The paper identifies the contestation of companies in the school uniform market including the companies like Bibi & Baba and CPD. The operations of these companies in this market can be measured by identifying two important areas including
- The overall industry operating in the Singapore polo shirts market should have the assumptions of conducting their operations with no or low entry barriers, sunk costs negligence and the ability to companies to get the perfect knowledge of the market
- These two companies including the Bibi & Baba and the CPD must show consistency in their operations to make strong implications of a contestable environment with competitive practices and normal profits
Experiencing Freedom of Entering into the School Uniform Market for UWC Polo Shirts
The openness of the companies entering into the school uniform market will be provisioned to the UWCSEA and will be determined by identifying the inherent as well as the constructed entry barriers.
Firstly, it is highly important to determine that potential competitors being new and inexperienced to the uniform industry will cause no potential impact on the competitiveness of Bibi & Baba and the CPD competing in the same industry. But, the companies that are already operating in the Uniform market and providing their services to other international schools or institutions will stiff up the competition with Bibi & Baba and the CPD. The report evaluates that a startup firm in producing school uniforms or manufacturing anything outside the textile hosiery products will not present the pool of potential market entrants. This assumption is made based on these reasons because the uniform industry of UWCSEA would give no considerations to the firms those have established work experience. It also evaluates costs of moving into other garment type that would be lower in comparison to other garment type except their entry into UWC polo shirts. The companies entering into this polo shirts market need not to setup their manufacturing operations in the textile industry as a whole. Company already established their brand name in the Uniform market would enjoy cost benefits on a firm newly entering to the clothing industry. They would need to have startup capital in getting experience in the similar industry. It would deter new firms from entering in to the Uniform polo shirts market.
On the basis of this assumption, the setup costs would be assumed to be minor for established clothing firms. These firms will have complete grip on the latest technologies and the financial resources which they need to undertake the production of polo shirt or begun thinking of expanding their business operations and current productions to UWCSEA’s demands. For example, a firm which is taking orders of producing polo shirts for the universities in Singapore will already have the requisite capital as well as well trained labor to fulfill the large orders received from their clients. The marginal would be reduced when the produce a UWC polo shirt on the mass level. Furthermore, these prospective entrants will no need to make additional expense on research and production depending on their homogenous products for the Uniform polo market that they have already produced. Therefore, both of their research and additional capital expenditure would be negligible for the setup costs of these prospective entrants. It would cause critical entry barriers to those relatively new to the market but their setup capital would conclude to be low.
Marketing barriers are also major threats that new market entrants would face because consumer already have their loyalty to the particular supplier. It is also essential for the new entrants to advertise heavily depending upon their entry into the market to attract new customers. It would be helpful to the new entrants to protect their interests by deterring prospective entrants into the market. The prospective entrants would reduce their profitability by getting the market share. However, in the case of polo shirts market, the brand loyalty is not important for the customers of the polo shirt market and the contract of the management of schools is given importance rather than brand quality and pricing.
As for the results shown in the above survey of the 40 Upper School Students, the name of the supplier is not considered to be highly influential in terms of consumer choice. According to the survey results, only 10% of the students given preference to the supplier brand when buying their uniform and 85% of the students showed no respect to the supplier brand. The main concern to the customers of polo shirts was their size, quality and fitting and they were never concerned with the brand name supplying polo shirts to them.
There was clearly the lack of brand loyalty in the case which indicates that the polo shirts were produced by homogenously and there was no major difference in the shirts provided by different suppliers to the same customer. The school demanding for shirts is only concerned with the homogeneity of the shirts in terms of their size, design, quality as well as the materials used in manufacturing the shirts. Under such conditions, the consumer is not compelled to make any differentiation with one of them. Therefore, it depends on the ability of new entrants to ensure that they will provide an identical product and it would not be disadvantage to them upon their entrance into the market.
Furthermore, the paper evaluates that there was no prominent advertising observed between the two companies under study including the Bibi & Baba and the CPD. These two companies were fully endorsed by the school, which is responsible for hosting the sale of the uniforms at their campus to make sure equal level of accessibility to the each shirts provider and a level playing field for them. Likewise, the organizers of this event will grant the same level of endorsement to the new entrants to make their advertisements at dispensable expense.
