SP Setia Bhd

            

         

           The company that I have chosen is SP Setia Bhd Group. It was founded in the year 1974, their President and CEO is Tan Sri Liew Kee Sin and it is a company where their primary business drive and their focuses are on property development. Construction, infrastructure, wood-based manufacturing and trading have been developed to maximize synergy for efficiency, cost effectiveness and innovation (Spsetia.com.my, 2013). Their quality of products and the sensitivity towards their customer’s needs and wants have earned them a reputation as a property developer. They worked by four simple words, live, learn, work and play into all their projects to express their development in creating environments that perfectly balance the four areas (Spsetia.com.my, 2013). They have three distinct product ranges as well; they are Setia, Eco and Duta. In Setia, they are about township range, while in Duta, they successfully evolved their brand to encompass the market segment and in Eco, the name says it all, they are market their products that are environmental-friendly.

SP Setia was being incorporated in the year 1974, but even though it was incorporated in 1974, it really began in the year 1996 where they really focused on their business in property development. Their first property development was at Pusat Bandar Puchong (Puchong Town Centre), which was 700-acre of the town. They have set a standard for their projects, which was a well-planned development that balances both affordable quality residential and commercial properties. Now, SP Setia is well established in all three economic-centers of Malaysia, which are Klang Valley, Johor Bahru and Penang (Spsetia.com.my, 2013). They have also make their presence in the East of Malaysia where they have a building of a state-of-the-art transportation hub in Kota Kinabalu, Sabah which is called Aeropod that is located at Tanjung Aru (Spsetia.com.my, 2013).

With strong demand for commercial and investment grade properties, SP Setia Group has expanded it commercial sector with commercial projects such as the SetiaWalk Puchong. This makes them not only a developer for housing projects but also commercials. In July 2009, they launched their first luxury high-rise condominium that is called the Setia Sky Residences, which is located in Kuala Lumpur City Centre. In order for them to grow regionally, SP Setia commence on their first international venture in Vietnam during 2007 where they joined forces with Becamex IDC Corp and developed the EcoLake at MyPhuoc Industrial Park (Spsetia.com.my, 2013). Not only has it expanded its business in Vietnam, now, they have businesses in Australia, Singapore and also a huge development in London called the ‘BatterSea Power Station’. 

Market Structure

The market structure for SP Setia would be monopolistic competition. Monopolistic competition is where firms have a common market structure but each one sells a slightly different product and they have many competitors. Like for example, property development, they offer the same type of product but each one of their product has something different and has their own element of uniqueness but the firms are all competing for the same customers.

In a monopolistic competition, there are a few characteristics, such as, large number of firms, easy of entry, differentiated products and local advertising. It is true that property development has large number of firms. They have many firms in the industry but each firm has a small amount of share of the market, therefore firms do not need to worry much on how their rivals will react with their decisions and on the other hand, what their rivals choose to do will not influenced by what it does (Wride and Sloman et al., 2012). Likewise, SP Setia isn’t the only property development in Malaysia, Malaysia have other property developers too like, Sime Darby, See Hoy Chan, Sunway Property, Dijaya Group, MK Land, Berjaya Group, Glomac, Mah Seng and many more. But what other firms do to market their product, it will not effect SP Setia and what SP Setia choose to market their product, will not effect the other firms as well. This can also be called as independence whereby the decision of one firm will not affect the demand curve of other firms in the market and they will have the abilities to compete with other firms.

Next, property development is also easy of entrance or another word, barriers to entry and exit is low. This is because the firms are small, thus it is easy for new firms to enter and/or existing firms to exit. Property development has differentiated of products as well, not all products in this firm are the same. It may be categorized under the same type of development but firms in this industry do not produce identical products. The differences are based on four, they are, physical product differentiation, marketing differentiation, human capital and differentiation through distribution (Economicsonline.co.uk, 2013). Physical product distribution is about the size or the design of the products, the service associated or the name of the products. It may not always be real differences; consumers can also perceive it differences. Like for example, SP Setia have a property launched that is an eco houses in Klang Valley called ‘Setia Eco Park’, other firms may not have the same concept of their product as well as their name. In marketing differentiation, it is about the packaging of the products, firms differentiate their products by distinctive packaging. Next, the human capital differentiation is about the skill of the employees and the level of training they received as well as their uniforms. Likewise, SP Setia has different type of training for their employees compared to other firms and they have their own uniforms to differentiate themselves with other firms. Also, differentiation through distribution is where the distribution of the product is via email or through Internet. SP Setia has come up with a method where customers can sign in to their newsletter to get news about their upcoming projects through email.

Other than that, it has local advertising too, property developers like SP Setia frequently advertise their products because their firms are small that’s why it is done on a local level. Developers usually advertise just to help emphasize the differences to consumers (Inflateyourmind.com, 2013). SP Setia has also control over the price, they are the price makers because they can charge their own price, either higher or lower and do not need to take it from the industry. Therefore, this shows that the demand curve will be downward sloping.

