Porter's Five Force analysis of Boeing Co.

Introduction to Porter’s Five Forces:

In 1979 came an article which was published in Harvard Business Review, titled “How Competitive Forces Shape Strategy” by Michael Porter, which ignited a revolutionary era in the field of strategy. Today’s Porters five force model has been the de facto framework for the industry analysis. Analysis of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack. A proper analysis helps one to gain a big picture of what is influencing profitability in the industry. You identify game-changing trends in advance, so you can exploit them swiftly.

The five forces are:

1) Threat of New Entrants

2) Threat of Substitutes

3) Bargaining Power of Buyers

4) Bargaining Power of Suppliers

5) Competitive Rivalry.

Industry information:

Global aircraft manufacture is dominated by strongest duopolies: Boeing and Airbus.  Also known as “Big boys club”, these two gigantic companies have dominated the market tremendously and thus have created significant barrier to entry.  The industry also has cases of new entrants coming into operation but eventually failed. Some of them were: Mitsubishi, Indonesia IPTN, etc. Beside these two dominating companies, there are small players who have been operating in niche market like: Bombardier (Canada), Embraer (Brazil) etc. and recently Chinese manufacturer COMAC which generally caters to the local market.

Company Profile:

 Founded in 1916, Boeing is the largest global aircraft manufacturer by revenue, orders and deliveries. It has a strong customer base and support in 150 countries across the globe. With more than 12000 commercial jetliner engaged in aviation service, Boeing boasts itself as the largest aircraft manufacturer. Boeing is also a market leader in the industry of military aircraft manufacturing. Boeing features in Fortune 500 list of companies and is ranked 26^th on the “World’s Most Admired Companies” list, 2013.

Porter’s Five Forces analysis of Boeing Company:

1.       Threat of New Entrants: Low

Threat of new entrants is relatively low because of humongous amount of fixed cost of competing. Factors like: huge capital investment required, extensive level of R&D budget and activities, massive level of technological expertise needed, etc. creates a high entry barriers and thus low threat of new entrants.  Some companies that have operated in regional level and aircraft manufacturer of china are enjoying niche market are because of the preferential benefit arranged by the particular Nation state.

2.       Threat of Substitute: Mild

Threat of substitute for aircraft manufacture is minor as people prefer aircrafts largely because of time factor. Rapid advancement in bullet trains, car etc. might affect the aircraft manufacturing business in the future.

Fig: Five forces that shape Industry’s competition

3.       Bargaining power of Buyers: Mild

In totality bargaining power of buyers is mild.

·         Buyers purchasing in bulk: High bargaining power of buyer

·         High capital investment by buyer in purchasing of aircraft: Buyer involves long-term contract with seller and thus low bargaining power.

·         High switching cost: Switching cost is high because of technological factors and long-term contracts involved and this low bargaining power.

4.       Bargaining power of Suppliers: Low

In case of aircraft manufacturers it has been found that both of that Boeings makes outsourcing to large number of suppliers throughout the globe. For e.g.: Boeing itself has more than 100 firms supplying it with the parts of the aircrafts. As there are large numbers of suppliers and the firms that purchase are concentrated, the bargaining power of supplier is low. The company has the power to negotiate with the price of supplies due to economies of scale.

1.       Competitive Rivalry: High

Sluggish industry growth, no clear market leader and undifferentiated strategies, high barrier to exit, etc. drives for the competitive rivalry among the existing players of the industry. The market is largely a duopoly market, resulting in low profit margin in the airline industry and thus Boeing fighting furiously with Airbus for more share of the industry.

Online Business Surge in India and it's Future Prospect

If you study the recent trend in the online business in India, you can easily find out three major market players. Namely: Flipkart, Snapdeal and Amazon. For traditional India where online purchasing was a taboo and thus was limited to few online ticket booking, these companies together have introduced a new culture of online business culture in India. A business that is forecasted to grow from sales of $ 2.3 billion (As of 2014) to $32 billion ( as of 2020).

source: Technopak

For Flipkart which is largest internet company by its market value of $7 billion, it went through rough ways to arrive at this position to bust the myth that consumers like to see and feel the product before buying. Reluctance of customers to give details of their credit cards, fear about the delivery of the product, suspicion to get exact product etc were of paramount amount which pioneers like flipkart had to go through. 