The contractual requirements for the new entrants are the only critical entry barrier that exists in the market of polo shirts. The manager of contracts and the head of college interview the entrants and get an insight into the contract details and the significance of the restrictions that can be imposed on the prospective entrants. The existing providers of the shirts can get the contracts after getting a review for every two years of the price and quality of the products by the management of the college and the Parent’s Association. However, the contracts can’t be re-tendered and the management tries to indicate that the potential entrants can be denied of the platform upon which they can make no offer. The management has made the specifications that complaints about the services and quality of the products delivered would be given considerations for changing suppliers. The contracts of management of suppliers are highly important for market stability, keeping prices under control, establishing quality and assuring products continuity. However, these contracts could cause fundamental barriers to new entrants through regulating their entry and closing new offers and curtailing the process of contestability. The market appears to operate without placing any entry barriers on the new entrants of the school uniform market, but the presence of the inflexibility of the contracts can work as overriding all these factors.
Exist Costs from the UWC Polo Shirts Market
The sunk costs could cause huge risk to the considerations of a firm which is deciding to enter into a market. Under such circumstances the sunk costs would be extremely high and the risks of exit as well as the incurring costs would cause deterrence to new entrants. However, in the School Uniform market of UWCSEA, it is noted that potential entrants would be those who already had a base elsewhere in the uniform industry where the sunk costs are expected to the fairly low.
The sunk costs are those costs by which the capital costs can never be transferred to other users or sold out. However, in the polo shirts market, the mobility factor would be extremely high and the transferability of the capital would be within the larger industry of the garments industry manufacturing. The report evaluates the actions that would be appropriate for a firm to withdraw from UWCSEA provisions and applicability of resources to the same products supplied in other schools, colleges and educational institutions by making contracts with their management. Furthermore, the providers of the existing market can also represent the small segment of the total consumer market for the UWCSEA for which these providers can provide their products and services to other organizations. Bibi & Baba is the largest supplier of the local schools, hospitals, hotels and airlines in the Singapore and other organizations across the South East Asia. The unemployed capital to be exercised from the UWCSEA withdrawal can easily be exercised in absorbing their production liabilities.
As explored earlier, the costs of advertising would be minimal upon their entrance into the UWCSEA polo shirts market. The costs of advertising could be irrecoverable by which a firm can spend on the advertising of a product and no reimbursement can feasibly be claimed. But, the polo shirt is considered to be highly important for the students and school makes sure that the knowledge of the product can be effectively distributed and the sales can be fairly conducted on their campus with avertable advertising. Furthermore, the results highlights in the survey reports can be far less mindful for the consumers of the brand than the quality and the firms would not be involved in building their brand name to increase their sales and to make increased impact on their clients. Lastly, by judging the international school facts, the student turnover is frequent in those schools and any advertising would never be beneficial for the firm in the long term.
Therefore, we can successfully conclude that market would face increased contestability due to the fact of sun costs in the forms when the advertising and the capital would appear to be negligible.
Implications of the Market Knowledge
The knowledge of the market would be considered to be highly contributing to ensure the higher levels of contestability among various market players. Manufacturing standards are fairly unique across the industry and the potential firms that are engaged in the garments industry manufacturing would get the necessary information of the requisite production techniques.
The competitive practice can be recognized as the practice by which current suppliers of the market maintain competitive business practices, feel threats from new market entrants and fear replacement if they fail to meet certain industry standards.
The school acts as the decisive factor in polo shirts market because it provides services to the students and they can pressurize firms in decision making process to determine which supplier would continue the provision. The school administrations are responsible to complain certain firms on the quality, services as well as the price of the products they are supplying to them. It suggests that they have indirect assent of the students and their parents and it would allow the renewal of the contracts. Therefore, the contestability of the market depends largely on the student concerns regarding the quality, size and the fitting of polo shirts supplied to them. The results collected from the survey indicates that 70% of the students would approach and complain to the college management if they found any quality or price issues of the uniforms supplied to them of the firms that are susceptible to the fear of competition.
If you are unhappy with the quality/ services or the price of the uniforms provided to them by the suppliers, the management would investigate these concerns and potentially find a new supplier as shown in the results in the table below
|Students||% of Students Participated in the Survey|
|Will definitely complain||28||70|
Therefore, the results indicate that the current providers of the uniforms will be protected through the contract terms and conditions from strong competition or their replacement by the contract college. They would be required to maintain the practices of ensuring appropriate quality of their products in school uniforms with their moderate pricing. It highlights the markets where the competition between different companies could be intensified as the fear among some companies may arise at any time that they will not be able to do so.
