Microeconomics - Yeo"s Company

In those descendant years, Yeo Keng Lian is the founder of Yeo Hiap Seng Malaysia Bhd. In the 1990s, he begins by operating a soy sauce factory in Fujian capital, China. Yeo Hiap Seng Corporation is a family cooperated business which later migrated and settle down in Singapore. Exceptionally, they was the primary company to accomplished numerous quality and quantity goods and services such as the popular beverage known as soy bean milk which is still the local’s favourite beverage in Singapore then later on diversified a wider choice of producing food and beverage products such as canned food and instant noodles. Innovatively, the company expands several new brands namely Yeo's, Justea and SoyRich (Yeo’s, 2013). Today, Yeo’s company mission is to provide excellent goods and services to their customers and a vision to maintain its current ranking number one in beverage production in the whole Malaysia market and still urge to target food production to be in ranking number one. There are facing financial crisis in year 2008 mainly because of inflation causes commodities to rise (Yeo Hiap Seng Limited, 2008). However, they manage to distinguish their difficulties by reducing R&D development and establish equity. Now, I will discuss the application of microeconomics concepts within Yeo’s company and its environment.

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Firstly, Yeo’s product price and quantity can be impacted on the aspects of demand and supply concepts. Generally, demand can be categorise as a basic necessity to consume wants by purchasing goods and services. Whereas, quantity demanded is the amount that a person accumulate to purchase goods and services within a given period. In determining the law of demand, it can be summarise as the relationship between price and consumption. For example, when the price of Yeo’s soy bean milk roses, the quantity demanded will fall as it decreases consumer’s purchasing power. There are two effects that affect our daily basis consumption and needs. Firstly, income effect influence a consumer’s purchasing decision due to changes in price of products. Specifically, if the price of the Yeo’s products rises, consumers’ purchasing power will drop which can lead to buying less amount of products. But, the peoples’ pay check remains constant and they feel broke. Vice versa, if the price decreases, consumers buying decision increases and tend to buy greater amount of products. Therefore, the pay check still remains constant and they feel luxury. Secondly, substitution effect plays a significant role as the price of a goods increases, alternatively consumers have the choice to switch to a similar alternative product which retains at a lower price which is also known as substitute goods. For instance, if the price of F&N Seasons Soya Bean Milk for one litter cost RM2.19, consumer has the desire to shift to a substitute good such as Yeo’s Soya Bean Milk cost RM1.79 per one litter (Tesco, 2012) which hikes customers purchasing power to buy more units of Yeo’s Soya Bean Milk compare to F&N Seasons Soya Bean Milk. Continuously, determinants of demand does not fluctuates the movement along the demand curve instead change in price affects it.

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Figure 1.1 Yeo’s Soya Bean Milk Price (RM)

2.30

B

Supply

1.79 A 1.29

D1 D0 D2 0

Q2

Q0 Q1

Quantity (Litter)

Based on figure 1.1, Yeo’s product increase in price from RM 1.79 to RM 2.30 per litter shows that it moves from point A to point B (Tesco, 2012). This example concludes that when price changes there will be a movement along the demand curve and change in quantity demanded. Next, determinants of the demand will shift the whole demand curve either right or leftwards. To illustrate, if consumers real income increase, demand curve D0 will shift rightward and product a new demand curve D1. As there is more demand from the consumer purchasing power will increase the quantity demanded of Yeo’s Soya Bean Milk from Q0 to Q1 which create shortages. So, price will leverage from RM 1.79 to RM 2.30 in order to lower consumer purchasing power as higher price reduce the amount of unit they can buy (Tesco, 2012). During economic recession, consumers’ real income plummets will decrease their purchasing power as their pay check is being reduced therefore influence demand curve to shift leftwards. Base on figure 1.1, demand curve D0 shift to a new demand curve D2. The quantity demanded will shift from Q0 to Q2. The price drops from RM1.79 to RM1.29 to encourage consumer to purchase more of Yeo’s Soya Bean Milk (Tesco, 2012). 3