These companies are at the verge of cut-throat competition as they have been going with massive marketing strategy to boost the sales. Recent humongous sales made by e-tailers like Flipkart of $100 million in 10 hours as "Big Big Billion Sales day" and Snapdeal retaliating the same with sales of a crore per minutes proves this. As such there is a humongous sales that these companies have been able to make. And thus large amount of profit. While the competition is tough over a small profit margin, these companies are also facing challenges.The recent challenge is not because of the competitors in online commerce , but because of the competition/conflict between these e-tailers and brick and mortar models. It should be understood that it is until recently that brick and mortar business have been dominant in doing business in country like India. But this culture is changing rapidly. 

Challenges to Indian e-tailers:

1) Tough competition from competitors who are coming up with innovative strategy to increase sales.

2) Problems from top brands having brick and mortar outlets like: LG, Sony, Samsung etc who are accusing the e-tailers of making predatory sales (selling below cost), thus damaging their sales and brand names.

3) The customers in Tier-I cities like Mumbai, Delhi, Bangalore etc who prefer see-feel-buy approach in contrast to online modes. Luring them for online business might be relatively difficult.

4) New entrants in the industry which might reduce the price of product offerings sharply in contrast to the old market leaders. Similarly, it is also more likely that manufacturers and brands might offer product offerings via their own online sites. 

5) Another possible challenge would be large brick and mortar group like: Reliance Industries, Future Group, TATA group planning to go online to expand. etc

Brighter side:

It can been seen evidently that indian e-tailers have been inspired from chinese mega online internet retailer: Alibaba's success, which raised record high of $21.8 billion IPO. The statement of Flipkart CEO and Founder Sachin Bansal to make Flipkart a $100 billion club member in upcoming 5,10 or 15 years provides a hint that they are planning for a rapid growth of company business in near future. 

Now lets us put light on the basic facts that hints us about the brighter aspects of growth of online business in India.

1)The online market has moved towards growth phase of business cycle in which the startup has dried up in recent years as investors are focussing more in larger companies. Thus the prospects of larger companies to grow is even more.
2)  Indian is a country with population of 1.2 billion out of which the population of age group of 18-40 is 40% (as of census 2011). And this is the chunk of population on which online retailer have been finding a dip in sales. This trend is supposed to increase even more.

3) Online retailers selling product-offerings in a cheaper price as they save on rent and other infrastructures is sure to attract large untapped customer segment in future.

4) Online markets are growing rapidly in Tier 2 and Tier 3 cities where physical outlet are absent or  are few. They will penetrate the market deep enough before physical outlet set-up there and start to attract the customers.

5) The service that these companies offer is almost flawless. Delivery before the delivery date, free delivery, 30 days replacement period, etc will lure more customers to try these sites.

6) Proliferation in the use of smartphones in Indian market which have enabled large base of customers to go online regularly and thus have access to these sites will increase the sales even more in near future. 

Why Small Countries are Economically Viable in Globalized world ?

From amongst the large number of small countries, some are developed while many others are still struggling to prosper. The small countries that have developed have followed a specific path that has allowed them to attain a competitive advantage with respect to the other countries. We maynot exactly attribute a particular reason for the underdevelopment of a particular country but we can clearly pinpoint why a particular country has developed over a particular period of time.

For small countries, the case may be different than that of the bigger countries. The concept of “small of beautiful” applies when we take reference of small countries that have prospered a lot in short period of time. 

Let us study the reason that pushed small countries hard enough to prosper in a short span of time.

1.             Openness to trade:

Small countries are generally found to be open to the trade. They are less hesitant to enter to the international business. The reason behind this is that, small countries develop themselves competitively in some niche products or services that have been ignored by the larger nations. Eg: Singapore, Hong Kong, Switzerland etc.

2.             Social Cohesion:

A good example of social cohesion is demonstrated by small countries. Small countries are characterized by less/no problems amongst the ethnic communities, more social harmony, equal and easier to run the country. Hence a better government because of the political stability resulting from the social cohesion.

3.             More adaptive and responsive to changes:

Smaller countries are generally found to be more adaptive than the larger countries. Because of the vulnerability factor, they keep themselves updated of the major changes that are going to take place in the global business or politics. They tend to have better developed sensing mechanism in terms of what is happening in the rest of the world. As such they develop a proactive mechanism to adjust to the changes of the volatile business and political world.

4.             Stable political system and clear economic goals:

If we study the characteristics of the small countries we find that they possess well developed political system that promotes stability and favors economic growth. For a country like Singapore, it has a political system that favors political stability and has clearly identified economic policies that favors rapid development. E.g.: Singapore political system that favors single party rule.

5.             Export oriented:

Because of the relative smaller size of the national consumption (relative to total income), small economies tend naturally to be more export oriented that the larger economies.

