Wednesday, March 26, 2008
Porter's five forces model:
It's important to understand structure of any businesses before entering the market. Five forces model , in my opinion, an important factor in analyzing industry in strategic processes. I want to determine how attractive or not the boat and watercraft's industry is. First I have to look at barriers to entry: to enter this type of business is going to be a difficult for a new company because of a couple reasons, 1)there are so many establishing businesses for a long time, 2) there is a high initial investment cost involve because of an inventory, service, tools, overhead and 3) there is a selling commitment, company have to sell a certain amount of boats, jet ski and other things in order to be profitable and to keep their dealership. Second factor is a degree of rivalry among existing firms: this is a competitive business and prices can be a very different from one dealership to another, sometimes a company have to sell below normal margin in order to get rid of inventory. Third, bargaining power of suppliers are high, because the market is dominated by a few large suppliers and they have a total control of the cost, how many units and to whom to sell . Forth factor is a bargaining power of buyers. I would say that buyers have a medium power; when customers, for example, want to purchase a boat it is more convenient for them to go to the nearest dealership because of the territorial restrictions , however, when customers need jet ski or other things they are not loyal and they like to shop around. Fifth, closeness of substitute products : there is no substitute for a particular products, so threat of substitutes is low. Based on my analyses, I can say that this type of industry is unattractive .
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6 comments:
You selected a very interesting industry to analyze. I know nothing about the watercraft industry so if I were to look into entering this industry, I would be relying heavily on your analysis. Presuming your ratings of each of the five factors are correct; low, high, high, medium and low, respectively, I would conclude that this industry is rated medium, not necessarily unattractive, on attractiveness level. Since barriers to entry is high, threat of potential entrants is low, giving it a high attractiveness rating for that factor. That mixed in with the other conclusions you came to results in medium attractiveness.
I tend to agree with Vanessa. There isnothing inherently unatractive in this industry that can;t be overcome with strong branding and marketing efforts. To say this is unattractive is overstating the case.
--prof K
Interesting conclusion given that the video you posted has Porter explaining how his students invariably find soft drink a 5-star, highly attractive industry, if I heard this correctly
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--prof K
I am personally not that familiar with the boating industry but I tried to think of it as something similiar to the automotive industry. I agree that there is a very high start up cost. It takes a large financial commitment to begin a company in the boating industry due to the large scale products. There must also be a high cost developmental process that would keep new entries away. The other factors I wouldn't be able to voice an opinion on because its an unfamiliar field. I would expect in general that there wouldn't be much there to draw anyone to start up a boating company.
Hey, I think you are obsessed with boats and watercraft. This is the second assignment you used watercraft. Haha. I think its consistent. I am wondering if you are going to use watercraft for all the assignments, that will be interesting. Overall, I think its a great analysis.
This is an interesting subject for Porter's Five Forces. You may also get more information about the method on http://www.coursework4you.co.uk/porter.htm .
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