Based on the information contained in the case study and using concepts from B100 Block 5, Reading 30, analyse the market structure which best represents the market in which Raza Electronics is operating.

Case study;

Raza Electronics was established in 2010 when its owner (Ali Raza) completed his undergraduate degree in electrical engineering and instead of seeking a job decided to start his own business. He set up the firm in his hometown Gujrat. The city of Gujrat in Pakistan is well known for its light engineering sector where a variety of items are produced such as electric fans, washing machines, skimming machines, geysers. The city is also known for producing better quality furniture and crockery. In the last few years, assembling of motorbikes has also emerged as an attractive investment opportunity in and around the city. Out of these products, Ali chose to produce washing machines. The choice of the business was largely based on four factors (a) technical skills which Ali developed during his degree and was confident to use those skills to produce an electric item, (b) availability of skilled labour force who could assemble washing machines using components that could be purchased locally, (c) large population size of the country offering a good number of potential buyers and (d) access to finance needed to start the business.

The business started off well at a small scale hiring ten workers and reaching a production capacity of about 100 washing machines per month. In the first six months Ali sold his product in and around Gujrat city. He then established connections with various agents/middlemen who helped him to reach out to markets in other cities of the country. After one year, Ali decided to personally observe the markets and determine the growth potential of his business by informally talking to sellers and buyers. So, he travelled to various cities and gathered information about markets and received feedback on his product. He concluded that there was good demand for washing machines. However, he also noticed that the profit margin for producing and selling electric fans was much higher compared to washing machines. Since Ali and his team had the skills to produce washing machines, they could use those skills to manufacture fans without any challenge, and the fan parts could be easily purchased to assemble from Gujrat. So, looking at the profit margins and observing the rising demand for fans in the country Ali decided to stop the production of washing machines and diverted his resources towards fan manufacturing. Diversification proved successful. Currently, Ali is running a medium-sized fan manufacturing unit in Gujrat with 75 skilled workers, one finance manager and one marketing manager. He himself acts as the owner-manager/worker and export manager.

Raza Electronics is competing against nearly 150 fan manufacturing units, the majority of which are SMEs and only five units are large-scale firms. While all firms sell fans, they distinguish themselves from each other through the distinct features they add to fans such as colour, size, quality of raw material and durability of product. Due to the distinct features each firm can price its product independently. Yet this independence is limited due to high competition in the market.

To gain a reasonable share in the market, Raza Electronics focuses on producing better quality fans using good quality components which not all firms use. For example, some firms target only low-income markets in rural areas, so they do not use good quality wires, copper, aluminium and iron for in-fan parts. This allows them to sell their product at a lower price. Ali does not consider such firms as his competitors because he aims at middle and high-income customers who can afford, and are happy to pay for, better quality fans. His selling point is quality and durability which allows him to sell fans at a relatively high price. To make customers aware of the better-quality fans that they produce, Ali has recruited a marketing manager.

Raza Electronics also offers a reliable after sale service. For example, if a new fan is found faulty within 15 days of purchase, it is replaced without any charges or delay. If a fan malfunctions within the first three years of purchase, it is repaired free of charge offering doorstep pick and drop facility. The marketing manager highlights all these after sale services to middlemen/agents who communicate these to the sellers in different markets across the country. The marketing manager also disseminates information about the durability of its fans and after sale services through print and electronic media. Raza Electronics has a separate budget to cover advertising costs. Advertisement is largely done through newspapers, generally on Saturdays and Sundays on the assumption that majority of the population in the country read newspapers at weekends. However, local TV channels are also used to advertise the products and services during evening programmes when families are expected to be watching TV. According to Ali, his advertisement campaign has been quite successful. It has helped him to increase the sales volume by nearly 5% attracting customers from across the country.

Now Raza Electronics is also entering into international markets. International buyers are currently targeted through connections with local agents who operate in different countries. Since 2020, Ali has started to attend trade shows which are generally organised by the Ministry of Commerce through collaboration with industry association. In such events he, along with the marketing and finance managers, set up stalls and try to reach out to customers directly. In 2023, Ali aims to participate in two trade shows in Dubai hoping to receive good orders from international buyers. The key markets he is currently targeting are Dubai, Oman, Bangladesh and Iraq.

According to Ali the demand for his fans is continuously rising due to various reasons. The first is the hot climate of the country and other foreign markets where he sells his product. He also believes that population size in both rural and urban areas in Pakistan is rising which offers a good customer base to the firm. As family size rises, they need more fans. From the perspective of international markets, Ali argues that there are many immigrants from Pakistan who work in the Middle East region. They are a key factor in raising the demand for fans in countries like Dubai and Oman where the climate is hot, and buyers demand better quality Pakistani fans compared to plastic made Chinese fans which are often regarded as less durable in extreme weather conditions. Such a preference of using local fans compared to imported Chinese fans was also observed by Ali and his team within Pakistan.

Describing the factors that impact the demand for his fans, Ali also made the point that being an educated entrepreneur he could communicate confidently with contractors. Often, he deals with construction companies that work on public sector projects and buy large volumes of fans for government buildings and offices. As the government expenditure rises on construction projects such as building hospitals, schools and public sector offices, the demand for Raza Electronics fans also rises. Affordability is also an important factor that underpins the rising demand for fans. As mentioned earlier, Raza Electronics targets middle to high-income groups who have sufficient resources to buy a better-quality product. Similarly international buyers also have good purchasing power, so they are happy to pay a relatively high price for a durable fan produced by Raza Electronics.

Discussion with Raza also led to another interesting point. He asserted that Not the most important factor, but still a considerable reason for any fan manufacturer is to consider the social set up of Pakistan. It is a convention or practice, you can say, that parents or families give fans as a wedding gift to brides. So, more suitable marriage seasons in Pakistan (March May and September December) bring a rise in the demand for fans. He also added, [] to some people it might look a less appealing factor underpinning a rise in demand for fans, but we have experienced it more strongly in the last five years as we expand our reach to urban markets across the country.

Being an educated and growth-orientated entrepreneur, Ali Raza has high ambitions for the future. He wishes to be one of the large-sized fan manufacturing units in the country. In the next five years, he aims to increase the production capacity of his firm by recruiting more staff and adding machines. It is mainly based on the plan to target more markets locally as well as internationally. He also aims to manufacture most of the fan parts in-house so that quality can be controlled in a better way. It is pertinent for operating in international markets where quality standards are more stringent compared to the local market.