A Five Force Analysis of Marine Harvest - Case Study Example

HBS case writes up HBS case write up The purpose of the five force analysis is to describe a company’s profitability froma competitive level. The following is a five force analysis of marine harvest Threat of new entrant’s New entrants to the market create competition that will be unhealthy for marine harvest. Competitors will aim to gain extra capacity, gain market share and compete for the considerable resources that are there. The primary sources of barriers to new entrants include access to distribution channels, products differentiation, economies of scale, capital requirement, and government policy. Marine Harvest has been in operation for many years and is producing at economies of scale. Potential new entrants to the market will have a hard time creating a profitable business because the salmon industry is a capital-intensive industry. Technological complexity and the expensive nature of licensing in most of the countries serve as a barrier to companies entering the market. Due to these factors, the threat of entry of new firms is minimal for marine harvest (Salmon farming industry handbook, 2014). Threat of substitute products Substitute products may limit the potential of an established company to create price ceilings. To tackle this problem, the company should be able to differentiate its product or upgrade in some way. A product with many substitutes is susceptible to loss in demand it prices for the products increased due to high elasticity. There is a definite trend in farmed salmon production that indicates an increase in demand for salmon among consumers. Marine Harvest products differ from other protein sources in terms of healthy ingredients and high omega three content. The threat from substitute products is also low because of the efficiency of salmon production. The food per kilogram used in salmon production is small making it more productive than pork, beef, poultry, and bacon (David and Ryan, 2014). In the analysis of substitutes, wild catch of fish is considered. Marine Harvest is not facing competition from wild catch sine most salmon consumers are showing a preference for farmed products. Customers are expressing concern parasites in salmon harvested from the wild. Therefore, the threat of the substitute is considered medium (Salmon farming industry handbook, 2014). Bargaining power of customers Customers that have a high bargaining power are a threat to the profitability of the company they can demand higher quality and even force down the price of salmon. A greater number of customers gives a significant advantage to marine harvest company. So far, the company has established itself creating a large customer base for its products. Sale volume of marine harvest in different regions Source: company annual financial documents Marine Harvest distributes its sales to the various regions as shown in the diagram. The distribution channels make it possible to have many customers reducing the effect of a small number of consumers. The trends have shown that the company is becoming more globalized; it has resulted in more options for customers increasing the bargaining power (Salmon farming industry handbook, 2014). Bargaining power of suppliers The potential factors to be considered include Presence of substitute inputs and supplier concentration to the concentration of the business. Supplier competition is paramount and affects the ability to integrate vertically and cut out the suppliers. When the bargaining power of suppliers is high, there is a need for marine harvest to integrate backward to fish feed business. Fish feed is crucial for the functionality of the company and easily affect its profitability. Fish feed ingredient and their prices. Source: company documents The supplier industry is fragmented, and there exist a tough mutual competition that is an advantage for the buyer. There is a great number of supplier’s hence greater bargaining power for the company. The bargaining power of suppliers is hence said to be medium because Marine Harvest is an integrated company. Intensity of competitive rivalry Marine Harvest functions as the largest producer of salmon in all regions. In the regions of North America, United Kingdom, and Norway, it operates at approximately ten percent above the nearest competitor. Marine Harvest produces nearly a third of the total amount of salmon produced. Smaller firms will have difficulties in following the same development as marine harvest because of the comparative advantage (Salmon farming industry handbook, 2014). Market share of marine harvest Source: Salmon farming industry handbook, 2014 SWOT analysis of marine harvest SWOT analysis is a very useful framework for a discussion of a company strength weaknesses its opportunities and threats. The importance of SWOT is to match and convert, through the analysis the manager can transform its strength and weaknesses. A SWOT analysis should be able to provide valuable strategies for the company’s success. The flowing is a SWOT analysis of marine harvest based on the provided information (Salmon farming industry handbook, 2014). Strengths High growth rate Marine Harvest is experiencing a high growth rates at the moment with fish consumption rising globally. An industrial increase will be adequate to meet the growing demand for proteins in 2030. The company has further seen a surge in sales because of increased consumption of salmon mainly for the health benefits (David and Ryan, 2014). Global diversification The company has expanded its boundaries to include other countries such as Scotland, Chile, Canada, and Ireland. Various countries have different sales volume increasing the profitability of the company (David and Ryan, 2014). The financial position of the company ensures that opportunities for further expansion are immediately. The management also reports that capacity utilization is also adopting a positive trend with the extensive knowledge of the industry used to its advantage (Salmon farming industry handbook, 2014). Reduced labor costs, high profitability, and research technology Marine Harvest has an ample supply of inputs from the market including labor. It makes the labor cheap increasing its profitability and market holding. The company has also invested in research to access the latest fish farming technologies. Because the organization is one of the major producers in the market, it can meet the demands of the market. Being a price controller makes the company profitable (Salmon farming industry handbook, 2014). Weakness Marine Harvest is more exposed to the spot price than companies that invest in pure salmon farming. However, the company is also approaching its capacity utilization of the current licenses. It is because of the government regulations in the countries that it has invested its business. The production of salmon is affected by many diseases that put the company at a chance of loss (David and Ryan, 2014). Set of Options for Alf-Helge Aarskog Marine Harvest has several options in that it can put into practice. The first option involves acquiring the salmon raising capacity. The Norwegian regime has put in place regulations that limit the regulations, and marine harvest can increase this through farms in other countries. A second strategic option is to venture into the production of value added fish products. The firm is to use the already setup network of retailers and clients to go beyond wholesale distribution; consumer branded products and private label. The third strategy available for marine harvest is to venture into fish feed business through backward integration. Because fish feed, make up a great percentage of the production process it would be advantageous to the company in terms of cost reduction (David and Ryan, 2014). Decision Criteria that Aarskog should use and the constraints to be considered The best-recommended strategy is the backward integration into feed production. The plan will see not only increase in profitability but also an increase in the efficiency of salmon production. It is primarily because supplies of fish feed make up more than half the cost of production. The strategy will help marine harvest to develop a nutritional blend for the salmon and drive the growth of the company. The significant barrier to the implementation of the decision is the fact that the venture requires high levels of specialization that the firm is not able to undertake at the moment. The cost of transport is both high and challenging for the company, and the feed production cannot be done at a profitable level (David and Ryan, 2014). Recommendations I would recommend the backward integration of the company to be able to produce fish feeds. The strategy will reduce the cost of inputs in terms of food that is an important component of the fish farming projects. Although the challenges to this approach are diverse as discussed above, economies of scale will ensure that the company remains profitable. References David E. Bell and Ryan Johnson. (2014). Marine Harvest: Leading salmon Aquaculture. Harvard business school. Salmon farming industry handbook (2014).The Marine Harvest: Salmon Farming Industry Handbook.Retreived: Read More