JBC 5 Porter Analysis - Case Study Example

JBC 5 porter analysis Student Name Course Tutor Institution Date Executive summary JCB is a vibrant company in construction equipment manufacturing. The 5 Porter’s analysis is useful in terms of analyzing the external environment of the company. According to the analysis, the company is stable in India and it is also competitive. It does not face any threat of new entrants as the existing conditions already discourage new entrants. The bargaining powers of the suppliers are higher since the company requires specific products from specific suppliers. However, all the suppliers have higher bargaining powers over the company. Some customers have also entered into a contract with the company. Such customers have higher bargaining powers over the company. Their shift from the company will impact negatively on the revenue generation. The company also manufactures high quality machinery. This has eliminated the threat of substitute products among the customers. The process of the equipment of the company are also affordable and hence the elimination of the threats by the substitute products. The company is quite competitive in India and it faces little rivalry. However some of the companies that compete actively with JCB include Komatsu, Volvo and Caterpillar. It is recommended that the company should consider making acquisitions and starting new markets in order to increase its competitiveness. The company should continue maintaining a good relationship with the customers and the suppliers. Introduction JCB is a company that is based in India and it is known for the production of the largest compact products in the world. It mainly manufactures construction equipment that is used all over the world. The company produces 21 different machines in seven product lines. It is also the leading company in the world in terms of the production of the Backhoe loaders. The company has 18 factories world wide which plays an important role in terms of enhancing its capacity as far as the production is concerned. The company is highly competitive due to the strategies that it has put in place. The analysis of the external environment of the company is however important in determining its competitiveness in the market. External analysis also plays a significant role in determining the future prospects of the company together with its level of competitiveness. Five Porter’s analysis is an important method that is usually used for carrying out external analysis of the company (Akhgar, 2013). The analysis, through the use of the method, is mainly composed of five forces that determine the ability of the company to compete effectively in the market. The five forces that are used for the analysis includes the threat of new entry, bargaining power of suppliers, bargaining power of suppliers, power of substitutes and intensity of industry rivalry (Dobbs, 2014). The five forces are useful to a company as it determines its position and it can also be used for making strategies that enhance the competitiveness of the company in the market. The paper discusses 5 Porter’s analysis in relation to JCB equipment Construction Company. Analysis Threat of new entries The company does not face the threat of new entrants in the market. According to the economies of scale, the company has a large international and local market in India. The economies of scale of the company are significantly large which eliminates the threats of any new entries in the market. The company also manufactures large construction equipment which is used widely in the construction industry. The cost of manufacturing the equipment is quite high which will discourage the new entrants in the market. It is also important to note that the industry requires a huge capital investment which makes it difficult for a new entrant in the market (Pillania, 2014). The high capital requirement involves the cost of purchasing the raw materials as well as hiring the experts required during the manufacturing process. The high capital cost therefore presents a barrier to the new entrant in the market. The capital is also increased by the after sale services which is also a threat to new entrants. Training of the drivers to use the manufactured construction equipment is usually required. This means that a company is required to have experts who can train the drivers. JCB has employed a lot of experts who are usually involved in the training process. The training process of the drivers also requires a huge investment since experts have to be involved. The high capital requirements therefore presents a disadvantage to the new entrants and hence the competitiveness that the company enjoys. The threat of new entrants therefore does not present any competition to the company in India. A new entrant in the market will also face a lot of challenges before it becomes stable and competitive. The company has a high product differentiation rate in India. It usually produces products for different prices in the market that suits a particular group of customers. This has plays an important role in terms of increasing the popularity of the company. On the other hand, the company also manufactures different quality of products that is suitable for certain targeted customers. A wide range of skills is also available in the company which plays an import role in terms of differentiation. The high level of differentiation means that a new entrant has to achieve the same in order to present any threat to the company. It is difficult for any new entrant to achieve the high levels of differentiation and hence the advantage that the company has over any new entrant. The government policies in the in the industry also presents some challenges to the new entrant in India (Dainty, 2013). Deregulation is one of the government policies which may present some difficulties to the new entrants