Question

IV. Analysis of the Construction Manufacturing Industry (Include global considerations)

A. Strategic Group(s) in which the company exists and competitors in it/them.

B. Intensity of rivalry among existing competitors. (C). Threat of new competitors entering the industry; (D) Threat of substitute products or services; (E) Bargaining power of buyers and (F) Bargaining power of suppliers……( Use Porters 5 Forces analysis for B, C, D, E, and F).

G. Potential Profitability of the Industry - What organizations have succeeded and failed in the industry and why?

H. What are the Critical Success Factors for the industry?

Answer 1

Analysis of the Construction Manufacturing Industry Porter's five forces are:

1. Competition in the industry

2. Potential of new entrants into the industry

3. Power of suppliers

4. Power of customers

5. Threat of substitute products

A Strategic Group(s) in which the company exists and competitors in it/them

A strategic group is a concept used in strategic management that groups companies within an industry that have similar business models or similar combinations of strategies. For example, the restaurant industry can be divided into several strategic groups including fast-food and fine-dining based on variables such as preparation time, pricing, and presentation. The number of groups within an industry and their composition depends on the dimensions used to define the groups. Strategic management professors and consultants often make use of a two dimensional grid to position firms along an industry's two most important dimensions in order to distinguish direct rivals (those with similar strategies or business models) from indirect rivals. Strategy is the direction and scope of an organization over the long term which achieves advantages for the organization while business model refers to how the firm will generate revenues or make money.

B Rivalry Among Existing Competitors

Rivalry Among Existing Competitors When rivalry among existing competitors is significant, profitability within the industry suffers and organizations may introduce measures such as price discounting, introducing new products, advertising campaigns and service improvements . However, the frequency of the previously stated will depend on the intensity of the competition, and how the industry is affected by industry growth rate, storage and fixed costs, the number of organizations competing against each other, differentiation, exit barriers and switching cost between competitors

C Threat of New Entrants

New entrants to an industry bring new capacity, and the desire to gain market share that puts pressure on prices, costs and the rate of investment necessary to compete. However, the threat of entry will largely depend on how high entry barriers are and how many organizations are in the industry . Furthermore, new entrants can disrupt established players in a particular market, and directly affect the competitive advantages. When the demand is not increasing or decreasing, an additional supply of goods or services will decrease profit margins of the market participants. differentiates seven critical barriers to enter the market, (a) supply-side economies of scale, (b) demand-side benefits of scale, (c) customer switching cost, (d) capital requirements, (e) incumbency advantages independent of size, (f) unequal access to distribution channels, and (g) restrictive government policy. An essential exercise for organizations is to analyze barriers to entry and to anticipate possible retaliation measures from competitors when considering entering a new industry. It is of utmost importance for a new entrant is to overcome entry barriers without nullifying, through heavy investment, the profitability of joining in the industry.

D Threat of substitute products or services

Identifying substitutes is seeking for products or services that can fulfill the same purpose as products of the industry of the considered industry. Factors that may influence the threat of substitute products and services are (a) switching costs The Relevance Of Porter’s Five Forces In Today’s Innovative And Changing Business Environment governance issues in emerging markets 4 between substitute products or services and industry products, or (b) buyer’s addiction to buy substitutes. For instance, butter and margarine may be the same in the eyes of many but consumers must pay a premium for butter, or a smartphone substituting a laptop as a smaller device that provides the same or similar operations as a laptop. From an industry and profitability perspective, the threat of substitutes needs to be low, contrary to buyers who want substitutes to be high. In other words, substitute products and services are less when (a) cross-price elasticity of demand (i.e., the responsiveness of demand for one good to the change in the price of another good) is low, or (b) switching costs are high.

E Bargaining power of buyers

When there is a monopoly market situation, buyers have the greatest bargaining power when they are large and are able to switch comfortably to alternative suppliers that are few in numbers . Other relative buyer concentrations are (a) competitiveness – many buyers and suppliers, (b) mutual dependence – few buyers and suppliers, and (c) monopoly power – few suppliers and many buyers. Furthermore, buyers compete with the industry by forcing prices down . When buyers are powerful, sellers may develop ways where buyers are prepared to pay a premium price for some products. For instance, sellers need to accept that there is an imbalance of power and that profitability will be reduced or even to accept a rate of return that is close to the cost of capital. Furthermore, sellers may find different ways for increasing the cost that buyers incur when switching from one seller to another seller. However, this is difficult as most buyers will recognize that they may not appreciate when they are locked in to a certain buyer. Although, sellers may overcome this lock in by creating a buyer loyalty program that provides more value than competitors provide, such as a just-in-time delivery system or increasing quality and services. On the other hand, when buyers have less power, they are not concentrated, have fewer options, and are segmented (e.g., information on price is difficult to find, possibility of price discrimination, price bundling).

F Bargaining power of suppliers

This can have a detrimental effect on profitability in an industry as suppliers can threaten organizations with increasing prices of products and services; when organizations are unable to recover, the cost increases in its own prices. There are a number of reasons that can be seen as indicators of high bargaining power of suppliers. For instance, domination within an industry may be controlled by a few organizations and is, therefore, more concentrated than the industry it sells to, or the industry is not the most important customer of the supplier group .On the other hand, the bargaining power of suppliers can be manipulated by the number of suppliers, the size of the supplier, and the availability of substitute customers

G why organizations have succeeded and failed in the industry

Company failed due to lack of planning

1 Leadership failure Businesses fail because of the lack of short-term and long-term planning. Your plan should include where your business will be in the next few months to the next few years. Include measurable goals and results.

