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.