Market Structure

Oligopoly occurs when there are only a few firms that produce either homogeneous product or differentiated product (Parkins, 2014). These oligopolist share a large proportion of this industry. In sugar refinery industry, Central Sugars Refinery actually operates in a duopoly market structure which means an oligopoly market with two firms (Maybank IB, 2012). Central Sugars Refinery is one of the subsidiaries wholly owned by Tradewinds (M) Berhad and the other subsidiary is Gula Padang Terap (Tradewinds (M) Berhad, 2009).

Their competitor is Malayan Sugar Manufacturing Co. Bhd. and together they form a duopoly (Maybank IB, 2012). The similarity between these two firms is that they do not depend much on advertising their product, since they are producing the same product. 

However, Central Sugars Refinery having their striking red logo of “CSR”, it makes the packaging stand out compare to the competitor (Central Sugars Refinery, 2008). 

Barriers to entry

It is very hard, not entirely impossible, to enter into a duopoly market structure. In duopoly, Central Sugar Refinery enjoys the “sweet” economies of scale where the increase in scale production leads to lower cost per unit of output. Central Sugars Refinery uses state-of-the-art machines to help increase their efficiency in producing different high quality of sugar ranging from general grade sugar to industrial-used liquid sugar (Central Sugars Refinery, 2008). To produce a packet of sugar, different types of machines undergo multi-stage refining processes encompass 11 steps and requires specialized workers to oversee the operations. At the end of the day, Central Sugar Refinery managed to produce up to 2,000 metric tonnes of sugar per day (Central Sugars Refinery, 2008). This proved that Central

Forklift carrying bulk bag

Sugars Refinery spend less cost by utilizing technology and specialized workers, able to produce large quantity of output which then explain that they experience economies of scale. They also used large bulk bags instead of stacking up and arrange on the wooden pallet to deliver sugars to wholesalers, hence this will not only save their cost, but also the time as forklifts are  used to carry the bulk bags easily and the bags will be reuse.

On top of that, new firm who wish to enter into this market structure must have a huge expenditure for capital that can reach up to millions (Sloman, Wride, Garratt, 2012). Not only that, the firm ought to acquire a huge piece of land to build sugar refinery plant. The plant size of Central Sugars Refinery in Shah Alam is approximately 66,320 square metres and it is identified that their authorized capital is around RM50 million. Even though the new firm has the capital and land, but it does not mean that it has the knowledge and experience on the market as compared to Central Sugars Refinery’s more than 40 years of establishments (Central Sugars Refinery, 2008).

The next barrier to entry is on the legal side, where firm needs licence to import raw sugars. To illustrate, Central Sugars Refinery imports raw sugars mainly from Australia and they issued the licence to imports from Ministry of International Trade and Industry. Same goes for exporting where Central Sugars Refinery have licence to export sugars to other countries like Singapore, Indonesia and so forth. (Ministry of International Trade and Industry, 2012). Plus, there is a trade barrier, or specifically import quota for importing raw sugar which is 45% for Central Sugars Refinery, meaning only 45% of raw sugars imported is allowed, while the other 55% goes to the competitor, Malayan Sugar Manufacturing Co. Bhd. (Borneo Post online, 2010). So this trade barrier limits the amount of raw sugar imported.

To conclude, Central Sugars Refinery is in a duopoly market structure and it produces homogeneous goods. New firms can hardly enter into this industry due to a few barriers to entry such as economies of scale, huge capital and also legal barriers to entry.