suppliers rather than fragmented source of supply, there are no substitutes, when switching to another supplier is expensive and when the buying industry has low barriers to entry just to mention but a few. In this case, the powerful suppliers of the gambling tools can reduce strategic options for the organization (Porter 1980). 5. Threat of substitutes This only exists when there are substitutes existing in the market in relation to lower prices or better performances. They tend to attract large market volumes and reduce the same for the existing players. This is determined by brand loyalty, close customer relationships, switching costs for customers and the current trends. When these are implemented properly, then there will be a competitive advantage for the new entrants luxuries ( Adams 2008). . Advice to the Australian gambling industry In the current global economic downturn, organizations in the gambling industry have to change the strategies in management so that they can avoid sinking together with the crisis. There is a need to change the corporate citizenship for sustainable business. Corporate citizenship is a commitment to ethical behavior in business strategy, operations and culture. This is closely linked to corporate governance and board leadership which affects the corporate reputation in a big way. Many organizations are collapsing after they fail to adhere to ethical practices and strategies that determine their sustainability mostly resulting to scandals that speed their down fall (Marks 2005). In any organization the environmental, social and governance determine its performance and long term sustainability. These concepts also determine profits. For an organization to be successful the managers must incorporate new dimensions in their original decision making processes. Risks need to be addressed especially those impacting people, environment and managing tangible and reputational risks (Palmer & Worthington 1992). I would guide the organizations to execute strategies that clearly define matter related to human rights, environment protection and anti corruption measures, guidance to the board’s insight, and the accountability. When this is implemented, the organization will have firm grip in its business and at least rock in customers after the increased market share value (Palmer & Worthington 1992). Good corporate governance holds together business practices which result to positive workplace management, marketplace responsibility, sustained financial performance and community involvement. This increases confidence and promotes upward growth. Managing risks The board has a legal and fiduciary responsibility to manage environmental, social and governance risks. When risks are managed effectively the business will be financially secure. Creating business value When the organization is governed effectively, then its reputation is improved and hence the business will increase. Protecting stakeholder rights and interests Shareowners, employees, customers and communities fell supported and committed to a business that is well managed and this will in return increase the outcome. Conclusively, organizations should improve on the corporate governance for sustainable business that will not wither or go down with the financial crisis experienced globally (Bhagat & Black1999). Impact of current economic trends within the tourism sector It is notable that not only has the financial crisis that began in the US affected the gambling industry but also it has widely affected the tourism industry especially within Australia. In New South Wales, it is quite evident that big hotels and lodges have been affected severely. A good example is Wolgan Valley Resort & Spa, due to the recession that took place recently; the hotel could not handle the large numbers of employees within its system. As a result, this resulted to increase in unemployment level which automatically resulted to decline in revenue collection. Although, the hotel has currently begun its recuperation program, unemployment is still within the hotel due to lack of funds and high interests rates being offered by banks (Stiglitz 2008). Further, the Wolgan Valley Resort & Spa Hotel is facing enormous problem in trying to restore their balance sheet since the global financial crisis hit the world. Stiglitz (2008) asserts that, if no effective measures are put underway then, the hotel seems to have increase in risks. This is as a result of various policy regulating financial issues failing to regulate derivatives rather enhances the use of the various fiscal policies within macroeconomic management that are measured as an unstable asset which may result to inflation. The consequence created by new techniques during the recent recession with the aim of managing risks, undermines the capacity of the hotel to work towards prevention of such happenings within the tourism industry (Stiglitz 2008). Stein (2007)maintains that, the recent recession have forced the hotel investment plans slow down due to high levels of uncertainties and risks. The hotel has taken some preventive measures namely; cancellation or postponement of investment projects, divestments and layoffs. The preventive measures have mainly been considered due to lower hotel and the general tourism sector profit curtails and tighter condition without Australian credit conditions. Finally, the depressing growth of the tourism industry market resulting from increased looming sharp economic crisis globally has a continuous negative effect on this industry. This is because every person across the world is feeling the negative effect of the global recession, thus cut down on high-status expenses such as travel and tours and maximizing on their expenses on the basic essential goods and services (Stein 2007). Therefore, fears for heightened appreciation of the risks which automatically entails reduction in the hotel investment. Conclusion Global crisis has and will continue to affect all industry across the world. Within gambling industry in Australia has been under risk due to the recent recession .It is therefore, paramount for the key players in the industry to obtain new strategic plans to keep the industry alive and to increase its boundaries. Government involvement cannot be overemphasized since its efforts in supporting the industry are quite clear. It is also recommendable for the industry to merge with other leisure industries such as the producers of beverages and tobacco. Research has indicated that greater part of the gamblers will in most cases indulge in smoking or drinking in the process of gambling. Other means of boosting the industry entails venturing into more technology based activities which will attract more customers of the products and services. It is essential for the industry to enlarge barriers to entry such that a monopoly is recognized for best outcomes. References Adams, P. 2008. Gambling, freedom and democracy. New York: Routledge. Bhagat, S., and Black, B. 1999 "The uncertain relationship between board composition Family and Community Services and firm performance". Business Lawyer 54, 921-963. Hawke, A. 2000.Measuring the Impact of Gambling: An Economists View. Hawke Institute Working Paper. Series No. 4. 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