Cost Structure, Macro Business Environment And Production Costs And Scale Of Hot Chili Limited

1. Who the main customers are (e.g. other businesses, government departments, young girls, older men);

2. Where most of the customers are located (e.g. in Townsville, Brisbane, or on the internet);

3. Who the main competitors are (i.e. those producing similar products, and selling to similar customer base);

Sustainability practice of the business

a) Does the production process of the business generate any positive or negative externalities? If negative, has the government (or anyone else) put in place any measures to mitigate? What is done to mitigate by the business? If positive, what is done to take advantage of it?

b) Does the consumption of the good produced by the business generate any positive or negative externalities? If negative, has the government (or anyone else) put in place any measures to mitigate? What is done to mitigate by the business? If positive, what is done to take advantage of it?

Main questions about Hot Chili Limited's customers and competitors

The management of a firm must be aware of the cost structure and the types of cost incurred by the company in order to control and monitor the expenses and increase the profitability. It is important for the management of Hot Chili Limited to observe and evaluate the cost structure of the firm for understanding the proportion of variable costs and fixed costs that are incurred by firm (Marijs, & Hulleman, 2012). Fixed costs include the expenses that do not vary with the change in the quantity of production. Alternatively, the variable costs include the expenses that changes with the variation in the quantity of production (Wagner, & Svensson, 2014). The cost structure of an organisation can be categorised into smaller units such as the quantity of products, services, customers, geographical region, division and product line of the organisation. The evaluation of the cost structure is used to make decisions regarding the price of the product and cut off the extra expenses that negatively influence the profitability of the organisation (Roome, 2008). The evaluation of the cost structure is a primary function of the management economics that is used to maintain a balance between the types of cost and sources of revenue of the firm. Hence, cost structure is a significant management economics framework that is used to analyse the expenditures of the firm and develop strategies to maximise the profitability.

Hot Chili Limited is a copper mining firm that extracts copper ore from mines and explores new resources of the metal across Australia and different other markets ("Hot Chili Limited", 2017). Therefore, the organisation needs to make a large amount of investment to purchase the copper mines and extract minerals (Perman, & Scouller, 2009). Furthermore, the company needs to get license from the government and hire or purchase modern machineries to carry on its operations (Wagner, & Svensson, 2014). Therefore, the capital required to conduct the business in too high for Hot Chili Limited. The company needs to invest a huge amount of money on research and development in order to discover new resources of copper. Additionally, the major variable cost of the company includes the wages paid to the labours on an hourly basis and the transportation cost of the extracted minerals from mine to factories (Marijs, & Hulleman, 2012). Therefore, the factors of production required by Hot Chili Limited has been categorised into fixed costs and variable costs that are discussed herein below:

Figure: Inflation Rate

Source: ("Australian Bureau of Statistics",

Fixed Costs:The fixed cost include expenses that are constant with the change in the quantity of production. In the case of Hot Chili Limited, the company needs to purchase machineries and land for extracting the minerals (Roome, 2008). Alternatively, the company needs to incur a huge amount of expenses on research and develop along with administrative expenses that are fixed for the firm. Furthermore, the cost of licensing and other approval for the business is also considered as fixed costs for the organisation.

Variable Costs:On the other hand, variable costs include the expenses that changes with the change in the quality of production. For instance, the wages paid to the labours working in the mines on an hourly basis and the transportation costs are considered as variable costs (Perman, & Scouller, 2009).

Sustainability Practices of Hot Chili Limited

According to the above discussion, it can be seen that the maximum portion of the cost structure of Hot Chili Limited include the fixed costs that do not change with the change in the quantity of production due to the huge amount of investment required on purchasing the land, machineries, and conducting research (Malshe, Al-Khatib, & Sailors, 2010). On the other hand, the variable costs include a small proportion of the cost structure as compared to the fixed costs. Therefore, Hot Chili Limited can be termed as a large scale organisation due to its cost structure and high proportion of fixed costs incurred by the factors of production.

The political system of the country must be considered to examine the influence of the political factors over the mining industry. The Australian government has set several economic reforms in order to improve the infrastructure of the mining industry. For instances, new schemes and policies related to government spending have been introduced to improve the mining sector of the economy (Miles, Scott, & Miles, 2015). On the other hand, the Australian Government has introduced new standards and regulatory bodies to maintain a balance in the industry. The employment regulations safeguard the rights of the employees working in the industry (Mazloomi Khamseh, & Nasiriyar, 2014). Furthermore, the Australian Government provides subsidiaries and tax reliefs to the mining companies to promote production and increase export of copper and other minerals (Miles, Scott, & Miles, 2015). Meanwhile, the company must be aware of the changing policies of the Australian Government in order to survive and work effectively in the market.

The underlying section presents the economic factors that influence the business of Hot Chili Limited in the Australian market:

The Australian Government has controlled the inflation rate of the nation effectively by using different economic reforms. The inflation rate has been effectively controlled from 3 percent to 1.5 percent between the last three years ("Australian Bureau of Statistics", 2017).  

It can be seen from the above figure that the inflation rate of the country has increased from 1 percent to 1.5 percent in the previous year ("Australian Bureau of Statistics", 2017). As Hot Chili Limited with copper ore, which is a normal good, the demand for the product reduces with the rise in the price. In other words, copper has an elastic demand and a small amount of rise in the price of the product will result in a huge amount of fall in the quantity demanded (Mazloomi Khamseh, & Nasiriyar, 2014). Hence, the rise in the inflation rate may impact the demand of copper produced by Hot Chili Limited in the upcoming years.

