Porter Analysis for the Paper Industry - Example

Introduction The paper and paper products industry in the United s is one of the significant industries which enables companies to utilize the wooden materials for making pulp, board, paper and different fiber based products. The industry is generally predominant in areas of North America and East Asia countries where there are major pulp and paper industries. This industry bestows a major influence upon the daily life of every individual as a broad assortment of products used in everyday activities is produced by this industry. The industry is comparatively cohesive in nature, as a few of the enterprises are likely to perform every activity of paper cycle which includes pulping, paper making, production of fiber in forests along with recycling of paper. However, the industry at times has to face various criticisms from Natural Resources Defense Council in the US for unmaintainable deforestation and clear-cutting of older forests. The US paper and paper products industry is the leading producer of paper in the world producing around 24% of the paper. Paperboard products and paper are formed from pulp, which is predominately made from wood. It is observed that pulp is mostly manufactured from the fibers of the plants such as cotton, hemp, linen and grasses. It can also be recognized that forests are the major sources for obtaining pulp wood and wooden goods. It is a growing trend in the global context that woods are developed or managed through natural regeneration of forests which denotes plantation. The paper is produced by making variation in the properties of fibers by using processes such as bleaching and treating with additional requirements (Ceram, 2012). With these considerations, the discussion intends to provide a detailed analysis of US paper and paper products industry with reference to Porter’s six forces framework. The discussion also contains an interpretation of the assessment made through tables and appropriate evidences. Porter’s Six Forces Framework to Assess the Industry Boundaries Porter’s six forces framework is a competitive strategic analysis concerning the extent of competition prevailing in the industrial context. The intensity level of competition is determined through competitive forces which are prevalent in nature. The collective strengths of such forces usually determine the success of an organization functioning in the industry, which in turn would facilitate to gain greater profitability. Six forces framework consists of variables such as threats of new entrants, existing rivalry among firms, threat of substitute products or services, bargaining power of buyers and suppliers and lastly, comparative power of other stakeholders (Wheelen & Hunger, 2011). The analysis of Porter’s six forces of the US paper and paper products industry is presented hereunder: Bargaining Power of Buyers The bargaining power of buyers in the paper industry has enhanced quite rapidly with the concentration of various industries in the US such as food sector. In terms of the retailing viewpoint, the bargaining power has enhanced significantly from varied groups that are purchasing packaging material. This factor also has affected the roles played by varied parties inside the paper supply chain (Rundh, n.d.). The bargaining power of buyers is generally high in the paper industry due to the availability of a variety of customers in the industry (Schindel, 2003). Bargaining Power of Suppliers The bargaining power of suppliers has become relatively higher due to the arrival of advanced technologies in the paper industry. It can also be stated that pulp and paper industry has become increasingly demandable with the incorporation of technology as the major driving force in the paper industry. The aspect of product orientation has been another key driving force factor. Due to technological advancements, the demands for products also increased considerably as customers are seeking better quality products at much affordable rates. Moreover, with the structural alterations in the different networks on the part of the suppliers, the bargaining power has augmented by a greater extent from the supplying segment of technology (Rundh, n.d.). The factors such as high cost as well as dependence upon crucial input elements obtained from the suppliers have rendered considerable challenges for the paper industry, consequently providing greater bargaining powers to suppliers (The Norman High School Tribune, 2013). Threats of Substitute Products A few of the competition with regard to paper as well as packaging industry is being generated from varied substitute products. There is healthy competition which is due to the emergence of substitute products. Distinctive solutions related to packaging problems have been deduced with the usage of plastic materials. It can be observed that in certain areas plastic is mixed with paper materials or board for forming various fresh combinations which enables customers to receive fresh products with innovative features. Nevertheless, the competition generated from plastics inside the distribution system especially to the food related industry will create a considerable challenge for the carton board industry and would necessitate product development (Rundh, n.d.) Threats of New Entrants The paper industry faces greater competition from suppliers that newly emerge in different areas and regions in the US. The newly emerged suppliers are capable enough to establish their process of production for raw materials on relatively lower prices which facilitates them to capture wider markets and draw more customers by supplying quality products at relatively cheaper rates (Rundh, n.d.). It can be stated that extensive growth and competition is estimated for enhancement in the sales of paper products because of increasing level of incomes as well as the rate of literacy in the US has improved quite significantly in the modern era. The paper industry is also facing relative competition due to the extensive use of internet, electronic media and e-books from various well-to-do and knowledgeable customers which has created a major impact upon the manufacturers for ensuring productive work process to maintain sustainability in the market. The paper and paper products industry in the US is facing problems and certain risk constraints which can be sorted out with the assistance of government which can play a major role in terms of brining in certain policy intervention and other regulation as a sustainable measure for the paper industry (Chaudhery, 2011). Existing Rivalry of Firms The rivalry of existing firms in the paper and paper products industry is higher because the growth of the industry is considerably lower. Abundant variety of products of various companies is available at higher fixed