Figure 1.2 Yeo’s Soya Bean Milk Price (RM)

S1 S0

2.30

S2

1.79

A

1.29 B Demand 0

Q2

Q0

Q1

Quantities (Litter)

Likewise, movement along the supply curve behave similarly as demand curve. Price changes from RM1.79 to RM2.30 will likely move along the supply curve from point B to point A and there is a change in quantity supplied (Tesco, 2012). Moving on, the determinants of supply will affect supply curve to shift. This is known as change in supply. For example in 2008, rise in raw material and cost of petrol will increase commodities price from RM1.79 until RM2.30 (Tesco, 2012) to reduce consumers to purchase fewer units and minimise shortages and the quantity supplied of Yeo’s Soya Bean Milk will shift from Q0 to Q2 (Lim, 2009). Hence, supply curve will shift to leftwards. In contrast, a drop in input prices of Yeo’s product from RM1.79 to RM1.29 will lead the company to increase in producing more quantity supplied of Yeo’s product from Q0 to Q1 (Tesco, 2012). This will decrease substitution effect as consumers favour in Yeo’s products compare to F&N products. Therefore, supply curve will shift to rightwards.

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In market structure, Yeo’s company market runs closely as a monopolistic competition as the level of concentration in a market is low. It categorise as many firms is independent on it decisions henceforth selling type of brands by producing insignificant products whereby it is different and unique despites of their competitors’ action will not affect them but challenge for the number of buyers to purchase goods or services in the market (Sloman et al, 2012). For example, Yeo’s and F&N Company are selling similar product but both are selling their brands colour, shape, size and packaging to compete for more consumers. This is known as product differentiation. Evidence, more competitors enter and exit the market as barrier to entry is loose regardless of price changes Yeo’s company generate revenue of RM700 million as consumer consumption is favourable (Yeo Hiap Seng Limited, 2008).

Continuously, Yeo’s and F&N Company have little control over pricing its product independently as price makers follow the market price for designing their product. Also, advertising plays a crucial role for differentiating a brand as there is abundance of similar products in the market structure. Normally, firms advertise through local radio and promotion to create customer awareness. Evidence, Yeo’s company needs to reduce expense on advertising its product at SGD $1.81 million in current year (Yeo Hiap Seng Limited, 2012).

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Theoretically, if the greater number of close substitutes of Yeo’s and F&N product in the market, the more elastic is demand because consumers are able to switch to product with lower price previously known as a substitution effect (Riley, 2012). Specifically, when the price of Yeo’s products is declining gradually within a period compared to F&N products, consumption of Yeo’s production is favourable. Hence, demand is elastic when there is a change in relative price. Tax incidence is a burden bare by buyers or producers in conjunction it is dependent on the price elasticity of demand and supply (Wikipedia, 2013).

Blue

Consumer Share

Green

Producer Share

Price Supply (tax)

S0 P1 P0 D0

Quantity Q1

Q0

Figure2.1 Demand is elastic Price In circumstances, based on figure 2.1 Yeo’s company would produce a fair amount of supply without adjusting the price will cause inelastic of supply. As consumer is concern with the sensitivity of price changes will develop an elastic demand. A slight change in Yeo’s product’s price will influence quantity demanded to fall. When government imposed tax policy will shift supply curve to leftwards. Evidence, Yeo’s company’s tax incidence increased drastically from SGD $19.36 million to $22.45 6

million respectively on 31 December 2011 and 31 December 2012 (Yeo Hiap Seng Limited, 2012). Therefore, cause an increase of price from P0 to P1 and reduce quantity demanded from Q0 to Q1. As movement along demand curve cause product price to be elastic and consumer’s decision-making affect significant change in elasticity of demand. Despites, the more elastic the demand curve is will prompt Yeo’s company to bare more tax incidence in green region on figure 2.1. Additionally, consumers will still need to pay the remaining tax in blue region on figure 2.1. Blue

