Great examples of near pure monopolies
A big hat tip to one of my students Arno Albici for spotting a superb article in the Economist about a cluster of mid-sized Japanese manufacturers who continue to enjoy near pure-monopoly power in highly specific, high value-added businesses. decades of industry expertise and reinvesting profit to fund high levels of research and innovation continue to give these companies a remarkable competitive strength in the market. The barriers to entry for rival manufacturers are very high and this helps to explain the limited contestability in the global marketplace.
For example:
Shimano earns around $1.5 billion a year by supplying 60-70% of the world’s bicycle gears and brakes
YKK makes around half the world’s zip fasteners by value,
75% of motors for hard-disk drives in computers come from a firm called Nidec
90% of the micro-motors used to adjust the rear-view mirror in every car are made by Mabuchi
“Many technology products have become commodities, but certain components have not, since they require continual innovation. So entry barriers to the business of making them remain high, and although the margins on the final goods have deteriorated, the margins on specialised, high-end components are still juicy.: Much more here
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Telecom entry barriers are falling
John Gapper’s blog is one that I follow on a regular basis. Today he writes about a further shrinkage of barriers to entry in the mobile phone market.
Apprentice Jockeys and Low Wages
The tragic death of two apprentice jockeys in an incident in North Yorkshire last weekend has prompted much press coverage of the ambitions and daily lives of the young people who aspire to make it into the intensely competitive world of professional horse racing. It struck me, reading this article in the Times, that the apprentice jockey is an excellent example to use of how a highly elastic supply of young people who want to reach their dreams has an effect on pay and conditions in their own particular labour market.
There are large hurdles (or barriers to entry) for people wanting to be a fully-fledged professional jockey. Last year less than 6% of apprentices made it into the professional ranks. For the humble apprentice desperately looking for rides and that all-important chance, the basic salary is likely to be little more than £10,000 a year for a job that involved huge hours many of which are at unsocial times plus the hard graft of traveling around the country from one course to another.
The Times article talks about “an endless supply of young talent” seeking one of the very few (and highly coveted) apprenticeship schemes. In other words, the supply of labour into the market is highly elastic at a relatively low wage rate. Little wonder that Trainers can employ apprentice jockeys at a low wage rate - and also take a slice of their riding fees.
According to the Times article:
*Until their success dictates otherwise, apprentices earn the basic stable lad’s wage. This starts at about £158.87 for a 45-hour week, rising to £214.94 between the ages of 16 to 21
*Generally, a trainer will take half the riding fees generated by his apprentice while paying half of his expenses. The riding fee on the Flat is £103.45
The passion of young jockeys also invites a discussion with students of the non-pecuniary aspects of work - the paradox being that many of the hardest jobs, both in physical effort and risk - are those that are deeply attractive to plenty of young people and thus carry virtually nothing in the way of compensating financial incentives.
Trade Secrets at Irn Bru
Here is a good example of the importance that some busineses attach to their trade secrets!
Blade Runner
Changing your razor blade is no soft touch decision. After years of teaching my old three-blader to recognise and traverse the craggy features of my cheeks and jaw (I prefer to shave without a mirror) I took the plunge last week and swapped for one of the new Azor razors from King of Shaves. The Azor is the first British designed, engineered and manufactured razor in over a century and it was launched last June in a bid to win a share of the £315m annual sales of razors in the UK alone in a duopolistic market dominated by Gillette and Wilkinson Sword.
read more...»Barriers to Entry
In business there are often important barriers to entry which act to limit the ability of businesses to break into new markets. The Bottom Line on Radio 4 this week considered the existence of these barriers. Leading the discussion was Will King, the founder and CEO of KMI King of Shaves, the innovative UK-based personal grooming business that has successfully broken into the shaving product markets and whose new four bladed razor is now number three in handle sales to Gillette. King mentioned that there were over 20,000 patents in the razor and personal grooming industry including mechanical hinges on the construction of razors which requires new entrants to design their way around the patents.
The panelists on the programme discussed a number of other entry barriers - among them:
1. Intellectual patents and ownership of technology - but patents are needed to provide an incentive to invest
2. Expertise and reputation of the incumbent - intangibles
3. Licences are important such as professional qualifications
4. Inherent suspicion among consumers about new ideas - behavioural economics tells us that many people are quite happy with their default choices - it may take a while for any change in preferences to occur.
5. Regulations and legislation involving employing people - a major barrier for fast-growing smaller businesses many of whom are highly innovative
The Bottom Line is always worth a listen - the podcast is available for free from iTunes. And this weeks programme also considered which kinds of sectors will weather the storm and do well in a recession? The different nature of a recession this time around may well give us a clue to the likely winners from the downturn especially with credit so hard to find.
It was thought that successful businesses during the current downturn would tend to be:
1. Agile and entrepreneurial, customer centric
2. Businesses with low debts and those who are cash rich - cash flow management is becoming critical - cash flow forecasts will come under increasing scrutiny.
3. High energy businesses that swim against the tide
4. Knowledge building companies
The Bottom Line
Borders v Amazon
Borders has broken away from Amazon after seven years to launch its own standalone website - the UK version is still in beta testing mode and you can sign up to be a tester ahead of the full roll-out.
According to Publishers Weekly
“Borders.com will have a total of 2 million books/DVDs/music in its inventory. In addition, in an agreement with Alibris, Borders will now offer about 60 million used books for sale. The site also features a link to its cobranded e-bookstore with Sony and has the ability to download digital audio either in DRM or DRM-free formats.”
What chance do you think that Borders has of breaking the stranglehold of Amazon in UK online book buying? Are the barriers to entry likely to prove insurmountable?
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