Contents
1.0 Introduction
2.0 Introduction to the business and general business environment
3.0 Production costs and scale
4.0 Macro business environment
5.0 Sustainability practice of the business
6.0 Conclusion
Reference
Business environment research is an important tool to understand a business in a detailed way. There are many different sources of detail information regarding a business which creates a clear picture of the company as a whole. These include the general environment of the business, company details, macroeconomic factors, sustainability practices of the business and many more. The knowledge about the business not only helps the management of the company to make a better decision for the operation of the company, but it also allows any external advisor to have a better insight regarding the business. In this study, a detailed business analysis of Argo Global Listed Infrastructure Limitedis done. The information and the data pertaining to the company have been collected from the external secondary sources that have been used for the study of the paper.
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Argo Global Listed Infrastructure Limited is an Australian company that is listed in ASX. The main work of the company is to provide a diversified investment portfolio to the customers of the market. The company was established in the year 2015, following a huge rise in the equity investors within the country. The company sells global listed infrastructure investment portfolios for different foreign economies and sub-sectors. The company also provides investment management services to the investors investing in different sectors and sub-sectors of the domestic and global economy (Hillary, 2017). One of the biggest advantages of this company is that it has a large number of qualified and experienced investment managers that provide accurate investment consultancy to the customers of the market.
The main customers of the company are the large-cap investors interested in infrastructure investment and sub-sector investment. Apart from that, the company also provides investment consultancy to individual customers and companies. Investment portfolio management of different corporate bodies is also included in the service provider of the company. According to the data and information of the company, the target customers are the middle-aged working professionals and midsized companies based mainly in Australia. However, the company also have a small pool of young investors who are new to the market of investment (Rubin, Aas & Stead, 2015). The company specifically provides special assistance and consultancy for the young customers of the market that in turn allows the company to attract young investors. Most of the customers of the company are located in urban areas; however, 13% of the customers of the company reside in rural areas as well. Among the rural areas, Brisbane and Canberra have been the major market for the company. Other major cities such as Perth and Melbourne have also emerged as an opportunity for the company in recent years. The sales figures of the company suggest that the market in Perth and Melbourne has grown 41% in the last year. Edgington (2018) pointed out that, demand growth for an investment company often grows through the word of mouth and hence the main focus of the company has been the quality of service.
In terms of rivalry and competition, the market is fierce in Australia due to the presence of a huge number of companies in the market. The market structure of the investment industry of Australia is similar to a monopolistically competitive market where the sellers have limited control over the prices of the product or service they sell. The notable rivals of the companies are Advanced Share Registry Limited, Blackwall Limited, CVC limited, Chapman Limited, Easton Investment Limited and many more. The market share among different companies is almost the same and hence the competition among them is fierce. Charles Jr, Schmidheiny & Watts (2017) highlighted that diversified financial investment industry of Australia has limited products and service to offer to the customers of the market and hence products and services are mostly homogenous. This, in turn, explains the fierce rivalry among the sellers of the market. Most of the companies in the market have a similar set of services for the customers. This makes the products and the services of the industry an inelastic good (McCaughey, Mao & Dowling, 2018). However, the pool of experienced investment manager is what differentiates among the sellers. Argo Global Listed Infrastructure Limited has some of the best investment managers in the workforce which allows it to have a competitive edge over many companies of the market. Therefore, the opportunity is also, therefore, few companies of the market to mark up their prices slightly over the marginal cost of production. The current market share of Argo Global Listed Infrastructure Limited is 6.42% which is similar to other companies as well. For example, CVC limited has 7.1% of the market share and Advanced Share Registry Limited has around 6.2% of the market share (Barth, Barraket, Luke & McLaughlin, 2015).
Production, sales and the cost of operation is an important aspect of any business that helps the decision maker to change the direction of the company from time to time. The production and cost variables of Advanced Share Registry Limited are often optimised based on the external environment and the changing needs of the customers. Similar to most of the companies in general, the cost has two main components in case of Advanced Share Registry Limited. First and foremost is the fixed cost that does not change with the operation of the company (Popescu & Popescu, 2015). Another component of the cost of the company is the variable cost that depends on the sales and the demand for the products and the services of the company in the market.
The fixed cost of Advanced Share Registry Limited includes the properties and offices of the companies in different cities of Australia. Hence, over the years, as the number of offices has expanded in a different location of the country, the fixed cost has increased. Schaper (2016) highlighted that the fixed cost of Advanced Share Registry Limited has increased by 61% since its inception in the year 2015. The fixed cost of the company is expected to increase further in the future if the firm manages to scale up as a strategy to increase its market share combating the rivals of the market (Findlay & Garnaut, 2017). Apart from the buildings and the offices, there are other fixed costs such as amortization cost, rent, insurance expenses and many more.
The variable cost of the company includes the salary of the staffs, consultancy charges of the experts and many more. The variable cost of the company is a function of the output of the company. The company has experienced a huge rise in demand in recent years after its inception in the year 2015. It has increased the variable cost of the company over the years. Given the fact that Advanced Share Registry Limited is looking to expand its services further in other parts of the country, its variable cost is expected to increase over the years. The decision makers or the management of the company mainly focuses on the variable cost of the company in the short run in order to operate in a profit maximisation situation (Tukker, Charter, Vezzoli, Stø & Andersen, 2017). Another significant variable cost to the company is the subscription charges related to the IT software. The requirement of IT services of Advanced Share Registry Limited increases with demand and overall sales in the market.
