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LB5229 Economics For A Sustainable World

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  • Course Code: LB5229
  • University: James Cook University
  • Country: Australia

Question:

Business models for sustainable innovation

Environmental policy and market structure

Global messages and free market competition

Entrepreneurship and SME's organizational structure.

Elements of a successful business.

 

Answer:

Introduction to the business and general business environment

The present study provides an overview on how microeconomic and macroeconomic factors affect the business enterprise. As the main purpose of an organization is to maximize profit margin and control cost, these economic factors influence its business environment. The microeconomic factors such as availability of resources, customers, suppliers, employees, investors, competitors influence the business operations and decision- making of an organization. Likewise, the macroeconomic factors including-political system, unemployment, inflation, interest rate, exchange rate of an economy in which the company is operating also impacts the business culture and performance (Group, 2013).  The enterprise selected for this study is XTV Network Limited.

 

Name, location and type of business

The XTV Network Limited is the media network enterprise located in Nedlands, Australia. This company was founded in the year 2011 and was previously engaged in building, managing and deploying interactive online XTV networks for the organizations. It is one of the ASX listed companies that permit the business to establish multi- channel online network, which adopt branded video and other user- created content with the real- time feeds. The media company has started to provide technology platform to the enterprise and promises in rewriting the way organizations communicate with both the employees and its customers. At present, this organization has been selling its technologies in the US. The vision of this enterprise is to deliver any corporation with capability to reduce cost of production and add consumption of the media by providing lean – back and real- time TV experience without requirement to install new devices.

Name of the company

XTV Network Limited

Founded in the year

2011

Headquarter

Australia

Location

Nedlands, Australia, USA

Type of business

Media Network Organization

Type of business production

The XTV network limited produces or sells variety of products that include- Digital Signage, Cloud TV Networks and other Premium Channels. It Cloud TV Networks organize as well as aggregate video, social media and Web feeds into one destination as well as displays it on the device that mainly supports web browser such as-tablets, smartphones and so on. In addition, digital Signage mainly delivers XTV Cloud Network wirelessly to projector, HDTV, monitor and kiosks with high definition multimedia interface port ("XTV Networks Ltd (ASX:XTV)," 2018). Its regularly curated video and premium channels are available for use and content from other sources.

 

Main customers of XTV Network limited

The main customers of XTV Network limited is sales team of healthcare organizations. The customers mainly attains the value of XTV products in its environment. XTV Network provides its customers XTV platform for organizing combinations of video, news and social feeds into real- time screen organization.

Location of most of the customers

As of the year 2017, most of the customers of XTV Network limited are located throughout Australia and USA.

Competitors of XTV network limited

Competition in the media market is mainly based on variety of factors that include- product offering, advertising, location of store and customers service. One of the top competitors of XTV Network Limited is Ross Vedio that competes in Application Software Field. Other competitors of XTV Company includes Yubuy, Grass Valley, Kaltura, New Tek. Both Yubuy and NewTek generates less revenue than XTV network limited. This company has been ranked 9th among the top 10 competitors in Australia ("Quarterly and Estimated Annual Revenue," 2018). 

Market share and market structure

From the annual report 2018, it has been seen that XTV Network Limited has no total sales revenue. The market Cap of XTV is $10 M and equivalent shares of this company is 1213 million. The market share of XTV Network limited is relatively small in comparison with other media companies operating in Australia. Even though the market share of this enterprise is low, it has maintained its position in Australian market as provider of media network. Moreover, XTV Network Limited has been operating under monopolistic competitive market structure. In monopolistic competitive market structure, there are large of sellers selling closely related products and has no hurdles in entry (Geroski & Jacquemin, 2013).

Close substitutes for business products

One of the close substitutes of Cloud TV network is Tricaster, which is a product that mainly merges live video broadcast graphics with audio mixing, social media, recording and web streaming. Other substitutes of the products offered by XTV Network Limited include- live production switchers, skype for broadcasting, 3PLAY instant replay system. The availability of close substitutes of XTV cloud Network makes the demand for this product elastic.

