Pure monopolies in Japanese manufacturing

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

Tata records sharp rise in profits

Tata Motors is part of the Tata Group - one of the most important industrial conglomerates to have developed in emerging market countries. It has started to build the Nano - a car that sells for around £1300 and is reputedly one of the world’s cheapest motor vehicles. Tata also moved into the luxury market in 2008 when it bought Jaguar Land Rover from Ford for $2.3bn. This BBC report looks at the latest profits news from Tata. Tata has said it will eventually make 500,000 Nanos a year.

Outline some of the economies of scale that can be exploited by producing such a huge volume of cars
Draw an appropriate cost diagram to show what might happen to Tata Motors’ long run costs of production
What factors will influence the level of market demand in India for their Nano vehicle?

Click here for BBC news articles on Tata

TOK - What makes a successful business?

Martin Hartnett, from KCCIS in Hong Kong, presents some B&M TOK questions for us…