Paradise Island is the home of a relatively small community of 10,000 people, and the people of this island are famous for their production of high quality widgets, which they sell as components to larger manufacturing client companies on the mainland.
The population of Paradise Island has been changing in recent years however. The widget business has been depressed for some time – competition for contracts on the mainland has been fierce and a number of widget companies have been forced to impose a wage freeze on their workers in order to keep wages down and their prices competitive.
Sadly, the wage freeze has cause a number of families from Paradise Island to emigrate to the mainland in search of more lucrative employment, thereby creating housing and job vacancies on the island and one of the widget companies, Acme Widgets has taken to employing cheaper immigrant labour.
The immigrants from Auslandia have taken up the vacant housing and now compose 5% of the population of Paradise Island. The Islanders are polite and friendly people and for the most part have welcomed the Auslanders into their community. The Auslanders are hard working people and they appreciate the opportunity to better themselves. They do their best to live harmoniously and for a while at least, life on Paradise Island remains good.
Grocery Stores
The island is served by ten grocery stores that are fairly evenly distributed across the island and each store attracts on average around 1,000 customers.
The grocery store owners are conscious of the fact that times are difficult for the island’s main industry and that many workers have not had a pay rise for several years and therefore they have tended to keep their profit margins low, to around 2.5% of turnover. On average each islander spends £1,000 per year on groceries, and this means that each grocery store has a turnover of £1,000,000 per annum and as a consequence, each grocer makes a profit of 2.5% of the £1,000,000, turnover, which equates to £25,000 per annum. Not a princely sum, but enough for an honest person who cares about their community.
A Retirement Prompts Change
A day comes however when one of the grocers has grown too old and his health has begun to fail. He decides to retire and advertises his shop for sale. He places his shop for sale at auction with a reserve price of £200,000, and when the auction takes place there is vigorous bidding from the nine remaining island grocers who are all keen to expand their businesses.
There is an upset at the auction however, because the highest bid comes not from the existing island grocers but from a consortium of Auslanders who manage to outbid everyone else. The vacant grocery business is sold to the Auslander consortium for £250,000, more than any of the islanders could afford to pay.
The Auslanders were able to outbid the Paradise Islanders because they had pooled the savings of all of their people on the island and had also received money sent by relatives from back home in Auslandia. The Auslanders are not just a very hard working people, they are thrifty and they have a strong sense of community which motivates them to work together as a community and to help each other to get on and better themselves.
The strong group loyalty of the Auslanders means that in future will they all buy all of their groceries from the newly Auslandic owned grocery store. They will do this out of a strong desire to see a store owned and operated by their people become successful. This in many ways laudable tendency on their part however, begins to create an imbalance within the community on Paradise Island.
The Islanders’ Sense Of Fairness
The Paradise Islanders have been raised to treat others fairly and not to discriminate, and this means that Paradise Islanders continue to distribute their custom fairly equally between the ten grocery stores on the island.
With 9,500 indigenous islanders, this means that each store enjoys the custom of 950 indigenous islanders on average and has a turnover from the indigenous community of just £950,000.
The Auslandic owned store however, also has the benefit of the turnover from the Auslandic community, which amounts to 500 x £1,000 = £500,000 per annum. The Auslandic store therefore has a turnover of £1,450,000 compared to a turnover of just £950,000 enjoyed by the other indigenous islander store keepers, and while the indigenous storekeepers incomes have reduced to just 2.5% of £950,000 = £23,750 each, the Auslandic store makes a profit of 2.5% x £1,450,000 = £36,250.
Even though the Auslanders constitute just a small minority of the population of Paradise Island, it is their group loyalty that makes the Auslandic grocery store instantly the most profitable grocery store on the island.
Pressing Home The Advantage
Things do not stop here however. The Auslandic consortium being keen businessmen decide to capitalise on their commercial advantage and realising that due to hard economic times most Islanders are very cost conscious, the consortium decide to reduce their prices by reducing their profit margin from 2.5% to just 2.0%.
While this means that their profits will not initially be quite as great as they might have been, just 2.0% of £1,000 x 1,450 = £29,000 per annum), their store will still be more profitable than any other island grocers and they will be able to undercut the other island grocers on price and thereby attract a greater share of custom from the island’s indigenous population.
Although the 0.5% drop in prices is relatively small and goes unnoticed initially, it does have the effect of winning the exclusive custom of another 500 of the most cost conscious of the island’s indigenous population. This means that in future, while all ten of the island stores enjoy an equal share of the custom from the 9,000 indigenous Islanders, producing a turnover each of just £900,000, the Auslandic store enjoys the custom of an additional 1,000 people; the 500 Auslanders; and the 500 most price conscious indigenous Islanders. This produces a turnover for the Auslandic store of 1,900 x £995 = £1,890,500. The Auslandic store now has a turnover that is more than twice that of any other store and even with the reduced profit margin is making profits of 2.01%* of 1,900 x £995 = £38,000 per annum, compared to just 2.5% of 900 x £1,000 = £22,500, for each of the indigenous Islander stores.
* Note: A 2.0% profit margin based upon original price levels equates to slightly over 2.01% of prices once they are reduced by 0.5%.
Another Island Business Folds
One day, one of the indigenous storekeepers having suffered a 10% reduction in income finds that with the needs of his family to consider he just cannot remain in business. He decides
to sell up and emigrate to the mainland in search of better opportunities and his business goes to auction.