Demand curve facing XTV network limited

As XTV Network Limited operates under monopolistic competitive market structure where there are large number of media companies selling differentiated commodities, the demand curve is highly elastic than that of monopolist but less elastic than for the perfectly competitive entity.

Ability to mark up price above the marginal cost 

As XTV Network Limited has been operating under monopolistic competitive market structure, it has limited control over the product price. The entities in monopolistically competitive market maximize short run profit under the rule MR (Marginal Revenue)=MC (Marginal Cost). If XTV Network Limited decides to increase its product price above MC, then it might lose few of its customers (Gershon, 2013). The extent of loyalty to its goods or service means that few customers might continue to purchase from this media company.

 

Relation with average income of the customers

The customer’s income has direct relation with the sale of media products. XTV cloud TV network is taken into account as normal product. If the average income of the customers are less or reaches at specific level, then they might purchase one network and purchase no more products even if their income increases. Increase in average income of customers in the market signifies that large number of individuals might be keen to buy these products manufactured by the media company (Straubhaar, LaRose, & Davenport, 2013).

2) Production costs and scale

  1. a) Factors of production

The factors of production are mainly classified into four types such as- land, labor, capital and entrepreneurship. These factors help to manufacture several products and services of the business enterprises. Effective use of these factors of production helps the company to improve product quality and reduce production costs.

Land-This is one of the natural resources that is used by XTV Network Limited for manufacturing products. As Australia is largely endowed with this resource, this company uses this for building good infrastructure. The Cloud TV network, signage and other premium products are manufactured by assembling numerous inputs such as silicon that is mainly used in electronic chipset.

Labor- This refers to effort used by individuals for bringing products and service to the competitive market. For the XTV Network Limited, labor is a vital factor that produces products and assisting its customers. The laborers are also important for this company as they helps in innovating and designing new network products.

Capital- Fixed capital relates to the machinery, equipment and physical plant that are utilized for manufacturing products. The working capital refers to the stocks of semi-finished and finished products in future or might be produced into consumer products. For the XTV organization, advanced technologies have been used for innovation of new networks and enhancing productivity. Furthermore, integration of technologies also help to enhance productivity of labors.

Entrepreneurship- An entrepreneur is the individual who mainly supplies commodities to the market for making profit (Zaridis & Mousiolis, 2014). It is regarded as some specialized form of the labor input. For this company, the entrepreneurs invests their capital in the business for maximizing profit. Since the company has made loss in the current year, the entrepreneurs faced loss from return of their investment (Geroski & Jacquemin, 2013). 

Production costs and scale

For making production decisions in long run as well as short run, an enterprise determines the costs that are linked with producing various output level. For XTV Network Limited, the fixed costs relate to the costs that they bear irrespective of output while variable cost refers to the costs that varies with output.

Table 1: Production cost

Production costs of XTV limited

Year ended on 30th June 2018

Year ended on 30th June 2017

Fixed Costs

 

 

Consultancy and legal expense

164,379

198,131

Administration expense

17,662

53,892

Interest Expense

438,076

372,395

Compliance and regulatory expense

35,892

26,808

Purchase of plant and equipment

0

0

Total Fixed Costs

656,009

651,226

Variable costs

 

 

Employees benefit expense

25,892

26,808

Foreign Exchange Loss

41,966

299

Total Variable costs

67,858

27,107

Cost structure analysis

The cost structure of any business changes across various sectors. The cost structure of a media network company mainly deals with all impression, clicks and other activities during the particular date range based on pricing information and schedule (Straubhaar et al., 2013). The cost structure of XTV Network Limited mainly revolves around the production process and marketing of products. After assessing all the factors of production, fixed and variable costs, it is necessary to understand XTV cost structure. As compared to the variable costs of XTV, this company has higher amount of fixed costs and its proportion of total fixed costs to total costs is considerably high. As this media network company has huge amount of fixed costs, it tends to have high amount of operating leverage. However, this enterprise pays larger amount of operating leverage, it did not record any revenue in the last year. If this entity sustains the present sales, then both the variable as well as fixed costs becomes covered (Kneese, Ayres, & d'Arge, 2015).

