Macro Economic Factors and Its Influence on the Performance of Sky City - Case Study Example

1. Macro Economic Factors And Its Influence On The Performance Of Sky City The process of evaluating the company’s immediate macroeconomic environment is complex in nature. The next section of this paper puts up a discussion on these factors as they affect its performance 1.1 Gross Domestic Product Performance The level of Australia’ gross domestic product has been on the increase for the past 5 years. Although there has been a slightly decrease in the current financial years, still they remain favourable in comparison to global indices. The recent developments in technological advancements and mining sectors as well as an increase in the trading of these items within the securities markets postulate a positive future growth. Statistically, in December of 2014, Australia GDP grew by about 0.4% reflecting a 2.3% percentage change (Australian Bureau of Statistics, 2015). The GDP is expected to even grow further in this current financial year. Appendix 1 shows the growth in Australia’s GDP over the past 5 years or so. Notwithstanding, according to Statistics of New Zealand (2015), the 2014 GDP grew slightly by 1%. Its economy is also expected to improve due to economic activities as well as primary industries (Appendix 2). 1.2 Fairly Positioned Interest Rates and Consumer Price Index(CPI) Australia’s current interest rates depict a favourable downward trend. This is a positive indication that there is going to increased economic activities especially in the financial sectors. CPI and interest rates remained relatively lower than 2.5 per cent in the fourth quarter of 2014. This can be clearly seen in Appendix 3. New Zealand’s interest rates for the fourth quarter of 2014 remained unchanged at 3.5%. The country’s future with its trading partners is set to improve tremendously in 2015. It is important to note that for both of these countries the economy is set to increase especially because of the recent lowering of oil prices. As a result of relatively lower oil prices, the purchasing power for all households within these two economies is set to increase hence a guarantee on improved income disposal. There are also high expectations of future profits since the cost of doing business will reduce significantly due to low manufacturing costs. 1.3 Inflation Rates As opposed to what was early anticipated, the inflation rates in Australia have continued to reduce with the fourth quarter of 2014 recording a 1.7% decrease. The decrease in inflation is highly attributed to the plunged global oil prices. Likewise, the inflation posted in New Zealand government statistics indicates a successful decrease within the five year period to a figure below 1.5% in fourth quarter 2014. The decrease in inflation is ascertained to current reduced oil prices in the global market, which has facilitated a reduced cost of conducting business operations and reduced prices for basic needs. 1.4 The Impact of Macroeconomic Factors on a company’s Performance As it can be noted from the figure above, there is a certainty of current and future profits because of the relatively stable gross domestic product, inflation rates and interest rates. This is highly attributed to reduction in costs of doing business within these economies. Despite the improvements in the numerous macroeconomic factors postulated above, the consolidated annual statements postulate an insignificant decrease in the revenues from $859,549M in 2013 to $820,483M in 2014. Equally important, it is crucial to note that the expected future revenues will increase significantly since the plunge in oil prices occurred towards the end of the 2014 fourth quarter. There is a bright future for the company because of the increased income disposal and reduced costs of conducting business. 2. Industry Analysis In this section, the paper utilizes the Porters Five Factors to evaluate the casino and hotel industry as well as establish the exact level of present competition. 2.1 Rivalry amongst Existing Firms Casino industry postulates a low level of rivalry. It should be noted that the Australian and New Zealand casino industry has continued to develop significantly. However, the fees imposed on customers in both countries fail to attract them hence a firm might find it hard to enter the market as exit strategies are expensive. The hotel industry however; indicates a high level of competition. In fact, the intense level of competition might best expound on the reduced revenues. 2.2. Threat of New Entrance to the Market The threat to casino market is low because the business highly depends on the existing economies of scale to survive low revenues. The threat is also low in hotel industry is low because customers already have hotels of their choice hence limiting further entry of new ones. 2.3. Threat of Substitutes Both hotels and casinos are not exposed to any form of substitutes because of the uniqueness of services offered. For instance, it is difficult to ascertain a substitute for gambling as a form of entertainment. 2.4 Bargaining Power of Customers For casino business, it is relatively low for SKC customers. This is partly affected by the low number of casinos as well as price inflexibility hurdle. For hotel however; the bargain is high because of diversity of customers. Customers that book more rooms can negotiate for fair prices. 2.5. Bargaining Power of Suppliers For casino business, the bargain is considered to be low due to relatively reduced switching costs. It is also low due to SKC’s dominance in the market. For hotel industry however; the bargain is considered higher. This is greatly attributed to monopolization of suppliers in regards to electricity and gas. Employee turnover is also expensive hence limited costs are apportioned to training of new skills. 3. SKC Business Strategy The company main objective is to ensure maximisation of profits and minimisation of possible costs. The company can employ the following elements in order formulate and instil its strategic plans. 3.1 Provision Of High Quality Service This should be provided in form of quality gaming and entertainment as well as hotel facilities like food and accommodation for domestic and international customers. 3.2 SKC Market Positioning Considering the fact that there has been substantial growth in entertainment and gaming industry over the years, the firm should be able to expand its market needs and preferences in order to maintain a stronger position. 3.3. Adhere To Regulations of Performing Business The company should ensure that their activities in both casino and hotel industry operate within the legal frameworks in both Australia and New Zealand. This is important to avoid possible future fines and penalties, which can decrease revenues substantially. 3.1 Risks Attributed to Business Performance First, there is a possibility of fluctuations in the money markets. This might bring about foreign exchange risks such that revenues will be either be appreciated or depreciated depending US dollar stability. Secondly, there is also a possibility of SKC to face imminent liquidity risks attributed to the rather cash and cash equivalents in its balance sheet. In case of movements in the money markets, the firm might lose substantial amounts of money due to depreciation or appreciation of the US dollar. . References Australia Bureau of Statistics. 2015. Australian National Accounts: National Income, Expenditure and Product, Dec 2014: December Key Figures. Retrieved on March 11, 2015 from http://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0 Ski City Annual Report. 2014. Retrieved on March 11, 2015 from http://ir.skycityentertainmentgroup.com/phoenix.zhtml?c=162796&p=irol-reportsAnnual2014 Appendix 1 (Source: Australian Bureau of Statistics, 2015) Appendix 2 Appendix 3 Australia Prices Last Previous Highest Lowest Unit Inflation Rate 1.70 2.30 23.90 -1.30 percent [+] Inflation Rate Mom 0.20 0.50 7.55 -1.54 percent [+] Consumer Price Index CPI 106.60 106.40 106.60 4.20 Index Points [+] Core Inflation Rate 2.10 2.11 7.60 0.87 percent [+] Core Consumer Prices 107.10 106.50 107.10 43.40 Index Points [+] GDP Deflator 101.10 101.10 101.80 6.70 Index Points [+] Producer Prices 104.10 104.00 104.10 70.70 Index Points [+] Producer Prices Change 1.10 1.20 6.30 -1.50 percent [+] Export Prices 85.30 85.30 112.20 16.30 Index Points [+] Import Prices 105.20 104.30 116.30 51.50 Index Points [+] Food Inflation 2.00 3.50 20.60 -3.20 percent [+] Appendix 4 Read More