Predictably, none of the indigenous island store holders is able to afford to buy the vacant store, because with dropping turnover and squeezed profit margins, they are already struggling to stay in business. Facing unfair price competition from the Auslandic store, the indigenous storekeepers are suffering a much-reduced income and are only just able to keep their heads above water as it is and a second store is therefore purchased by the Auslandic consortium.
The Auslandic consortium calculate that the increased turnover it will provide will enabled them to reduce their prices even more and press home their competitive advantage to greater effect.
The increased turnover now means that the Auslandic store is able to successfully apply to the grocery wholesalers on the mainland for a 2.5% discount on the normal wholesale prices paid for produce, and following this, the Auslandic stores on paradise Island will again be able to charge prices that significantly undercut the indigenous island stores.
Profit Margins Are Squeezed Again
The eight indigenous island grocery stores currently enjoy the custom of 900 indigenous islanders each, and operating now with the 2.0% profit margin forced upon them in their efforts to compete with the Auslandic stores, each indigenous island grocer now has turnover of just £895,500 and profits reduced from their original level of £25,000 per annum, to just £895,500 x 2.01% = £18,000 per annum.
The Auslandic stores however are going from strength to strength and with the 2.5% reduction in wholesale prices are now able to increase their competitive advantage by reducing their retail prices further.
Originally wholesale prices amounted to 50% of retail prices, i.e. 50p in every £1.00 spent by customers. With retail prices discounted by 2.5%, this means that the Auslandic store now only pays £48.75 for every £100.00 worth of produce sold at the original retail prices, increasing the potential profit margin from £2.50 per £100 worth of produce, to £3.75.
Prices have already been reduced from their original levels by 0.5 however, and so the while the indigenous island grocers are only making a margin of £2.00 per £100 of produce sold at the original retail prices, the Auslandic stores could potentially make £3.25.
To increase their competitive position further however the Auslandic stores reduce their prices by a further 0.75, pitching their profit per £100.00 of produce sold at the original prices to £2.50, and thereby returning to the original norm of £2.50 per £100.00 of produce sold, i.e. a 2.5% profit margin.
To compete with this latest price reduction, the indigenous grocers face the prospect of reducing their prices to match the Auslandic stores, but without the benefit of discounted wholesale prices, the indigenous grocers are forced to reduce their profit margin from 2.0% based upon original price levels, to just 1.25%. Thus the profit they make per £100 of produce sold at original prices is reduced to just £1.25, precisely half what they were making originally and now a long way below sustainable levels. The indigenous island store holders are now slowly going broke.
With the custom of just 900 islanders each, spending £1,000 per annum on food at original prices, the indigenous grocers are now making just £11,250 per annum in profits, while the
Auslandic stores with a total of [(2 x 900) + 500 + 500] = 2,800 customers are making 2.5% of 2,800 x £1,000 = £70,000 in profits, i.e. £35,000 per store.
A Commercial Empire Is Born
As the months and years pass, the Auslandic stores expand buying up more of the indigenous stores as the indigenous grocers progressively go broke, and eventually the Auslandic consortium own six out of the ten original stores. The Auslandic stores adopt a brand name based upon a combination of the first letters of the surname of the original Auslandic founder Mr Cobana and the first letters of his wife’s forename, Bess, and the chain of Auslandic stores become known as Besco Stores, thus obscuring the obvious Auslandic origins of his business from public consciousness.
So dramatic had been the rise of the Besco empire that Mr Cobana is hailed as a genius of commerce and is invited to become the Chairman of the island’s Retailer’s Guild.
Some of the remaining indigenous grocers complain about unfair competition and point to the unfair advantage that Mr Cobana enjoyed due to the ethnocentricity of his compatriots, but they are admonished by the ‘great and the good’, who crave the friendship of the now wealthy and influential commercialist, and by the local newspapers who fear losing his vast advertising revenue.
The Myth Of Commercial Acumen Arises
Mr Cobana is not the only Auslandic businessman to rise to prominence on Paradise Island. Like him numerous other Auslanders have started a whole range of businesses and through the support of their compatriots have gained a competitive advantage over their unwary indigenous island competitors.
Now almost all of the seats on the board of the Retailer’s Guild and most other trade bodies are taken by enterprising Auslanders and a myth emerges that they are simply, naturally very astute businessmen. They possess this, ‘je ne sais quoi’ that enables them to mysteriously rise to the top in whatever field of commercial endeavour they choose.
What can it be though, this illusive quality that commentators find so difficult to pin point?
Academics and social commentators who study the rise of such people shy away from alluding to the ethnocentricity of the Auslanders, for fear of being labelled racist or worse still, anti-Auslandic, the most abhorrent form of racism.
Some courageous members of the Island community claim that the Auslanders have conducted a conspiracy to gain dominance on Paradise Island, but through a process of opprobrium and social exclusion, such people are dismissed as ‘conspiracy theorists’, and ‘nut cases’.
Organised Minority Advantage
The most astute inhabitants of Paradise Island have learned that as a result of the weakly cohesive nature of their society, it is easy for an organised minority to prosper disproportionately and gain undue influence at their expense.
The minority concerned doesn’t need to be composed of commercial geniuses, they don’t need to work harder than the Paradise Islanders, the minority simply needs to give preference to their own kind in order to prosper disproportionately, and to practice this in-group preference discretely, so that no one from the host community objects until it is too late.
Most importantly, the astute inhabitants of Paradise Island have realised that in the multi-ethnic setting that has come to be on their island, they must think and act ethnocentrically if they are to avoid becoming further dispossessed and reduced to an impoverished underclass in their own land
by Max Musson © 2011
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See also:
Strangers in Paradise – The Racial Dimension
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