Entrepreneurship in Rent seeking Enviornment

Rent seeking is defined as a situation in which an individual or firm makes money by manipulating economic environment rather than by profit making through trade and production of wealth. Rent seeking can be obtained by some settings and traditional profit seeking obtains by others, it is not because of differing modes of rationality among economic agents but because of the institutions that characterize those settings. (Roby Rajan Carl Journal 1988)

When wealth transfers it can be achieved through government provided wealth transfers. Economic agents will expend efforts toward attempting to influence government actions in their favor in order to accumulate wealth.

In the context of the economy of a poor country, welfare losses induced by rent seeking are likely to be more significant than the losses originating from the traditional price distorting effects of taxes and subsidies.

Few ways by which it can have an effect on the economy of the country are by:

· Conferring of a monopoly through a license or patent (e.g., for a time being, usually a way to have a competitive advantage)

· Obtaining resources at below the market prices (e.g., publicly provided land at cheaper rates than market to influential groups)

· Protection from competition (e.g., restriction of number of players in a market)

· Manipulation of government subsidies, tariff and tax policies in the developing economies

From a theoretical and practical standpoints, rent seeking can have significant effects on the ecnomoy. If "buying" a favorable regulatory environment is cheaper than building more efficient production, a firm will choose the cheaper option, and then reaping incomes entirely unrelated to any contribution to total wealth or well-being. Thus, it is one process, which needs to be controlled by the government specially, so that government can initiate people to work entrepreneurially.

References:

· Entrepreneurship & Rent Seeking in India by Roby Rajan Carl Journal Vol.8, No. 1 1988
· Buchanan, James M. “Rent Seeking and Profit Seeking.” In Toward a Theory of the Rent Seeking Society 1980Kirzner, Israel. Competition and Entrepreneurship. Chicago: University of Chicago Press, 1973.

COMPANY VISIT FOR IBC STUDENTS

The company visit to ITAB gave the students of IBC in JIBS the opportunity to meet some of the players in the industry, and vice versa, which is really important for the success in the business area especially in creating pathways into the business sector. Also it provided us an opportunity to see the corporate side of the resource business area.

The opportunity to hear from a variety of people about the organization and their experiences and advice, in addition to seeing the range of different occupations and careers in the area of operation made that visit worth.

ITAB has a focus on long term business relations with chain stores particularly in Nordic, Baltic countries and UK which focus on customers’ feedback, so they actually focused on market pull strategy and all kinds of expertise from concept design to project management and from there to production and then to installation is all from their part. Mr. Stephen introduced the students with the company and their major operations. Wood and metal shop fittings, as well as checkouts and entrance systems, are designed and produced at the company’s own facilities.

They have a niche strategy of leading the targeted market only by using the continued learning expertise and based on these learning making long term goals and strategies for future. As a shop concept ITAB is registered and has a functional management structure but they yet do not have any Corporate Governance particularly for the ITAB, right now they are following only the Swedish *(Koden)the code* but in first quarter of 2009 they are heading towards their own corporate governance charter.

The Board of Directors consist of six members who were selected four years ago and except one all have certain number of shares in the company. This board also appoint a three member remuneration committee who is mainly responsible for the issues relating to remuneration and terms for executives. All above there is a senior management committee as well which is a good combination of old and new employees so to initiate innovations and keeping the company’s policies and business operations updated with lot of experience to backup. There is a audit as well which looks for the financial matters of the firm.

ITAB have also gone for acquisition of Scangineers (in 2008) for making its operation versatile, which is a Dutch based firm and develops market software for self check out systems in a company. Also they have acquired L-Form, Pan-Osten and others for almost similar kind of experties. The company currently has some 300 systems in the European markets and their software is compatible with all known checkout systems today. ITAB has two types of self-scanning checkouts – a larger one with a conveyor belt intended for customers with shopping trolleys, and a smaller unit adapted to customer baskets.

In ITAB’s factory, the ratio of person to machine is 1:3 which is bit high when we see that machines actually operate 24hours a day, but when we see the whole company’s turnover is 350M € (which is overall) it shows their operations are running smoothly.

Most of their strategies are going fine as their interim quarterly reports for 2008 shows like ‘Earnings trend in the third quarter according to plan and stronger than last year’ but on other hand they are true in accepting where it is lacking like ‘Items of a non-recurring nature had a negative influence on profits by approximately SEK 15 million (SEK -9 million)’ But if we analyze the whole world and present financial crisis ITAB is still working well which shows their good strategies. They don’t focus on marketing and mass advertisements as they have very less to do with the general public but more with large chains which don’t require heavy advertising, rather they relying on B2B relationships and most of the local customers who are already there. Also they focus on a big portfolio of retail stores, all of their locations, so to have enough work with their every newly opened store.

In the end, I would like to thanks for the company, staff involved in the day’s program for sharing their time and resources, and of course JIBS team in helping the IBC students to enrich the knowledge and education.

References:

• ITAB website
• ITAB Interim Reports
• ITAB Corporate Governance