Consumer Share

Green

Producer Share

Price Supply (tax)

P1

S0

P0 D0 Quantity Q1 Q0 Figure 2.2 Demand is inelastic Reversely, Yeo’s is still producing the same amount of goods without changing its price and supply curve will still be inelastic. But they will impose tax on the products so S0 will shift to Supply with tax and cause price P0 shift to new price P1. Since demand is relatively more inelastic, consumers will bare most of the tax incidence in blue region on figure 2.2. Hence, Yeo’s company will still need to pay the minimum tax burden in green region on figure 2.2. For example, if consumer wage is low due to economic recession may cause consumers consumption to fall and influence demand 7

to be inelastic (Yeo Hiap Seng Limited, 2008). Income effect cause consumer to feel poorer as they have insufficient purchasing power to buy limited normal goods. Therefore, demand is inelastic. The stiffer the demand will cause consumer to pay more tax. Evidence, Yeo’s company pay lesser tax and earned revenue of SGD $398.51 million at 31 December 2012 from F&B division (Yeo Hiap Seng Limited, 2012).

In conclusion, Yeo’s price and production fluctuate along demand and supply curve. Adding on, Yeo’s foundation is possible to link with microeconomic concept to deal with competitors as well. In my opinion, Yeo’s company should fully utilise the concepts of microeconomic described earlier as a guidance to improve in technologies innovation for product packaging, nurture in efficiency to minimise tardiness and advertise or expand the business globally. Finally, the drawback of microeconomic concepts will also impact Yeo’s company to face difficulties during economic recession and resolve government policies such as repayment of company tax.

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Reference list :

Lim, L. S., (2009) Yeo Hiap Seng turns around amidst economic malaise. Available from: http://www.theedgemalaysia.com/features/4544-yeo-hiap-sengturns-around-amidst-economic-malaise.html [Accessed 24 October 2013].

Riley, G. (2012) Oligopoly – Non Collusive Behaviour. Available from: http://www.tutor2u.net/economics/revision-notes/a2-micro-oligopolyoverview.html [Accessed 22 October 2013].

Riley, G. (2012) Price elasticity of demand. Available from: http://www.tutor2u.net/economics/revision-notes/as-markets-price-elasticity-ofdemand.html [Accessed 22 October 2013].

Sloman, J., Wride, A. and Garratt, D. (2012) Economics. 8th ed. Italy: Rotolito Lombarda.

Tax incidence (2013) Wikipedia [online]. 06 April. Available from: http://en.wikipedia.org/wiki/Tax_incidence [Accessed 23 October 2013].

Tesco (2012) Asian Packet Drinks. Available from: http://eshop.tesco.com.my/enGB/Product/BrowseProducts?taxonomyId=Cat00002963 [Accessed 23 October 2013].

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Tesco (2012) Yeo's Soy Milk. Available from: http://eshop.tesco.com.my/enGB/Search/List?searchQuery=yeo%27s+soy+milk&Search=Search [Accessed 23 October 2013].

Yeo Hiap Seng Limited (2008) Unaudited Financial Statements and Dividend Announcement for the period ended 31 December 2008[online]. Singapore: Yeo Hiap Seng Limited. Available from: http://www.yeos.com.sg/imagestore/userfiles/file/financial_reports/2008_Q4_Res ults.pdf [Accessed 21 October 2013].

Yeo Hiap Seng Limited (2012) Unaudited Financial Statements and Dividend Announcement for the period ended 31 December 2012 [online]. Singapore: Yeo Hiap Seng Limited. Available from: http://www.yeos.com.sg/imagestore/userfiles/file/financial_reports/2012_Q4_Res ults.pdf [Accessed 21 October 2013].

Yeo’s (2013) Our Heritage Story. Available from: http://www.yeos.com.my/corporate.php [Accessed 21 October 2013].

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