Macro Analysis

There are numerous factors in macro- environment that impacts the decision making of the enterprise managers. These factors include-political stability, change in tax, trade barriers, change in demographic, change in government policies. Based on the change of these macro economic factors, XTV network adopts business strategy in order to cope with such change and sustain in competitive business environment (Carraro, Katsoulacos, & Xepapadeas, 2013).

Stability of political system

Several economists are of the view that Australia is one of the safest destination for doing business or making investment. The nation’s regulatory as well as political environment is stable, progressive and open, thereby boost the investors’ confidence in making investment to this country. The strength of Australia as investment destination stems from political system, which has been mainly assessed as being effective in combating with economic challenges as well as policy direction. The stable political environment of Australia supports well- established as well as transparent political processes, competent governance, robust legal system and independent bureaucracy. In fact, the strong law rule in Australia also protects the property rights as well as mitigate corruption. Moreover, the judicial system of this nation operates impartially and anti- corruption measures are also effectual. Even the US economy is also taken into account as politically stable.

The economic growth of Australia is strong as compared to most of the OECD nations including UK and US. Presently, this country has been holding highest GDP growth rate of the developed nations. According to IMF, the GDP growth rate of Australia had been estimated to around 2.2%in the last year ("Australia Inflation Rate," 2018). In addition to this, the US economy has been also maintaining robust GDP growth rate over the last few years. From the GDP growth rate of US and Australia, it can be said that XTV Network Limited has been operating under the strong economies and thus investors can be confident in making more investment in this company. Other macroeconomic factors given below also reflects stable economic condition of these two nations where the company has been operating.

Inflation

Australia has been maintain stable inflation rate over the last five years. The inflation rate in Australia has been around 1.9% to 2.4%. As per ABS, inflation has been underpinned by rise in prices of alcohol, tobacco, food, transport and other beverages. Besides this, the annual inflation rate of US has been also stable over the last few years. The inflation rate declined  to round 2.2% in the year 2018 from the previous year ("Australia Inflation Rate," 2018). However, low inflation rate in both Australia and US effects the individual’s income and purchasing power. As XTV  has been operating in these two nations, it can be predicted that low interest rate aid this company to borrow money at ease. It also helped this business to operate effectively and earn higher revenue from the sales of products.

 

Unemployment

Over the last five years, the unemployment rate in Australia has remained steady. The unemployment rate recorded in the year 2018 is 5.1% which has been slightly lower than 5.4% in the year 2017 (tradingeconomics, 2018). Even the US government has been able to keep the unemployment rate low over the years. Overall, there have been rise in employment rate in these two nations over the past few years.

Even though the employment rate has increased in both Australia and US, it has not benefitted XTV Network Limited. Rising employment led to increasing consumption in Australia, but this has not effect on XTV product sales. Moreover, with rising employment opportunities and increasing GDP, XTV could not hire more employees and reinvest them in terms of employee benefits to improve its sales.  Thus, it lead to reduction in sale of product for XTV in the present year.

Interest Rate

The RBA (Reserve Bank of Australia) has always maintained low interest rate over the past few years. The cash rate has been kept low at 1.5% in the year 2018 amid sluggishness in the inflation and slowdown in the housing market ("Australia Inflation Rate," 2018). The monetary policy adopted by the RBA supports the economy by assuring low borrowing costs for the households as well as businesses. The XTV company has been exposed to high risk that is connected with interest rate.

Exchange rates

XTV company has been exposed to the exchange rate movements especially in AS/US$ rate.  This media company has faced several challenges owing to fluctuations in exchange rate. Movement in exchange rate effect on the total amount paid for the purchases of the goods produced by this company. The effect of exchange rate fluctuations has recouped from the suppliers and then passed to the customers ("Index of Economic Freedom," 2018). 

Overall macroeconomic conditions

The macroeconomic conditions in Australia and USA has been favorable for this media company. But XTV company has been sensitive to the changes in economic conditions, which in turn influenced its financial as well as operating cost The change in inflation rate of Australia and US affects the sale of products and purchase of equipment. Fluctuation in unemployment rate also influence on its hiring of laborer in business (Wetherly, 2014). Since the equipment are purchased from foreign countries, fluctuations in exchange rate influence the cost of business operations.

