(a) Analysis of general environment of Beta Pure Water Ltd using Economic, Political, Environmental, and Legal.

     Technological Factors
The technological factors raised include the following issues:

• Use of biodegradable plastic – the passage of law requiring the use of environmentally friendly biodegradable plastic reflects improvement in the technology as far as plastic is concerned. The industry relies heavily on plastic as one of its core inputs in the production process.
• Efficient and state-of-the-art – since the industry competes on a price basis, it implies that the participants operate on a low-cost leadership strategy which calls for an efficient production process. This means that the industry needs cutting-edge technology as far as its production process is concerned in order to lower costs and achieve competitive advantage.

Political Factors
The political factors relate to the actions and policies of the government and other political actors such as opposition political party activism. The case before us raises a number of political issues worthy of consideration:

• Removal of subsidies – this will result in a higher cost of living in the economy. It will raise the cost of doing business in Beta Pure Water Ltd and will also affect households and individuals. This will make the country’s businesses less competitive compared to other foreign businesses that may be enjoying subsidies from their governments.
• Political instability – removal of subsidies is likely to result in agitations and demonstrations from the citizens who are likely to feel the negative impact in terms of increased cost of living. Any such political upheaval will have negative consequences for the economy as a whole.
• Taxation policy – The government appears to have an appetite for taxes. It has introduced a bill in parliament, which, if passed into law, will require companies to use biodegradable plastic as well as considering the introduction of a special tax to deal with plastic pollution. This will further worsen the cost of doing business in the economy and will make businesses less competitive.
• Establishment of Industry regulator – setting up of the industry regulator to deal with the hitherto unregulated industry will have implications for the cost of doing business in the economy.

Legal Factors
These factors deal with various laws the government passes to deal with the conduct of business in an economy. In this particular case, the following legal issues arise:

• Special Tax – The government is considering the introduction of a special tax to raise necessary funds to deal with the plastic waste challenge facing urban centers. This is a major threat to industry operators as this will result in higher costs of production with limited chance to pass on the effect to consumers due to price sensitivity.
• Labour laws amendments – since the new law reduces the hiring period of casual laborers from 18 to 6 months and also makes it easier for workers to join trade unions, it imposes further costs of doing business in the economy. Unionized workers can demand higher salaries and hiring more workers on a permanent basis with all its related costs.
• Law setting up regulator for the industry – this is perceived to limit the rate of new businesses entering the industry, and existing ones may face high demands on them.

Environmental Factors
These factors relate to how the natural or physical environment is affected by the actions and activities of businesses:

• Pollution of environment – the case clearly states how used sachets and bottles are becoming a nuisance to the environment. The plastics are not biodegradable.
• Floods – choked drains have resulted in serious floods that affect lives and property in urban centers.
• Pollution of water bodies – serious pollution of the environment can affect water bodies dotted around the country and can even affect their long-term sustainability.
• City Authorities budget – high cost of running the cities.

(b) Nature of competition in the industry refers to five forces analysis, and in this particular case, each of the forces will be examined.

Threat of new entrants
The competition in an industry gets intense when the barriers to entry are weak, hence many businesses are able to enter the industry. In the case, there are a number of factors that show that the industry is easily entered:

• Capital requirements – given the fact that the industry has grown from one to over two hundred producers and the assertion that the capital requirements are generally low makes the industry highly competitive.
• Product differentiation/standardized product – the case suggests that the basis of competition is price, which implies that producers in the industry do not differentiate their products, or in other words, the product of the industry is standardized, which will make competition very keen.
• Switching cost – it appears that consumers face very low switching costs since water is not a technical and sophisticated product. Hence, consumers can easily switch from one producer to another without any major cost. This makes competition much more severe.
• Knowledge requirements – no special skill or knowledge is required to operate in this industry; hence competition will be more intense.

 Bargaining power of buyers
The group of buyers can be powerful or less powerful depending on a number of factors. In this particular industry, it faces two     buyer groups – corporate buyers and bulk distributors. A number of factors in the case make the buyer groups powerful:

• Low switching costs – it will not cost buyers (corporate and bulk distributors) to switch from one producer to another. This makes the buyer group very powerful relative to the industry.
• Buyers face standardized/undifferentiated product – “all water be water”. This simply means that sachet water or bottled water from one producer is not much different from the next producer, hence consumers are really indifferent as to which producer produces what. This makes the buyer group very powerful.
• Threat of backward integration – from the case, some bulk distributors are actually venturing into production by bypassing already existing producers, and this makes the buyer group very powerful.
• Low profit margins – in the case, bulk distributors clearly face low profit margins and so are very sensitive to price increases by producers of Pure Water.

Bargaining power of suppliers
The supplier group provides the inputs into the production process of the industry. The supplier group includes labor, providers of water, and electricity. These supplier groups will be more powerful and hence intensify competition with the following conditions:

• Few or dominant supplier group – currently, apart from the few producers who have their own water supply, most industry players depend on Beta Water Company, which is the sole supplier aside from drilled boreholes. This makes it powerful as it can afford to hike prices without much input from the industry.
• Limited alternative sources of supply – currently, borehole drilling is the only available alternative for the industry. But since the majority of the producers depend on Beta Water Company, it may suggest that there could be challenges with owning one’s borehole, which may include locating a favorable site and the cost of drilling the minimum required number of boreholes to supply sufficient water.
• Suppliers’ product is an important input to the buyer’s business – without the supply of raw water, sachet and bottled water will not be produced. It is an indispensable input into the industry.
• Unionization of labor – will make wage negotiation tougher and makes the labor supply input powerful.

Rivalry among existing firms
This force deals with how the existing firms in an industry contend for market share. The case points to a number of situations that give rise to intense competition among rivals:

• Declining/negative growth – since the industry is declining, it will make the fight for the remaining market share much more intense.
• Equally balanced competitors – from the case, it appears that no one particular firm dominates the market, and since they all have a fair share of the market, each firm can respond to any price cut by the competitor.
• Many producers – there are over 200 producers in the industry, and this makes them weak, especially when they have not formed any cartel or association to regulate the price.
• Low switching cost – the industry products have no or very low switching costs. This makes the competition keen since each producer would have to make an effort to retain existing customers, so they are not taken over by other competitors.

Threat of substitute products
This talks about alternatives to the industry products. In the case, it is clear that there are substitutes from imported sources, Beta Water Company, and other water bodies:

• Availability of substitutes – there are readily available substitute sources to the industry. Some corporate clients are importing sachet and bottled water, Beta Water Company is available, as well as other water bodies.
• Low switching cost – there is a low switching cost in moving from the industry source to other sources available.

(c) Determination of the best option between lease and buy

Buy Option Analysis:
Calculation of depreciation allowance and the related tax savings:

Lease Option Analysis:
The company could lease the plant under an agreement which would entail payment of GH₵52,000 at the end of each year for the next five years. The tax authorities allow lease payments for tax purposes.