Q.3. PackBox is a business owned by Ajani family.

The Family owns 75% of the shares and (3+7=10)

the remaining 25% is owned by 4 non-family shareholders. It manufactures Cardboard Boxes for
customers, which are mainly manufactures of footwear, clothes, etc. Now, the Ajani family is
considering joining the mini bolster Tubes market as well. Mini bolster Tubes, also known as Cardboard
Tubes, are cylinder-shaped components that are made with Cardboard. Mini bolster tube can be used
for a wide range of functions. Mini bolster Tubes are usually ordered in bulk by many industries that rely
on Mini bolster Tubes include food processing, Shipping and the postal service, automotive
manufacturing, material handling, textile, pulp, packaging, and art etc. The Mini bolster Tubes cost
approximately 2% of the total cost of the customer’s finished goods. The information about Mini bolster
Tubes is as follows:

(i) The Mini bolster Tubes are made in machines of various size. The lowest cost machine is of Rs. 2,
10,000/- including GST @ 5% and only one operator is required to operate this machine. Three days
training program is required to enable an untrained person to run such a machine efficiently and
effectively. A special Kraft paper is used in making Mini bolster Tubes and this Kraft paper remains in
short supply.

(ii) Currently six major manufacturing of Mini bolster Tubes have a total market share of 75% offer
product ranges which are alike in size and quality. The market leader currently has 25% share and the
four remaining competitors hold on average 12.75% share. The annual market growth is 3% per annum
during recent years.

(iii) A recent report “Vision on Worldwide Activities of Overseas Centered MNC’s” released the news
that now MNC’s are planning to expand their packaging operations in overseas market by installing
automated machines to produce Mini bolster Tubes of any size.

(iv) Another company, PackerKraft, manufacturing a small, range of Elastic Tubes that are capable of
casing small products such as foils and mini bolster-based products is also expanding its business.
Currently these elastic tubes are on an average 15% more costly than the equivalent sized Mini bolster
Tubes.

Required:

a. Elucidate the model in brief, which can be used to assess PackBox’s feasibility to enter the mini
bolster tubes market.
b. Rate all the factors of the model and justify your conclusion whether PackBox should enter or
not enter this new market.

(03 marks) To assess the feasibility of joining Mini bolster Tubes market, Michel Porter’s Five forces
model can be used. It analyses the competitive environment of an industry. It is an important tool for
understanding the competitive structure of a particular industry. This complete analysis includes five
forces: buyer’s bargaining power, suppliers bargaining power, the threat of substitute products, the
treat of new entrants and the intra industry competition.
(01 mark) While applying this model to the above case, it can be observed that the low cost of the
machine along with the fact that an untrained person will only need three day’s training as to be able to
operate a machine will form comparatively low costs of entry to the market. Therefore, PackBox may
reasonably consider high threat of new entrants.

(01 mark) Customer’s (buyer) Power could be high since customers buy Mini bolster Tubes in bulk along
with the fact that there is insignificant difference between the products of alternative suppliers. Mini
bolster Tubes cost approximately 2% of the total cost of the customer’s finished goods also indicates
that customer’s power is high.

(01 mark) The fact that the special Kraft Paper from which the tubes are made remain in short supply,
signals high threat from suppliers. Hence suppliers may raise their prices that would result in reduction
of profit.

(01 mark) Six major players with 75% market share, offer product ranges which are similar in size and
quality, besides the market is a slow growing i.e., annual growth of 3% indicate high rivalry among
competitors.

(01 mark) A little real threat from a substitute product exist since PackerKraft manufactures a narrow
range of Plastic Tubes. This threat might go up if the product range of PackerKraft is expanded or the
price of Plastic Tubes goes down sharply.

(01 mark) Major threat from potential new entrants can be seen, as foreign based MNC’s are planning
to joining this market and it seems that these giant corporations might be able to gain economies of
scale from automated machines and large production lines with manufacturing flexibility.

(01 mark) PackBox might enter this market due to low capital investment but this would also lead to
other potential entrants. The easy entry, threat of substitute, the existence of established competitors in
the market, the possible entry of a MNC’s and competitors struggling due to slow growth market are
putting the potential of PackBox into the question to achieve any sort of competitive advantage.

Joining this market might be a good move, if PackBox would be able to manufacture Mini bolster Tubes
at lowest cost within the industry. To assess feasibility, PackBox must take into consideration all possible
synergies between its existing operations of Card Boxes and the proposed operations of Mini bolster
Tubes.

From the available information joining the market for mini bolster Tubes does not seem to be attractive.
Thus, PackBox should go for other alternative expansion strategy.