Sustainability practice of the business

Externalities of production 

Production of Cloud TV network outcomes in negative externalities such as energy depletion and resource wastage. The products manufactured by XTV affects the health of the people residing in Australia and US. The media company also attains some positive externalities that occurs from the entities economic activities (Porter & Heppelmann, 2014). The XTV company makes researches for integrating advanced technologies and equipment in order to innovate new media products. The innovation of cloud TV network positively affects the consumers by providing vital information and connecting with others.

Externalities of consumption

The consumption of the products produced by this media company involves both positive as well as negative externalities. Positive externality occurs as the consumers benefits from attaining vital information about the changes happening across the globe and develop better understanding about the awareness programs through the Cloud TV network and other premium channels.  The negative externality involves the fact that the young people becomes addicted to these premium channels and cloud TV network.

Sustainability practice by business affecting long-term business ability

The macroeconomic conditions might remain challenging to the XTV network but the sustainable practice adopted by the business influence its long- term ability of business (Ortiz?de?Mandojana & Bansal, 2016). The sustainable practice integrated by this business include-

  • Producing innovative products through integration of new technologies
  • Introducing effective advertising method in order to lower the costs of production
  • The Research and Development  (R & D) team helps to bring out innovative product through less wastage of resources (Boons & Lüdeke-Freund, 2013).

Conclusion

From the above discussion, it can be concluded that XYV Network Limited should develop and adopt effective business strategy in order to sustain in the competitive business environment. As the market share of XTV is very low as compared to its other rivalries, the company should focus on developing innovative media or network products in order to improve its performance. As XTV Company is highly sensitive to macroeconomic factors such as unemployment rate, inflation rate, exchange rate, the Australian government monetary policy of stabilizing these factors will help this company to improve its business operation in future. The firm should focus on changes few business policies as per the change in Australia’s economic condition. Moreover, negative externalities becoming larger than positive externalities, it makes the entity less viable in the market. Additionally, the organization must also concentrate on improving product design as well as its functionality and also analyze the present market trends in order attract the customers and enhancing sales revenue.

 

References

Australia Inflation Rate. (2018).   Retrieved from https://tradingeconomics.com/australia/inflation-cpi

Australia Unemployment Rate. (2018).   Retrieved from https://tradingeconomics.com/australia/unemployment-rate

Boons, F., & Lüdeke-Freund, F. (2013). Business models for sustainable innovation: state-of-the-art and steps towards a research agenda. Journal of Cleaner production, 45, 9-19.

Carraro, C., Katsoulacos, Y., & Xepapadeas, A. (2013). Environmental policy and market structure (Vol. 4): Springer Science & Business Media.

Geroski, P. G., & Jacquemin, A. (2013). Barriers to entry and strategic competition: Routledge.

Gershon, R. A. (2013). The transnational media corporation: Global messages and free market competition: Routledge.

Group, W. B. (2013). Doing business 2014: Understanding regulations for small and medium-size enterprises (Vol. 11): World Bank Publications.

Index of Economic Freedom. (2018).   Retrieved from https://www.heritage.org/index/country/australia

Kneese, A. V., Ayres, R. U., & d'Arge, R. C. (2015). Economics and the environment: a materials balance approach: Routledge.

Ortiz?de?Mandojana, N., & Bansal, P. (2016). The long?term benefits of organizational resilience through sustainable business practices. Strategic Management Journal, 37(8), 1615-1631.

Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard business review, 92(11), 64-88.

Quarterly and Estimated Annual Revenue. (2018).   Retrieved from https://www.owler.com/company/xtv#financials

Straubhaar, J., LaRose, R., & Davenport, L. (2013). Media now: Understanding media, culture, and technology: Cengage Learning.

Wetherly, P. (2014). The business environment: themes and issues in a globalizing world: Oxford University Press.

XTV Networks Ltd (ASX:XTV). (2018).   Retrieved from https://www.nexttechstock.com/company/xtv/

Zaridis, A. D., & Mousiolis, D. T. (2014). Entrepreneurship and SME's organizational structure. Elements of a successful business. Procedia-Social and Behavioral Sciences, 148, 463-467.

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