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Porter’s 5 Forces Analysis

To analyze Marketing Areas we have chosen “Porter's 5 forces analysis”. It is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. Porter’s model is based on the insight that the competitive strategy of an incumbent or a company should be based on an understanding of industry structure and the way they change. In this section, the industry environment of ceramic sector will analyzed by five recognized competitive forces developed by Michael E. Porter. This analysis presents a picture of industry’s growth situation and its attractiveness. It includes three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers, bargaining power of customers.

So. because aluminium is cheaper. Here buyer propensity to substitute is low. . substitute products will cause an indirect threat to existing firms. Steel Buyer propensity to substitute: Customers in some markets are more likely to remain loyal to a product or service. more available and long lasting than composite wood and steel. 2. The switching cost is high because both wood and steel are expensive than aluminium. Aluminium comes in many shapes and many colors customized relating to the requirement of the customers. the less the threat there is of substitution. easy in fabrication. the longevity of aluminium is better than wood and the appearance of aluminium is better than steel. it’s a good sign for aluminium industry. There are many examples from industrial history where a substitute product has completely wiped out industries. however. Perceived level of product differentiation C:\Documents and Settings\aluminium\porter. Buyer switching costs: C:\Documents and Settings\aluminium\porter five forces 2. Relative price performance of substitutes: Substitutes of aluminium usually comes in a very high price. durability. The basic substitute of aluminium in Bangladesh is – 1.pdf The greater the cost for customers to switch to a substitute product. it can still be considerable. corrosion resistance. So. The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand). In other markets customer loyalty is rare.pdf: People are less likely to switch to an alternative product if they think that it would be difficult to replicate all of the features of their original product. This threat may not be as crucial as that from direct competitors. they are supposed to be loyal to our product.The threat of substitute products: Medium As indicated by Porter’s five forces model. Composite wood C:\Documents and Settings\aluminium. Moreover. Market players said the advantages of aluminium such as lightweight. Since end of the day customers are price sensitive. So. strength. which is quite difficult to replicate. aluminium is creating more product differentiation than steel or wood. attractive appearance and easy maintenance make it a popular material for use in modern buildings. aluminium industries are facing great opportunity here.

the threats of potential new competitors are low in this sector. have their own suppliers for key raw materials such as alumina. The aluminium companies. the profit rate will fall towards a competitive level (perfect competition). rights. die and this protects them from the potential threat for new entrants to a significant extent. Brand equity: Brand equity plays a crucial role in aluminium industry because brand image is an important factor for the new entrant company.The threat of the entry of new competitors: Medium Profitable markets that yield high returns will draw firms. They also have gas line and electricity line which is now very challenging to have full access in Bangladesh.): The only barrier to enter into aluminium industry is to get permission. So at the earliest stage convincing customers can be a difficult task. which will effectively decrease profitability. which are integrated. Unless the entry of new firms can be blocked by incumbents. Benefits of economies of scale are derived in the form of lower costs and better bargaining power while sourcing raw materials. Economies of product differences: The economies C:\Documents and Settings\aluminium\economic factor of product differences are not high. Engineers and architect always search for the quality. So. and that’s why they usually don’t depend on any new products. etc. The existence of barriers to entry (patents. This results in many new entrants. For a new unknown company it would be difficult to have customer without any social image. It may be noted that the minimum economic size of a fully integrated greenfield smelter in Bangladesh is around 6000 tonnes. Economies of scale C:\Documents and Settings\aluminium\porter five forces: As far as the sector forces go. If the new company’s owner is socially recognized then the company can able to stables themselves in the industry. . which enables potential new entrants to start their business smoothly. scale of operation does matter.