In the short-run equilibrium, supernormal profits are possible for SP Setia to earn, which is the shaded area and profits are maximized too where the marginal cost equals to the marginal revenue. As new firms are entering the market, the demand of SP Setia products will become more elastic which will pull down their price and the demand curve will shift to the left (Economicsonline.co.uk, 2013). But with this, SP Setia will not be able to earn short-run profit. In order for SP Setia to earn profit depends on the strength of their demand, the more the demand curve move to the right and is more relative to the average cost curve and the less elastic the demand curve is, the greater the short-run profit (Wride and Sloman et al., 2012). Therefore when if SP Setia faces a little competition and their products are differentiated with other firms or their rivals may be able to earn supernormal profit. Looking at how strong the demand is for SP Setia, I’m sure they are not worried about competitions.

 While in the long run, SP Setia looks at their cost of production and will mark up their price to a more reasonable profit. For instance, if SP Setia is competing with Tropicana Group and SP Setia marks up their price too high, Tropicana Group will be able to take advantage of it by charging a lower price, thus, this will cause SP Setia to lose the market share and they will have to lower their price. This process will occur as long as there is no government barriers or threat of competition (Inflateyourmind.com, 2013). As the barriers to entry is low, SP Setia will not be expected to make profits that are above-normal in the long run but if they are making above-normal profits, they will be increasing their supply and new firms will enter the industry to take advantage of it (Inflateyourmind.com, 2013). Therefore this will increase in the supply and decrease in the price.

   SP Setia definitely has strong demand, in the year 2010, their sales have hit up to RM900 million in under five months. President and CEO Tan Sri Liew Kee Sin stated that their achievement shown that they are on track to meet their sales target, which is RM2 billion for the financial year (Malaysiapropertynews.com, 2010). Liew added that they’ll be the first Malaysian property to have RM2 billion sales (Malaysiapropertynews.com, 2010). Which in fact, was true. They were also interested in getting more opportunities with collaborations with government-linked or government holding companies and the group was keen on bidding the government land that would be tendered out. The sales have never dropped for SP Setia in fact it was increasing. 

       As of 2012, SP Setia sales target was RM4 billion and during their first half of the year, they have already made 1.8 billion, which is a 28% increase yearly. They have indeed exceeded their sales target.

SP Setia has their own wood industries as well, which is called Setia Wood Industries Sdn Bhd. They are focused on supplying woods to the construction of their projects, as well as other local construction industry. They are well known for their fire-rated doors, windows and mouldings and many more. With this, SP Setia doesn’t have to worry about shortage of supplies because they are basically their own suppliers. From these statements, we can say that SP Setia is a very successful property developer. Their sales just kept on increasing and increasing. Nevertheless, they will manage to exceed their yearly sales target. They have even become the first property developer in Malaysia to have RM2 billion sales.

References

1. Abraham, E. 2013. S P Setia hits record sales. [online] Available at: http://www.theedgemalaysia.com/in-the-edge-financial-daily-today/256089-s-p-setia-hits-record-sales-.html [Accessed: 24 Oct 2013].

2. Economicsonline.co.uk. 2013. Monopolistic competition. [online] Available at: http://economicsonline.co.uk/Business_economics/Monopolistic_competition.html [Accessed: 24 Oct 2013].

3.    Inflateyourmind.com. 2013. Section 1: Characteristics of a Monopolistically Competitive Industry. [online] Available at: http://inflateyourmind.com/index.php?option=com_content&view=article&id=132:section-3-united-states-federal-government-expenditures&catid=18:unit-8&Itemid=163 [Accessed: 24 Oct 2013].

4.    Inflateyourmind.com. 2013. Section 2: Short-Run and Long-Run Profit Maximization for a Firm in Monopolistic Competition. [online] Available at: http://inflateyourmind.com/index.php?option=com_content&view=article&id=133:section-3-united-states-federal-government-expenditures&catid=18:unit-8&Itemid=164 [Accessed: 24 Oct 2013].

5.   Malaysiapropertynews.com. 2010. Malaysia Property News | Property Market In Malaysia: Strong demand boosts SP Setia sales. [online] Available at: http://www.malaysiapropertynews.com/2010/04/strong-demand-boosts-sp-setia-sales.html [Accessed: 24 Oct 2013].

6. Spsetia.com.my. 2013. S P Setia: Get to know us. [online] Available at: http://www.spsetia.com.my/corporate/get-to-know-us.asp [Accessed: 24 Oct 2013].

7. Spsetia.com.my. 2013. S P Setia: Milestones. [online] Available at: http://www.spsetia.com.my/corporate/milestones.asp [Accessed: 24 Oct 2013].

8.  Spsetia.com.my. 2013. Property Development - township, residential property, high-rise luxury product and commercial developments - S P Setia. [online] Available at: http://www.spsetia.com.my/corporate/property-development.asp [Accessed: 24 Oct 2013].

9. Thestar.com.my. 2013. Archives | The Star Online.. [online] Available at: http://www.thestar.com.my/story.aspx?file=%2f2010%2f4%2f1%2fbusiness%2f5974824&sec=business [Accessed: 24 Oct 2013].

10.  Wride, A., Sloman, J. and Garratt, D. 2012. Economics. Harlow, England: Pearson.