Microeconomics

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Microeconomics

Category: Article Review

Subcategory: Economics

Level: College

Pages: 3

Words: 825

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MICROECONOMICS COMMENTARY
The action of privatizing the royal company paralyzed the market performance of the enterprise, and its rival competitors took advantage over the same action. However, critiques had a lot of questions for the work of privatization of the company to the stakeholders, government ministers, banks and business advisors. This team was subject to the question why the share had rocketed to 87 percent. Royal Company and the Rival British mail delivery company deliver the parcel to clients. It seems the rejuvenation of the British company is increasing customer competition, and their services are outdoing the services of the newly privatized Royal Company. The Privatized Royal mail company is facing tough moments as the value of their shares are depreciating at a fast rate of almost 6.7 percent per annum. Considerably, this has led to the decrease in the company`s profit margins. The performance prompted the business analysts to pronounce it as the biggest faller in the blue-chip FTSE 100 index. It is observed that the tremendous changes are occurring because of its weak base and ability to face its competitors. The Higher performance of the close competitor`s royal rival British mail service delivery has posed an economic threat to the growth of the renowned company that seems to respond negatively to the growth of the rival Company.
On the contrary, Chief Executive Moya Greene is arguing that despite the personal outlook of the company and the fierce competition, the company had already met its financial targets for the year 2014/2015. She further explains that the small competition challenge that was affecting the performance of the company would be dealt with. Also, in her statement, she said that there was the need for regulatory action against the direct delivery service by TNT Post UK which she said would undermine the economics of the universal service and also reduce the company’s ability to generate a sustainable margin of five to ten percent profit that it would require continuing operations.
The high demand for online shopping has continued to intensify competition causing parcel companies such Royal Mail, with a turnover of 51 percent from parcel business alone, to improve their pricing strategies and also extend working hours to keep up with the rising demand and booming market.
The past one year has also seen the company lose its biggest customer, Amazon.com Inc., which was worth 6 percent of the company’s sale and has now already launched its delivery service. The increased competition and the loss of customers such as Amazon.com Inc. have seen the company start its trial delivery service marked as Sunday parcels delivery service and is projected to capture a greater portion of the clothing returns market against its competitors.
CALL FOR ACTION
It is reported that every year, customers are switching to email from the traditional letter system causing a fall in sales volume from letters at a rate of 4 to 6 percent. Even more nerve-racking for Royal Mail, is the plan by its competitor TNT Post UK to launch a mail delivery service by 2017 in the UK that is set to selectively target this new thriving market which is now considered to be more profitable compared to Royal Mail’s current market and which in time may result in huge losses for the company in the future unless some changes are instigated.
In light of Ofcom’s suspension of its initial move to reduce TNT Post’s impact on the grounds of their hiking on proposed wholesale prices, Royal Mail has now pushed for an earlier review of the mail service industry by Ofcom with claims that the rising competition will make it more difficult for the company to deliver its six-day-week, anywhere service and at the same time maintain an increase in its profit margin to the targeted range of 5 to 10 percent. This would also shield the company from the presumed negative impact on its revenue that it estimates to be over 200 million pounds by 2017/2018. Greene also conveyed great optimism in garnering the support Royal Mail needs from legislators to successfully push this agenda forward and has in fact submitted a report to the legislators to this effect.
According to analysts at Panmure Gordon brokerage firm, the concerns of competition by Royal Mail would continue to drag down the company’s shares despite its hold on the stock rating. In a statement, a Panmure Gordon analyst said that longer term prospects remained attractive, and therefore they expect that Ofcom will intervene to protect Royal Mail’s need to achieve the much needed financial return on its activities.
However, Ofcom denied claims of threats to the financial sustainability of the universal service and challenged Royal Mail to take the appropriate steps by responding to the increased competition and also improving efficiency in their service.
However, in response to Ofcom’s statement, Royal Mail said on Thursday that before posting financial losses that can be attributed to transformation costs such as center mail modernization and staff cuts two years ago, profits rose to 671 million pounds in the year to March, which was in line with the consensus forecast. Also in this period, group revenue rose from 2 percent to 9.46 billion pounds as a result of a 7 percent increase in sales and higher prices that were made up for by low volumes. On the other hand, UK letter revenue fell 2 percent on volume and down to 4 percent that is at the lower end of a guided range of 4 to 6 percent.
Also, the privatization of Royal Mail was faced with heavy criticism amidst claims that it had short-changed the British taxpayer, government ministers and banks that the company advisors hauled before lawmakers to explain why shares had spiraled to as much as 87 percent, which was surprisingly above the 330 pence price at which Britain had sold a 60 percent stake back in October.