regulatory clearances and other issues are some of the major problems for the new entrants. Since. Government policies: The government has a favorable policy towards aluminium manufacturers However. Higher gestation period: The gestation period for an economically viable green field plant is over 4years while for a brown field project. similar to other sectors. Nearly half a dozen companies have hit the market in the past two years to cash in on the growing market size now estimated at around Tk 600 crore a year. . Scarcity of wooden materials has been prompting buyers to go for aluminium extrusion products. Market Growth C:\Documents and Settings\aluminium\market growth: The market of aluminium extrusion products used in doors. any party interested to engage in aluminium industry. So. the market is growing at a double digit rate it’s very attractive sector for new investors. So. there are certain discrepancies involved in importing alumina from other countries and get customs clearance. new entrants has to convince the dealer and capture the supply chain. Aluminium industry is a highly capital intensive business. Because. windows and curtain walls has been growing rapidly as wood is getting scarce by the day. It is estimated that a capital investment of around 150 coror to 180 coror is required to setup an economically viable greenfield project.5 years to 2 years Access to distribution: Access to distribution might be a tricky job. have to think twice before entering to this business.Capital requirements: Capital C:\Documents and Settings\aluminium\capital requirement can be a strong entry barrier for potential competitors in this industry. site specific location and existing producers control critical resource. (modernization / capacity addition) the gestation period is relatively lower between 1. Capital is sunk into specific extrusion equipment.

5. Dhaka Thai Aluminium Ltd. Scarcity of wooden materials has been prompting buyers to go for aluminium extrusionC:\Documents and Settings\aluminium\aluminium extrusion products. and any aluminium industry has to overcome a fair amount of pressure and competition from all sides. which indicates that though new companies are still increasing it has more potential to grow. marketing. . the recent spate of consolidation has reduced the competitive pressure in the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation. The market is growing at a double digit rate. From the trend we can assume that the industry is still in the growth stage. Chung Hua (former Fu-Wang Aluminum) Aluminium Industries Ltd.  Rate of industry growth: The aluminium industry has a steady positive growth. However. as being a commodity. As it has on average more than 10% positive growth rate. Competition C:\Documents and Settings\aluminium\porter five forces is primarily on quality and price. Kai Aluminium Ltd 2. and almost all companies can do business in a less competitive condition.  Number of competitors: The Bangladeshi aluminium industry is dominated four to five companies that constitute the majority of Bangladesh’s aluminium production. 4. differentiation is difficult. etc. increasing value addition to aluminium products has helped some companies protect themselves from the high volatilities witnessed in this industry. this is the major determinant of the competitiveness of the industry. Further. Bangladesh Thai Aluminium Ltd 3. ALCO Aluminium Ltd The number of competitors is medium in this area.The intensity of competitive rivalry: Medium For most industries. Following are the major players in Bangladeshi Aluminium industry: 1.

It might be very difficult for them to sell the loosing company. District level Dealers  Level of advertising expense: The level of advertising expense will be low. Builders and Architects 3. Because if an aluminium company buy all those equipment. So. and shut down the business.  Exit barriers: Exit barrier of this industry is high. they will face a lot of problem in near future. As this is a business to business deal newspaper or TVC ads will not do much work the company.  Diversity of competitors: Competitors C:\Documents and Settings\aluminium\compitetors are not very diverse. theatres as well as decorative purposes is common. . the market of aluminium business sector is not very segmented. However. we can take this advantage as a challenge and overcome our competitors. and incur loss. the advertising expense is low. They have to depend on billboards or word of mouth. almost all of them act in the same way. Shops built with lighter materials are also consuming aluminium products. If they manufacture more aluminium than required. Intermittent industry overcapacity: That’s might be a problem for newspaper industries. buildings. So.  Different customer target segment: The use of aluminium in business and office complexes. Corporate House 2.  Sustainable competitive advantage through improvisation: There is a lot of space for improvisation in this industry. The segmented areas are: 1. This segmentation is mainly based on the usage of the aluminiums and the location of the users.