6.             Prioritized focus:

The focus of small countries is limited to certain priorities like: education (thus more skilled labor force), innovation(thus more investment and employment), export promotion, competitiveness etc. Most of the time they are not engaged in the issues of international politics, politics over oil, support for democracy etc., that bigger nation find themselves.

7.             Preferential economic advantage:

Many international policies and regulations related to international trade favor small nations. The arrangements are such that small countries are less exposed to trade quotas and other restrictions as they don’t produce in large quantities.

8.             Optimum utilization of resources:

Similarly economic efficacies are found more in small countries. Because of the scare resources, small countries specialize in the maximum utilization of the resources. For example we can see how Japan is proactive to the natural calamities and disasters in spite of having scarce resources.

One important discussion that must be introduced while describing about the development phenomena of some countries is: On what cost factor those countries are developing ? For example for those countries which haven't prospered , we must recognize that their concerns of political freedom ahead of economic liberalization has put a cap on the pace of development.We can relate this to bigger countries like India also. Democracy, poverty, humanitarian values, etc have caused those nation states to focus their resources and energy in diverse sectors , which is, at the expense of the industrialization. Countries based on democracy have to balance their activities between long-term growth needs and short-term social benefits. For example Qatar escapes itself from this phenomena and thus its emphasis on economic freedom before political freedom has served well in the areas of attaining systematic growth. Hence small countries have been prospering mostly because of the value they put on economic development in contrast to political freedom.

But again the question is, Is it really justifiable to attain development at the cost of the social justice and freedom of its people ?


(P.S: This write-up is based on my learnings from MOOC courses and personal research)

Ease of Doing business in Nepal: 2015

Singapore has ranked as a leader in the Doing Business Report- 2015. This year Singapore is followed by New Zealand, Hongkong SAR China, Denmark, Republic of Korea, Norway and so on. The United States ranks 7th, while Japan ranks 29th.

Ease of Doing Business report 2015 is 12th annual report of World Bank group that provides investigated report of the business regulations that enhance business activity and those that constrain it. It is based on measurement of 10 different quantitative factors namely: starting a business, dealing with construction permits, getting electricity, registering property, getting credits, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

In 2013-14 Tajikistan was the nation that improved most significantly followed by Benin, Togo, Cote d'Ivoire, Senegal, etc. To be noted also is the Sub Saharan African region with the largest number of economies accounted for regulatory reforms in 2013/14. While South Asia as a whole has a lower reforms and is slightly placed over OECD countries and Middle Ease and North Africa countries based on the reforms measures taken.

Nepal performance in the Ease of Doing Business has improved by a mere position of a unit with ranking of 108. Still to this date Nepal remains an unattractive place to do business. Though this year figure shows improvements in some indicators of the study, still Nepal needs to improve in many sectors. However if we compare Nepal's rank with that of other South Asian countries, it seems to be in a comparatively better position. Sri Lanka improved the most by jumping six place up in the ranking to 99. Sri Lanka is followed by Nepal with ranking of 108. Other countries rank as follows: Maldives (116), Bhutan (125), Pakistan (128), India (142), Bangladesh (173). The regional rank is 134.

The trading across border of Nepal is lowest among its South Asian neighbours. However it has the best ranking in terms of registering property(globally 27th) which requires 3 procedures, 5 days and 4.8% of property value to register. The regional average is 6.4 procedure, 99.5 days, and 7.2% of total property value.

This year following reforms aided for improvement of the ranking:
1) Adaptation of new building regulations ( Earthquake resilience)
2) Improved building inspections process
3) Improved/Introduced electronic platforms or online services (for obtaining building permits)

The ranking is updated till June 1, 2014 and thus doesn't include the latest strings of development that the Nepalese government has unveiled in Nepalese business environment like, trade agreement, regulatory changes in the hydropower sector etc. However Ease of Doing Business indicator is remarkable in the sense it gives country like Nepal an assessment of which regulatory reforms have been working, where and why, either in a country's scenario or of that of any other country and thus learn from them.

Massive power cuts, uncertainty about constitutional drafting, volatile political and business environment, etc might have had negative effect to this ranking. As such the government should put a vigil eyes on reforms measure and thus should incorporate methods to improve the business condition of the country. The indicators like:- getting electricity, getting credit, paying taxes etc should be improved more to ensure that ranking gets improved.

However the recent bilateral agreements, Power Trade Agreement with India, surging foreign in Tourism sector, possible promulgation of constitution etc makes one hopeful of the overall business environment improving and thus the ease of doing business also to improve.



Reference:
http://www.doingbusiness.org/