2 No differentiation Businesses fail because of poor leadership. The leadership must be able to make the right decisions most of the time. From financial management to employee management, leadership failures will trickle down to every aspect of your business.

3 Ignoring customer needs It is not enough to have a great product. You also have to develop a unique value proposition, without you will get lost among the competition.

4 Poor management Examples of poor management are an inability to listen, micro-managing – AKA lack of trust, working without standard or systems, poor communication, and lack of feedback.

5 Lack of capita  It can lead to the inability to attract investors. Lack of capital is an alarming sign. It shows that a business might not be able to pay its bills, loan, and other financial commitments. Lack of capital makes it difficult to grow the business and it may jeopardize day-to-day operations.

H What are the Critical Success Factors for the industry

1 People – availability, skills and attitude

2 Resources – People, equipment, etc

3 Innovation – ideas and development

4 Marketing – supplier relation, customer satisfaction, etc

5 Operations – continuous improvement, quality,

6 Finance- cash flow, available investment etc

example  case study of uber

Let’s start with a brief recap of Uber’s value proposition in comparison to its rivals. This plays a role in a number of the forces.

Uber value proposition comparison Uber Taxi Bus/train Rental/share car Exact Exact Pick-up & drop-off points Involves walk on both sides Involves getting to pick-up point Waiting times 3-5 mins Depends but generally longer Walk + waiting time (high range) Walk + transaction time Very good Good Ok Rental: ok Convenience of interaction Share: very good Very good (Very) good Convenience of transport Low-ok Very good but requires driving yourself Cost Low 10-20% higher very low Rental: very high Share: Low Assuming cities or major cities (Uber is not in regional/rural areas) and an errand-type ride or commute to work (i.e. 3-8 km distance)

(1) Bargaining Power of Buyers

• Bargaining power of customers: reasonably high at this stage as there is strong ride-hailing competition, alternate means of transports and taxis. Beyond a certain market share, Uber may have a better pricing position (and in any case, they may decide to grow through complementary offerings)
• Switching barriers for the demand side: are low. Similar to the drivers, customers are multi-homing. But this may change if the industry ends up becoming a winner-takes-(almost)-all. Due to the indirect network effects, waiting times would increase for competing platforms
• Value proposition for customers: are compelling. Lower transaction and search costs, shorter waiting times and lower costs. This is in comparison to other means of transport. But in comparison to other ride-hailing companies there is very little differentiation, thus price will play a big role

(2) Bargaining Power of Suppliers

• Bargaining power of supply side: is weak at this stage as there is no unionisation, something that Uber is closely monitoring. I have not yet seen elasticity data for the supply side, i.e. how much higher would hourly rates need to be to attract X number of new drivers? A concept by professor Judy Chevalier in an Uber study, called “reservation wage,” though is a good starting point. But there is lots of discussion on public level of Uber underpaying drivers (Uber of course states the opposite). This public perception may strengthen the bargaining power of drivers, esp if they are to be considered as employees and to receive entitlements
• Switching costs of the supply side: are low. Some drivers are multi-homing by driving for Uber and Lyft (or other ride-hailing companies) at different times. But given hourly wages are similar (and there is no reported shortage of drivers), there is no significant bargaining power gain for drivers at this

(3) Threat of new entrants

• Barriers to entry:
  • On the surface, they are low. Anyone can program an app. But will you be able to scale it up?
  • Any new entrant needs to get to critical mass. This is often costly in terms of acquiring the supply side and the demand side
  • Uber has spent billions on demand generation. Customer acquisition costs are very high as seen in the battle with Didi. Will investors be willing to fork out capital for a new entrant to fight an already established brand like Uber?
  • Will a new entrant be able to get to critical mass on the driver side to provide a comparable value proposition (e.g. low waiting times)?

(4) Threat of substitutes

• Car sharing companies such as Zipcar
• Self-driving cars: many people debate what self-driving cars will mean for the entire transport industry. I am not going to join this speculation. As you certainly know, Uber is investing a lot in self-driving technology themselves
• Better public transport: seems very unlikely. I have not heard of any large cities with any success stories on this front (sadly)
• More people working from home: it is hard to assess if mobility requirements will reduce due to technological penetration but worth keeping an eye on
• Bike sharing can become a better option in cities that are growing fast and traffic congestion becomes an issue

(5) Rivalry among competitors

• Rivalry is stiff. Though there is no as large player if you look globally, there are many strong players in various geographies:
  • Ola in India,
  • Didi has managed to fend Uber off in China,
  • Lyft is now concentrating its resources to the US
• Other competitors are emerging in various locations
• A lot of locally-focused entrants may dilute Uber’s strength (i.e. financial resources) enough to capture enough market share in those regions
• It is likely that the competition will have to be taken very serious by Uber and it may keep a cap on prices and possibly even on Uber’s pace of growth.