Question

How do the five forces of competition affect ExxonMobil?

Answer 1

ExxonMobil is an American multinational oil and gas corporation. The five forces of competition help ExxonMobil to ascertain the industry attractiveness and understand its competitive positioning in the market.

Impacts of Five Forces:

1) Threats of new entrants: Threats of new entrants means how entry of new companies threatens the existing companies. ExxonMobil will face threats from new entrants if

a) Existing regulations go in favor of new players.

b) Consumers can easily change the brands due to existence of no brand loyalty.

c) Establishing a distribution network is easy for new players.

2) Threat of Substitute Products or Services: The availability of substitute products or services affects ExxonMobil. Customers can use substitute products to meet their demands while causing serious threat to ExxonMobil.

The threat of substitute products or services rises when:

a) there is the availability of low price substitute products in the market.

b) the substitute product provides the same or better quality as compared to Exxon Mobil's product.

However, ExxonMobil faces low threat of substitute products as the switching cost of substitute product is high. Again, the customers can't get the same quality and performance from the substitute product as they get from ExxonMobil's product.

3) Rivalry among existing firms: Rivalry among existing firms affects existing company's business. ExxonMobil can face threats from the rival firms which can affect each firm's growth potential. The company will face intense rivalry among existing firms if existing firms are strategically diverse and target the same market. The rivalry will also be high if customers are not loyal with existing brands.

4) Bargaining Power of suppliers: Bargaining power of suppliers affects ExxonMobil in the sense that, when bargaining power of supplier is high, it will increase the competition in the industry and lower the profit for ExxonMobil. Similarly, weak supplier power can make the industry more profitable and increase the opportunity for the companies.

5) Bargaining Power of Buyers: Bargaining power of buyers reflects the pressure that customers put on the firms to get high quality products at a reasonable price. It directly affects the ExxonMobil's ability to achieve the business objectives. Whenever, buyer's power is strong, it makes the industry more competitive and lowers profitability. Whereas, when buyer power is weak, it makes the industry less competitive and increase the profitability and growth opportunities for ExxonMobil.