I collected necessary information to ascertain the approximate level of profitability on the costs and the revenues of the firms. I first made a contract with the current uniform providers to get the retail price of the shirts and I observed that these shirts were priced with a standard price of $15.75. Then, I made a contact with some other firms in the same industry which are producing polo shirts for the school uniforms and their products corresponds with the UWC quality, design and the materials and requested price quotations from them for 2400 shirts by assuming the number of shirts to be provided to the students of Upper School on annual basis and permitting 600 students to purchase four shirts in a year.
|Company||Price Quotations (Per Shirt)|
|Chan Kwang Weng Tailor||$7.00|
|Cotton Pro Premium Apparels||$8.00|
The above quoted prices of different apparels has the average price of $7.10 which determines the price at which the potential sellers of the shirts would like to sell a polo shirt identical as supplied to UWCSEA. The average price of all the participated companies is calculated to be $7.10 which indicates that these companies in the polo shirts market are interested to supply the similar shirts by assuming average fixed costs and variable costs of producing the shirts with identical quality, size and fitting. Interestingly, two companies of the study Bibi & Baba and the CPD are supplying the same product at more than double price that we have observed above. These two companies are facing some additional costs due to their packaging costs, distribution and retailing and other costs that would make their final price higher than the average price of the surveyed companies. Under these circumstances, I can’t predict the normal level of profitability as the current suppliers of the educational institutions are setting up their final price more than double of the above price. It clearly indicates that the profits maximization can be achieved by these supplier firms more than that of normal profit level.
Therefore, the presence of the abnormality in the profits of two shirts manufacturing firms clearly indicates that the market is not truly contestable and could not pose competitive threat to force down the prices to the normal profit level.
There are some other features of the school uniform at the UWCSEA that would be essential to determine the contestability of the firms in addition to the contracts presence.
The contract relationship between the buyers of the school uniforms (the management) and the suppliers of the uniforms is considered to more important than a legal bond. The relationship of suppliers is more important with the buyers as Bibi & Baba is providing uniforms to UWC since last 20 years and it quite familiar with the demands of the management and could make flexibility in their supply if the management requests changes in colors, styles and sizes. Such an extended relationship indicates that the difficulty of the UWC management to change the supplier.
It clearly indicates the economies of scale that could be largest entry barrier to new entrants in the school uniform market. Now under such conditions, should we make a division in the market between two or more suppliers? It is likely that advantages of the economies of scale could be diminished and the incentives of the existing provide could be reduced to their continuous supplying and new firms to entering into this specific market.
Lastly, it would be difficult to standardize the uniform in case when two or more suppliers of the uniform will be engaged in providing the uniform and it would reduce the management will to contract out new firms. According to the contracts offered by the school management, the standardization of the quality of the product is important because the quality of dye, cut and material becomes highly important in testing as the firms would have slight difference in their manufacturing processes. It would make the homogeneity of the shirts difficult.
I can only deduce the degree of the contestability in responding to answer the question of to what extent can be providers of the school uniform operate in highly contestable market. The broader industry of the school uniforms supports the basic assumptions to ensure the reductions in marketing and cost barriers and sunk costs become negligible along with a need to acquire perfect market knowledge of the products by the market entrants. However, there could be various other factors that could undermine the contestability in this market.
The factors that diminish the contestability of the market are the long-term contracts of the management and the suppliers supplying uniform products. Most critically, the contracts between the management and the suppliers are rigid and inaccessible to the potential entrants and reduce the contestability as well as reduce the level of competition in the market. Under such conditions, abnormal profits are detected which indicates that current polo shirt suppliers continue their supplies without giving importance to the contestable market theory. The industry appears to be highly contestable in the presence of highly abnormal profitability of the current product suppliers. The constructed barriers also suggests in actual terms that school uniform suppliers including the Bibi & Baba and CPD are not supplying polo shirts in highly competitive market and the market is not truly contestable market.
The implications of this study highlight new questions and suggest what could be the normal level of profit for the organizations. The structure of other school uniform markets can be compared to what is presented for the market of UWCSEA. I would like to make a linkage for the investigation of whether or not the management of schools should speculate the offers from other market suppliers to provide uniforms, and the extent to which these offers should be considered.