Market structure
In order to know that the whether the afghan marbles market structure is monopoly, oligopoly, monopolistic competition, are perfect competition, we need to study the following elements to determine the market structure.
Number and size distribution of firms : there are around 31 quarries ,and 72 processing plant in Afghanistan Burt in term of market share there are 7 companies -2 Jalalabad ,2 in wardak, and 3 in Herat –that supply over 60 percent of overall afghan marbles production .it shows that concentration is high in the market .
Type of product: despite that all firms produce marble in the same form and shape (i.e. similar types of slabs,) the quality of marbles products varies from one firm to another. for example , the chest –e-Sharif marbles form heart and afghan white marbles from Jalalabad hove very higher quality compare to marbles quarries and produced in other provinces therefore ,we can assume heterogeneous (differentiated) product whiten the market , however the difference in quality is natural , and firms cannot do much about it
Ease of entry and exit :there are the following barriers to entry in the marbles market
Minimum capital required for quarrying activity is over 250,000 and for a processing plant is over $400.000.
Minimum time to win the contract and finished all legal requirements form different governments agency – including MOM , provincial office, national environmental protection agency , local peoples consent ,payment of guaranty fee and first quarter of royalty fee – take around 6 months .
Minimum retime to set up machineries and build office on quarry site is around 6 months which makes the total time spent around a year.
Once you bid for a quarry contract, here no intention to extract marbles but to win the contract and then resell it to others, or event just sabotages the bidding process.
You have to get the consent of local people mostly the quarry plant must pay to local influential.
Exit barriers : to exit the market , a firm bears the following costs:
It is difficult to sell second-hand machineries at a good price-there is no market for specialized second –hand mechanism in Afghanistan.
The network you build over the year will vanish or finished
The governments do not pay for the infrastructure you build at your quarrying site.
Information flow between buyer and sellers: there is no perfect information flow between the buyers and the sellers in both activities (quarrying processing ). The sellers don’t focus on consumer need as they have inward locking strategy instead of outward focus.
Vertical Integration: mostly large producer of primary product (i.e. Quarry Firm) own downstream firms with processing, polishing, and distribution activities. Not those firms that only process more often face difficulties such as lack of supply form quarry firms.
Control over prices by established firms: the biggest product not only use their market power nut they also use other instruments to control the market price .for example, the biggest producers are influential members of marble associations (director ,deputy director, and management members)and therefore they engage in price setting activities.
Despite that there are numerous firms: only few have over 60 percent of market share .products are differentiated, entry –exit condition is limited, information flow is imperfect, and firms engage in a price-setting mechanism .therefore, the afghan marbles is close to an oligopoly.
Firms conduct
In this section, the objective is to study the conduct of firms (both quarries and processing plant) in terms of policy objective, pricing strategy, marketing strategies and R and D activates. Furthermore, to evaluate the question that how market structure affects the way the firms complete
Policy objectives
Unfortunately, firm in third market sure short-sighted – their main objective and focus is instant profit. They have no long-term plan for growth and market share .this is why 80 % to 85% of afghan market is dominated by Pakistani marbles.
Pricing objective: this study that firm in marbles market have no other strategy for pricing except to adopt a price discrimination policy. These strategies give them the chances to earn higher profit than what they would have received if they had a competitive pricing strategy. However, with such a strategy, they will lose a large number of their customers in the long-run.
Research and development R&D: this study found no research and development activity, nether at the levels of an individual firm, nor at the level of industry association, which is a significant barrier to the industry’s growth. Absence of innovation in production and product development is mainly due to the lack R&D – this in turn is the reason why afghan marbles product cover 15to 20 percent of the market and level of exports is low.