in the industry. The government polices therefore offers a competitive advantage to the company over the new entrants. It is also important to note that the increasing globalization has some impacts on the industry in India which also presents a barrier to the new entrants. The company is thus stable in India and it does not face any threat of the new entrants. This is an advantage to the company in terms of competitiveness in the industry in India. Bargaining power of suppliers The company relies on the goods and services of different suppliers for the purpose of manufacturing the construction machines. The use of different manufacturing materials has seen the company contracting many suppliers. On the other hand, it is also important to note that some of the suppliers of the company supply rare materials that are used during the manufacturing process. Some of the suppliers therefore have a higher bargaining power as compared to the company. The high bargaining powers of the suppliers have negative impacts on a company (Bendoly, 2011). This is because the suppliers can increase the process of their commodities at any time and hence increasing the cost of production. On the other hand, a high bargaining power of suppliers also increases the costs of manufacturing. The differentiation of the inputs has also led the company to contract many suppliers. The examples of products that the company requires from the suppliers include the engine oil and tyres. Such items are important to the company as it cannot do without them. The suppliers of such items therefore have a higher bargaining power over the customers. It is also important to note that the company requires some specific inputs from specific suppliers. This has played an important role in increasing the bargaining powers of the specific suppliers. The presence of monopoly in terms of the suppliers therefore has negative impacts to the companies. When the suppliers are very important to the company, their bargaining powers are increased (Stenbacka, 2012). The company is also specific on the heavy machines that it produces. This has played an important t role in increasing the bargaining powers of the suppliers. The cost of suppliers therefore determines the prices of the heavy manufacturing equipment that is usually produced by the company. This means that the suppliers control the process of the products of the company. This presents some disadvantage to the company as it has little control over the pricing of its products. The high cost of supplier therefore impacts negatively on the profitability of the company. The cost of suppliers also has some negative impacts on the demand of the products of the company. When the suppliers increase their prices, the company will be forced to increase its prices and hence reducing the demand for its products in the market (Gao, 2014). It is also important to note that some of the suppliers have a high cost which also plays a role in discouraging the suppliers from entering into a contract with the company. The high cost of suppliers has negative impacts on the production process of a company. This is because it reduces the amount of products that the company has to produce. However, it is important to note that JCB has always been able to maintain its production rates despite the higher bargaining power of the suppliers. This is because of the strengths that the company has in terms of competitiveness in the industry. Bargaining powers of buyers The bargaining powers of the customers determine the ability of the company to attract and retain customers. JCB has been contracted by several customers for the purposes of supplying its products. Other customers of the company do not have any contract and only purchase the products of the company whenever they require them. The customers who have entered a contact with the company have a higher bargaining power. This is because they may decide to switch to other companies. This action will be costly to the company as it will lead to the reduction in the amount of revenue generated (Bhattacharyya, 2011). The company has to abide by all the terms of contract with the buyers which may limit the company from taking some actions like increasing the prices of the manufactured equipment. The higher bargaining powers of some of the customers of the company have some impacts on its profitability. However, it is also important to note that the company has a higher barging power over the customers that it has not entered into any contract with. This means that the company will not be affected if such customers decide to purchase the construction equipment from other companies. The key players in the market always have higher bargaining powers which may impact negatively on the companies. The higher bargaining powers of the buyers mean that the customers are in full control of the market (Choi, 2012). This limits the actions of the company over the customers. The customers in the market usually make their decisions regarding the products and services of the company based on various factors. Most of the companies have to use the marketing mix strategies like promotions for the purposes of influencing the decisions of the customers. JCB usually offers free warranty to the customer which is important in terms of influencing their buying behaviors. The company has been able to increase its bargaining powers over the customers through offering quality products. The switching cost of the customers is also a factor that affects the profitability of the customers. On the other hand, it is also important to note that company will not suffer any losses if the customers switch to other companies. The company has put in place measures that ensure that the customers are less likely to witch costs. This mainly involves the superior quality of its machinery and the after sale services that are offered to the