For example Kai Aluminium Ltd. But now they are facing a strong competition from other new entrant companies. customers enjoy medium bargaining power in Bangladesh as prices are determined on demand and supply. for new small unknown company the customers have the bargaining power over manufacturer. Basically the companies which have brand image & goodwill can have the bargaining power over the customers. So. The bargaining power of customers: Medium The bargaining power of customers is also described as the market of outputs. once upon a time Bangladesh Thai Aluminium was the premier brand in aluminium industry. But it is not just brand image that will give us a sustained competitive advantage. . Basically aluminium manufacturing companies target all the clients in the construction industry of our country. So brand image is an important factor. For example. As in the marker customer demand is still higher than the supply of aluminium. Being a commodity. but one company cannot continue to have sales only for brand image. came in the market later than BTA. Brand Image & Experience C:\Documents and Settings\aluminium\porter five forces: Brand image have a moderate impact over the competition within the companies. So. On the other side. buyers of aluminium are increasing day by day.  Balance of Supply and Demand C:\Documents and Settings\aluminium\Balance of supply and demand: In this case both the customers & the aluminium manufacturing companies have the bargaining power overreach other. There may be some importance of Brand image. and their most priority is product quality & price. they had more exposure than other competitors. the aluminium companies gain the bargain power over the customers. customer commitment and huge profile marketing. as for well known. customer can easily rely on the companies.  Buyer volume: Buyer volume is huge in this sector. The ability of customers to put the firm under pressure and it also affects the customer's sensitivity to price changes. but they become one of the most successful companies as for their quality work.

as there are number of Thai aluminium manufacturer operating in the business. On the other hand. attractive appearance and easy maintenance make it a popular material for use in modern buildings. mainly as a result of consumption falling faster than production and stocks increasing to end at over 4. The bargaining power of suppliers: High The bargaining power of suppliers is also described as market of inputs. or e. which was about 16% below the FY 2008-09 average price. . strength. corrosion resistance. charge excessively high prices for unique resources. therefore customer gain the bargaining power over the real estate companies. the world aluminium price averaged around $1666/tonne. so demanding very high price might affect business negatively. The decline in aluminium price in 2009 was the largest annual decline on record.6 million at LME. definitely they will stick to our product. the customers have more opportunity to switch over. So.  Differential advantage (uniqueness): If we can provide some unique advantages to our customers. and services (such as expertise) to the firm can be a source of power over the firm. durability. components.  Availability of existing substitutes: C:\Documents and Settings\aluminium\substitutes Availability of existing substitutes is very scarce. In FY 2009-10. Competitors: On the other hand.  Buyer price sensitivity: Buyers are priceC:\Documents and Settings\aluminium\Price sensitive in Bangladesh.g. Suppliers of raw materials. Suppliers may refuse to work with the firm. the price of aluminium fixed by the primary producers is generally aligned to the London Metal Exchange (LME) prices. Market players said the advantages of aluminium such as lightweight. It is expected that LME price of aluminium will remain between $ 2400 to $ 2600/ tonne in the remaining months of FY 2010-11. buyers are interested in buying aluminium. easy in fabrication.

equipment and machineries for aluminium industry.  Presence of substitute C:\Documents and Settings\aluminium\substitutes inputs: There are no substitute inputs available for smelting aluminium. a non-integrated or semi integrated.Bangladesh needs to import 100% raw materials for producing aluminium. The raw materials account for 40-50 percent of the total production cost of the ceramic products. Companies can import raw material C:\Documents and Settings\situation analysis\Raw Material from number of companies in India. The core raw material is imported from mainly India. it becomes easy to bargain with different kinds of suppliers in this industry. there is a shortage of raw materials.  Degree of differentiation of inputs: Basically in aluminium industry the differentiations of inputs don’t vary too much. . Malaysia. Since in Bangladesh. (downstream) have to depend upon the upstream producers for alumina or primary metal. the supplier base of aluminium sector is moderately large enough to weaken the supplier power. Malaysia and China. Therefore. So. While the bargaining power is limited in case of power purchase as it is highly regulated sector and government is the sole supplier most of the times. it gives the supplier some leverage in bargaining the price. However. companies are dependent on specific upstream inputs. primary metal and so on. Besides that chemicals and die materials are imported from mainly China.  Number of Suppliers: The number of suppliers for raw material is relatively high so the raw material market is highly fragmented. The raw materials of aluminium include alumina. and Australia and so on.