prices. As there are a number of competitors in the market, customers are able to establish relationships with different competitors in the market. It can also be stated that most of the customers prefer branded products for which they usually depend on reputed firms producing quality products for satisfying consumers in the market (Bartusch, Hallquist, Dorsey & Schultz, n.d.). Paper industry is anticipated to face more competition in the impending years due to certain crucial challenges such as non-availability of raw products and cheaper capital (Kumar, 2013). Relative Power of Other Stakeholders The other stakeholders in the group include governments, shareholders, local communities and trade association among others. The stakeholders usually vary from industry to industry. In the paper industry, the role played by the government and other trade unions in the production of raw materials can be observed from their evident emphasis on following set regulations for production of such materials (Wheelen & Hunger, 2011). In future, the various initiatives taken by concerned authorities in government can facilitate the paper and paper products industry to deal with increasing competition from plastic industry. Government possesses the power to bring in lucrative schemes to revive the growth of the industry which can create more job prospects in the US (Chaudhery, 2011). Overview of the Rate of Growth of Paper and Paper Products Industry in the United States In order to properly assess the prevailing industry boundaries, an assessment of the sales generated by the US paper and paper products industry is depicted. The industry manufactures about 9 million tons of pulp every year and around 26 billion books, newspapers and magazines. The paper industry in the US is one of the leading capital investment industries as it makes huge expenses for each employee in the factories. The factories produce abundant quantity of paper each day in order to meet the demands and consumption needs of American populaces (U.S. Department of Labor, n.d.). According to a study conducted by Food and Agriculture Organization, it can be observed that around 3.5 billion cubic meter of wood is gathered every year on a global basis for the production of pulp and paper, of which 31% are used for fuel purposes. A study conducted in 1999 estimated that the demand for paper and paperboard would elevate from present 300 million tons to around 420 million tons at a growth rate of around 2.8% on yearly basis (MBendi, 2013). Conclusion From the above observation, it can be comprehended that the paper and paper products industry in the US is one of the significant capital intensive industries. The industry is generally dominant in North American countries such as in the United States and Canada among others. In the review made, the paper industry of the US has been elaborately discussed with the help of Porter’s six forces framework, which gives a clear view of the growing trends in the industry in the modern day context. It can also be stated that the paper industry is facing relatively tougher competition because of the emergence of electronic media, internet and other electronic applications through which consumers are able to get connected with updated facts from various happenings around the world. These significant factors compel the suppliers and the manufacturers to produce quality products for maintaining their sustainability. Appendix: Porter’s Six Forces Framework References Bartusch, M., Hallquist, D., Dorsey, S., & Schultz, C. (n.d.). Pulp & paper. Retrieved from http://www.csed.umn.edu/web3503/pulppaperFiveForces.pdf Ceram, (2012). Paper. Retrieved from http://www.ceram.com/materials/paper/ Chaudhery, P.K. (2011). Bargaining power of suppliers. Retrieved from http://planningcommission.nic.in/aboutus/committee/wrkgrp12/wg_paper.pdf Environmental Paper Network. (2013). Economic benefits of recycling. Retrieved from http://environmentalpaper.org/repaper-docs/green-economy-and-paper-industry-1.pdf High Beam Business, (2013). Paper mills. Retrieved from http://business.highbeam.com/industry-reports/wood/paper-mills Info Trends. (2013). The U.S. cut size paper market: Distribution channels. Retrieved from http://www.infotrends.com/public/Content/INFOSTATS/Articles/2007/01.09.2007.html Informa UK Limited. (n.d). A stab in the back? The British government, the paper industry and the Nordic threat, 1956–72. Retrieved from http://www.tandfonline.com/doi/full/10.1080/13619460601065602 Kumar, V.R. (2013). Paper industry will face more competition, shakeout: BILT. Retrieved from http://www.thehindubusinessline.com/companies/paper-industry-will-face-more-competition-shakeout-bilt/article4188657.ece McCarthy, P. & Urmanbetova, A. (2008). Production and cost in the U.S. paper and paperboard industry. Retrieved from http://www.cpbis.gatech.edu/files/papers/CPBIS-WP-06-02%20McCarthy_Urmanbetova%20PP%20translog_cost.pdf MBendi. (2013). World pulp and paper. Retrieved from http://www.mbendi.com/indy/pulp/p0005.htm Ochre Media. (2013). Innovation of bagasse in pulp & paper industry. Retrieved from http://www.pulpandpaper-technology.com/knowledgebank/articles/bagasse_innovation.html Porter, M.E. (2008). The five competitive forces that shape strategy. Retrieved from http://www.tfasinternational.org/aipe/academics/morriss2012/porter-fivecompetitiveforcesthatshapestrategy.pdf Patrick, K. (2006). North America’s top 25 paper companies. Retrieved from http://www.paperage.com/issues/may_june2006/05_2006top25.pdf Ragauskas, A.J. (n.d.). Nano-biotechnology changing the challenge in pulp and paper research. Retrieved from http://www.tappi.org/Downloads/unsorted/UNTITLED---fal0321pdf.aspx Rundh, B. (n.d.). The impact of market dynamics in mature industry new activities in the paper supply chain. Retrieved from http://www.impgroup.org/uploads/papers/523.pdf Schindel, C. (2003). Chemical industry. Retrieved from http://www.imd.org/research/centers/csm/upload/Chemical%20Report.pdf Shapiro, R. (2011). The Economic Impact of U.S. Trade Sanctions on Imports of Paper Products. Retrieved from http://www.sonecon.com/docs/studies/WG_Trade_Sanctions_Report_9_11.pdf The Management Institute for Environment and Business. (n.d.). The pulp and paper industry. Retrieved from http://yosemite.epa.gov/ee/epa/eerm.nsf/vwan/ee-0045-01.pdf/$file/ee-0045-01.pdf The Norman High School Tribune. (2013). Technology provides acceptable substitute for paper. Retrieved from http://www.nhstribune.com/opinion/2011/02/11/technology-provides-acceptable-substitute-for-paper/ U.S. Department of Labor, (n.d). Pulp, paper, and paperboard mills. Retrieved from http://www.osha.gov/SLTC/pulppaper/index.html Wheelen, T.L. & Hunger, J.D. (2011). Concepts in strategic management and business policy. 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