customers. The bargaining powers of the buyers are also related to the bargaining powers of the suppliers (Dussauge, 2014). This is because the suppliers may lead to the increase in prices and hence affecting the bargaining powers of the buyers. The higher bargaining powers of the customers over the company may also impact negatively on the revenue collected by the company. On the other hand, the higher bargaining power of the companies over the buyers is an advantage to the company. This is because it enables the company to control its prices and quality of its goods and services. Power of substitutes The buyer prosperity to the substitutes is an important factor that determines the threat of substitute products. The prices and quality of the products determines the ability of the customers to purchase the substitute products. JCB specializes in the manufacture of construction equipment which has substitute products. Some of the equipments manufactured by the company may however have no substitute products. The quality of the machinery of the company is high which eliminates the threats of the substitute products. On the other hand, it is also important to note that the process of the machinery of the company is fair. This reduces the threats of substitute products as most of the customers always shift to the substitute products if they cannot afford a product (Weisheng, 2014). The power of substitute products in the construction industry is also low. This is because the construction process requires the use of effective machinery in order to meet the standards of the industry. The quality of the products in the construction industry is also a key driver to the substitute product. The company always engages in continuous improvements of its products for the purpose of ensuring that it meets the required standards in the market. This has always played an important role in ensuring that it is able to counter the threats of the substitute products. It is thus important to note that the threat of the substitute products can impact negatively on the purchase of the products of a company. This in turn impacts negatively on the profitability of the company (Cannella, 2013). JCB specializes in the production of specific products which are aimed at specific tasks for a specific market. This means that the products of the company are suitable for only a specified market and less eliminating the chances of the substitute products. The substitute products may be cheap but it has no power over the products of the company. This has played an important role in giving the company competitive advantage. Although no product in the market enjoys total monopoly or has no substitute product, the company has been able to retain its customers and hence eliminating the threat of substitute products (Byun, 2011). The threat of substitute products is also less significant since the company produces specific products in the construction field. The sales of the products of a company can be reduced significantly if the customers switch to the substitute products. This may lead to negative impacts on the revenue generation process. On the other hand, the threats of a substitute product may force a company to low its prices so as to attract the customers back. The construction equipment that is manufactures by the company is also unique as compared to the other equipment in the market. This plays an important role in reducing the tendency of the customers to switching to the substitute products. Most of the buyers do not switch to substitute products incase they are used to certain products that are unique and professional (Park, 2012). Intensity of industry rivalry The economic crisis contributed to the decline in the growth of the company. This is because the crisis led to the reduction in the number of buildings that were undergoing construction. This means that the number of construction equipment that were being purchased also declined. On the other hand, high capital cost discourages most of the companies from venturing in the industry. This has significantly reduced the number of companies that operate in the industry in India. The intensity of industry rivalry is thus low in India. However, some of the companies that rival JCB in India include Caterpillar, Komatsu and Volvo which are also involved in the manufacture of the construction equipment. The companies are multinational that have been operating in the country for a long period of time. The rival companies manufactures similar equipment as the company and hence the rivalry. The rivals from the existing players therefore present the company with competition leading to rivalry. Currently, the economy is showing some positive signs in terms of recovery and the expectations of the industry are also increasingly becoming high. Although the economy is set to improve, the degree of rivalry will still be low in India. The competition from the rivals in India is low because the brand image of the company is good in the country. This has led to a competitive advantage for the company and it has emerged a market leader in the industry. It is also important to note that the degree of competition determines the market shares of the company (Chatain, 2013). JCB currently has a large market share in India and it is set to continue increasing its market share. This is because it is increasingly its production line and it is also developing new machinery that is on high demand in the construction industry. The performance of the company in relation to the industry therefore indicates that the intensity of rivalry is low. Recommendations The company enjoys several national interests in India. It can therefore take advantage of the national interest to expand its manufacturing network in India. The environment in India is favorable to the company and it should therefore exploit the opportunity for the purpose