Furthermore, it can be seen that the unemployment rate in Australia has increased from 5 percent in the year 2012 to 5.9 percent in the year 2016 ("Australian Bureau of Statistics", 2017). According to the Australian Bureau of Statistics (2017), the primary reason for the rise in the unemployment rate is the increasing skills gap among the younger generation of the population. Hence, it will be difficult for Hot Chili Limited to hire talented people capable of working in the mining sector. The previous five years unemployment rate of Australia has been presented in the figure given below:

Cost structure and scale of Hot Chili Limited

Figure: Unemployment Rate

Source: ("Australian Bureau of Statistics", 2017)

On the other hand, Hot Chili Limited can hire low skilled people at lower price that acts as an opportunity for the company to reduce its expenses (Gibson, & Mason, 2011). But, the company needs to spend a huge amount of money in training and development of the low skilled workers in Australia.

The average interest rate in Australia has been controlled by the Reserve Bank of Australia to increase the flow of money in the market. The previous five years interest rate of the country has been given in the figure below:

Figure: Average Interest Rate

Source: ("Australian Bureau of Statistics", 2017)

By considering the above figure, the Reserve Bank of Australia has effectively controlled the average interest rate from 4.25 percent in the year 2012 to 1.5 percent in the year 2016 ("Australian Bureau of Statistics", 2017). The low rate of interest will enables the organisations to take easy loans from the banks. On the other hand, it promotes the people to invest their money in the market in place of depositing the money in bank accounts. Hence, high flow of money in the market provides Hot Chili Limited with potential opportunities to grow their business in the Australian market.

Hot Chili Limited has most of its mining projects in Chile and uses the factors of production of the foreign market. According to the current market rate, one Australian Dollar is equal to 504.61 Chilean Peso. Hence, the company gets an advantage of the high value of Australian Dollar as compared to Chilean Peso (Gibson, & Mason, 2011). It is expected that the value of Chilean Peso will increase in the upcoming years that may impact the price of the Chilean copper in the Australian market. But, the change in the exchange rate will not impact the demand of the copper produced by Hot Chili Limited because of the high amount of difference in the Australian Dollar and Chilean Peso.

The sustainability practices of a business can be defined as crucial factors limiting the externalities affecting the stakeholders attached to the business. Hot Chili Limited, the ASX-listed copper producing company has maintained MT/IP geophysical surveys to explore the resources of the metal ("Hot Chili Limited", 2017). In the business dynamics of Hot Chili Limited, the organisation has knowingly or unknowingly generated positive as well as negative externalities. During the copper mining, the organisation has preferred to involve substantial methods that can control the negative externalities. In this particular section of the study report, the sustainability practices leading towards positive as well as negative externalities have been analysed.

The management of Hot Chili Limited has largely contributed to the copper mining industry by promoting substantial targets. Precisely, the company has invested a substantial amount of money in improving the condition of the labours associated with the mining work (Luke, & Alavosius, 2012). In order to improve the infrastructure of the copper mining business, the organisation has promoted technology protecting health, safety, and security of the employees engaged in the copper mining. Evidently, such facilities have improved the condition of the workers (Edgeman, & Eskildsen, 2012). Apparently, by promoting training and career development opportunities, Hot Chili Limited has hired unskilled staff members so that the job market in Australia will be boosted. Decisively, during mining projects, the company can offer a significant number of employments improving the income status of the community public. Thus, the practices of Hot Chili Limited contribute towards social development (Galvin, 2012). In terms of economics, the structure of social cost and social benefits attached to the business framework of Hot Chili Limited has delivered substantial positive externalities influencing the social status of the stakeholders i.e. employees, suppliers, and distributors, etc.

Alternatively, during the mining events, environmental issues can be identified as one of the major negative externalities involved in the business of Hot Chili Limited. Although the mining projects of Hot Chili Limited have been arranged following all the safety and health measures, the methods can damage the natural resources. Meanwhile, the continuous extracting of the metal has minimised the sustainability of the natural resource. The mining business of Hot Chili Limited is also contributing towards ecological issues and adversities such as pollution (Manuele, 2013). During the extraction of copper, many components and gaseous particles have been added with the air creating air pollution. Similarly, extraction of copper from the mine on a regular basis created a permanent damage to the natural resources (le Roux, & Pretorius, 2016). Decisively, such practices in business can affect the health and safety of the social public. Therefore, if the practices of Hot Chili Limited cannot be controlled, a number of negative externalities will continue to grow in a staggered pattern.

The business operations of Hot Chili Limited have generated both the negative as well as positive externalities. Precisely, Hot Chili Limited has considered the corporate social responsibilities in the context of the business. By enforcing latest technology, safety guidelines, and ethical practices, the organisation has significantly promoted the most appreciable sustainability practices leading towards long-term growth (Batterham, 2014). Also, the company encourages income status of the social public by offering jobs in the copper mining sector. Although there are negative externalities associated with the business functions of Hot Chili Limited, the positive externalities must not be forgotten. Undoubtedly, the sustainability practices of Hot Chili Limited have massively contributed towards the development of the company as well as the people associated with the business.  

References

Australian Bureau of Statistics. (2017). Abs.gov.au. Retrieved May 2017, from https://www.abs.gov.au/

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Gibson, J., & Mason, J. (2011). Executive Leadership Development As A Strategy For Long Term Business Success. Journal Of Business & Economics Research (JBER), 5(9).

Hot Chili Limited. (2017). Hotchili.net.au. Retrieved May 2017, from https://www.hotchili.net.au/

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