Among many other factors, one is lack of competitive between the firms this due to the oligopoly structure of the market. this shape an environments in which afghan firms behave in a way that is neither optimal for themselves nor for consumers-price is high ,quality of finish marbles in terms of processing and polishing is dire, innovation lack , market is dominated by foreign products, act in upcoming sections, we will provide recommendation for relevant bodies to improve this situation
as I am responsible for industrial park land in AISA organization industrial department and I have interview with many investor in field of marbles and garnet
they are more entrusted to invest in marbles sector and we provide land for more than 14 companies in Jalalabad province Herat province Qandahar province and know we are working to prepare for them land in Loger province Qoundose province and western and eastern provinces and northeast provinces
Firms’ performance
It is very obvious in theory that, when there is no competition in the market, firm’s profitability is high. Nut on the other hand, there is no tendency for firms to bring efficiency, improve product quality and make technological upgrading. But to prove this theory is right, we present the following findings.
Profit margin: in the next paragraphs, we assume that; firm have both quarry and processing plant-looking at different levels of value chin as a single value –added process.
Because of different in product quality and size of production, profitability of afghan marbles business differs within the market .but we would like to look at the profitable of three different product, namely chest-e Sharif, afghan white (from khogiani in Jalalabad) and sang Tara khel (from Kabul), assuming they are all produced and finishing of one ton of chest and khogiani marbles is around 5000 tons per year.
According to our calculations, the cost of extraction, transport, processing ,polishing and finishing of one ton of chest and khogiani marbles is around 100$ whereas that of Tara khel marble is round $60 .this cost variation is due to location and location and availability of public good such as energy , road and market access. Also we found that , quarries and processing plant employ standard technology, one ton of marbles can produce 10m2of slab or 30 slabs- each having 1m length, 30cm breadth, and 2cm thickness (as show in following figure) .
Figure 6: one ton of marbles can produce 30 slabs
The market price of 1m chest marbles (with 30cm breadth, and 2cm thickness) is $24 to 28, while 1m afghan white marbles is sold at a price between $16 and $20 , and the tearkhel marbles is priced $10 to $12 . Normally, 30 percent of the final price is the profit of retailers. therefore, the net profit of marbles producer (both in quarrying and processing activities ) calculated as the total revenue minus total cost and retailers profit is 476 for the chest marbles $322 for afghan white marbles and $222 for Tarakhel marble. Table 6 estimates the profit margin for different types of afghan marbles.
Efficiency: It is very difficult to precisely measure the efficiency of marbles firms in Afghanistan. But roughly speaking we can have the overall picture of firm’s efficiency by looking at this size of production and the technology they employ.
Size of production: normally, marble quarries in Afghanistan produce 2000 to 4000 tons annually whereas the average annual production of Italian or Egyptian quarries is between 30.000 and 40.000 tons. Therefore the produce efficiency of marbles firms in Afghanistan is low, as they cannot take advantage of the economies of scale.
Technology : among all firms working in marbles quarrying and processing only two firms (one in Heart and the other in Jalalabad ) use standers equipment and technology . The rest of the other firms in Afghanistan employ traditional and unproductive methods such as blasting. Cutting with hombre polishing with hand etc….There are two reasons that firms do not employ standard and productivity technology one is the lack of competition among firms which is influences by market structure and the other is lack of public goods – such as industrial parks access to electricity , transport infrastructure etc. . Those firms cannot do much about it
Product quality : many reports and survey which have been done by Mitchell and survey which have been done by the ministry of mines which the argue that chest and khogiani marbles have been favorable compared to Carrere marbles , an Italian marbles recognized to be one of the best quality marbles in the world . Nonetheless all of this report agrees that afghan marbles is not acceptable for international markets due to the poor polishing and finishing process they receive. therefore in most cases quarried marbles is exported to Pakistan for processing purpose – much of this shopping happens illegally .these are often imported as higher value added polishing marbles product, or exported from Pakistan to international; markets as Pakistan marbles.
During our interviews with marbles processing firms, we learned that afghan firms pay less offer to employ advanced polishing technology and do not care much about expanding their marketed both domestically and internationally. Such behavior of afghan firms may have been influenced by two factors .first acquiring modern technology for marbles polishing require substantial amount of capital which these firs do not possess. Lack of access to finance is a major constraint for economic development in Afghanistan .secondly, afghan firms do not have long-term insight for their nosiness development due to lack of strategy management skills.