of stimulating growth and expansion. This will play an important role in increasing the revenue generation and it will also ensure that the market is expanded. It is also recommended that the company should expand its sales in India. This can be achieved through exploring the rural market by setting up dealerships. A gap exists in the dealership market and this is common in most of the remote areas where the company has not ventured although its services are on high demand. It is also recommended that the company should grow a new market. This can be achieved through leasing and renting the equipment to the customers in India. This is practical in the country as some of the equipment of the company are only required for a short period of time during the construction process. However, it is important for the company to continue focusing on its core business as it continues to grow the new markets. This is because the core business of the company has been responsible for building its brand image. Some customers of the company also depend on its core business operations. It is also recommended that the company should increase its investments on the core business functions. The acquisition of smaller companies is also recommended for the company. This can be done locally as there are a number of smaller companies that are manufacturing the construction equipment. This will play an important role in increasing the market share of the company. The acquisition process will also play an important role in ensuring that the company spreads its operations to other parts of India. Currently, the value of the Rupee is low; it is thus recommended that the company should take advantage of the low value to expand on its exports. The low value of the rupee means that the company can produce its machinery at a low cost and export the construction equipment at a higher price. In the construction equipment industry, the main drivers of growth include the infrastructure investment. It is therefore recommended that JCB should consider expanding its infrastructure investment. The investment in the infrastructure will also increase its production capacity and hence impacting positively on the operations of the company. The customer relationship is also important for the growth and development of the company. This means that a good customer relationship should be established by the company. A good customer relationship will also ensure that the company is not impacted negatively by the higher bargaining powers of the customers. Engaging in the corporate social responsibility will also play an important role in enhancing the support of the company from the local people. It is recommended that the company should increase its percentage of involvement in the corporate social responsibility. It should be above the 2% that is recommended by the government. This will play an important role in ensuring that the company is able to capture more customers in the local market. The project management process is important for an organization. It is therefore important for the company to reduce the time taken to complete projects. This will play an important role in increasing g the competitiveness of the company and hence beating the rivals. It is also recommended that the company should put in place measures that will ensure efficiency is increased and hence gaining a competitive advantage. A competitive advantage will also safeguard the company against the new entrants. The company should also continue to engage with the government for the purpose of ensuring that it complies with all the rules and regulations. The company should also focus on enhancing the quality of its products. It is also recommended that the company should continue selling its products at affordable process in order to eliminate the threat of new entrants. A good relationship with the suppliers should also be established by the suppliers in order to reduce their higher bargaining powers. Investing in the manufacturing and training operations in India will also play an important role in enhancing the efficiency of the company. Conclusion In conclusion, it is evident that 5 porter analyses highlight the position of the company in terms of its competitiveness. It is evident that the company does not face any threats from the new entrants. This is because of the high costs that are involved in starting up a business in the industry. It is also evident that the company has a wide market share in India. This is because of its good brand image in India. The company also requires the goods that are supplied by different suppliers for the purpose of completing its manufacturing process. The specific requirement of the company to specific raw materials exposes it to lower bargaining powers over the suppliers. This is also applicable to some of the buyers who have entered a contract with the company. It is also evident that the company does not face any threat of substitute products. This is because the products of the company are meant for specific markets. The performance of the company in India is also good due to its competitiveness and high quality of manufacturing equipment. It is also evident that the intensity of rivalry in the industry is low. This is due to the economic crisis that impacted negatively on the company. It is also evident that the company is required to improve on its efficiency in order to increase its market share in India. The company should also continue promoting good relationship with the customers in order to increase its market share. List of References Akhgar, B, 2013, Analyzing Open Source Business with Porter's Five Forces, International Journal of Computer Theory & Engineering, 5(1). 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Cannella, A, 2013, A comprehensive review of multimarket competition research, Journal of Management, 39(1), 76-109. Read More