The overall cost structure of the company is showing that the fixed cost component is more than the variable cost. This is because of the nature of the business as it requires more investment in fixed inputs of the operation of the company. The biggest fixed input to the operation of Advanced Share Registry Limited is the workspace and the infrastructure which comes under the component of fixed cost (Budd & Gerner, 2015). The fixed cost component of the company is around 67% of the overall cost of the company to operate in the market. The smaller part which is the variable cost includes mainly the payment to the staffs and the experts of the company. Apart from that, another input to the operation is the IT management that is only a small part of the overall cost incurred by the company. The higher proportion of the fixed cost compared to the variable cost also allows the firm to have a better profit margin. Along with that, a lower proportion of variable cost makes the company more flexible in times of changes in the external environment of the business (Waye & Stern, 2016).
The macro business environment has a huge influence over the operation of the company. The factors like the economy and the government activities demand change in the operation of the company. One of the biggest factors that impact business operation is political stability. The political situation in Australia where the company is located is very stable due to the high control of the government. Apart from that, historically the economy of Australia has performed impressively eliminating all the chances of political unrest (Sun & Anwar, 2018). However, temporary low magnitude political unrest is very common in the country that does not really influences the operation of Argo Global Listed Infrastructure Limited. In addition to the political turbulence, another governmental factor that influences the operation of the company is the policies. It needs to be noted that the policies of the government of Australia are one of the best in terms of ease of doing business. Although changes in corporate taxes often increase the operational cost of the company, the government often provides concessions under business development policies which eventually help in the long run.
Figure 1: The inflation in the Australian economy over the years
(Source: Hull, 2018)
The economy of the country is also an important factor in the operation of the company. The inflation level, the unemployment rate, interest rate determines the expected demand and hence the sales in the future. The current inflation rate in Australia is 1.9% which is significantly low compared to the other large economies of the world. The fluctuations in the inflation of the economy are not much significant making it easier for Argo Global Listed Infrastructure Limited to operate (Vong, Silva & Pinto, 2015). The interest rate of the economy is not that much high compared to the other economies of the world. The interest rates have reduced over the years due to the changes in the policies of the government. Lack of aggregate demand despite the major mining boom in the economy compelled the government to reduce the interest rate so that liquidity can be increased. However, the low-interest rate is actually beneficial for Argo Global Listed Infrastructure Limited customers are more likely to invest in other types of investment portfolios offered by the company (Yeo, Pepin & Yang, 2017).
Figure 2: The interest rates of the Australian economy over the year
(Source: Vivien, Godwin & Ramsay, 2017)
Furthermore, the unemployment rate of the economy has also been crucial for the company. The lower the unemployment rate more is the customers of the company. Shawtari, Ariff & Abdul Razak (2015) noted that investment expenditure is a luxury to a certain segment of the customers and hence higher income or more employment opportunities increases the investment opportunities. The unemployment rate was at its peak around the year 2014. However, it has reduced to 5% in the recent times benefiting investment companies like Argo Global Listed Infrastructure Limited. As per the recent figures of the aforesaid variables the economy of Australia is a booming economy. The opportunity for the economic agents to grow in the future is immense as the consumer spending is expected to rise with the reduction in the unemployment rate of the economy.
Given the situation of the economy of Australia and the income level of the customers of the market, the products and the services of Argo Global Listed Infrastructure Limited can be categorised as a normal good (Bajada, 2017). The normal good is defined as a good demand for which increases with the increase in the income. Investment is still considered as a luxury and hence the good condition of income level in the economy of Australia has made the products and the services of the company a normal good. In case of recession, the average income of the consumers of the market may reduce leading to a low investment demand. Given the level of education and the focus of the government, there can be a shortage of skills in the future in this industry (Alizadeh, Farid & Sarkar, 2018).
Externalities of any organisation increase the social cost and hence needs to be rectified by the government. There are both positive and negative externalities associated with the operation of Argo Global Listed Infrastructure Limited. First and the foremost positive externality is the fact that it introduces the customers of the market with a large pool of investment opportunities in the infrastructure around the country (Chubb & Watermeyer, 2017). Therefore, while it helps in sourcing investment for the infrastructure it also helps the customers to make the right choice regarding the investment. Apart from that, another advantage that this business provides to the economy as a whole is the transparent information regarding investment opportunities in the country. The resources are correctly devoted to the overall betterment of the economy. Another important positive externality of the operation of the company is that it abolishes any other unorganised middlemen. The middlemen and their operation are untraceable by the government and often lead to laundering and mismanagement (Benn & Perey, 2015). Companies like Argo Global Listed Infrastructure Limited are much more transparent and work in collaboration with the government for the overall benefit of the economy and the interest of the company. In order to boost the positive externality of the business, the government often provides tax concessions to companies like Argo Global Listed Infrastructure Limited.
Among the negative externalities, one of the major is the fact that it associates risk to the wealth of the consumers of the market (Benn & Perey, 2015). Apart from that, it also makes the overall economy vulnerable to the fluctuations in the aggregate demand. Fluctuations in the investment sectors have historically contributed to the unambiguity of the economy. Currently, the government has not designed any kinds of policies to keep a check on the negative externalities of the operation of Argo Global Listed Infrastructure Limited. Ramanathan (2016) stated that the negative externalities associated with the operation of the company are not much significant from the perspective of the economy as a whole.
Therefore, the study finds out that, the industry where Argo Global Listed Infrastructure Limited operates is a highly competitive market with a huge number of sellers. The competitors of the market have nearly similar products and hence do not have much control over the prices of the products and the services. It has also been highlighted in the study that the variable component of the cost of operation of the company is proportionately lower which allows the company to have a better profit margin. The macro business environment of the company is much in favour of the improvement of the business. Lastly, the externality is also associated with the operation of Argo Global Listed Infrastructure Limited as it reduces the social cost. Negative externalities are much less compared to the positive ones and hence there is no policy from the side of the government to correct it.
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