The Competitive Forces of Carnival Corporation - Case Study Example

Carnival Cruise - Case 16 Carnival Cruise - Case 16 In any business industry, competition is a healthy aspect that keeps the industry balanced and running in the most appropriate manner. All businesses undertake various forms of research so as to gain a competitive edge within their respective industries. Competition, in any industry, is the key reason behind the competitive forces. These forces drive the competition as well as the returns to a perfect level. This ensures that no single company in an industry realizes supernormal returns. Therefore, a form of balance is achieved as a result of the competitive forces. These forces include threats from new entrants in to the market, bargaining powers of the customers or the buyers, threats emanating from substitutes that could be products or services, bargaining power of the suppliers, the level of rivalry among the competing companies, and the relative power of unions. The competitive forces vary from country to country in the same way that industries vary. For instance, threats of entrants into an industry are not the same in different countries and are mostly dependent on the development of the host country or the market in question. Here, there would be a higher threat from new entrants for an organization operating in the U.K than one operating in a developing country. The competitive forces have a high rating while others have low rating. First, threat of new entrants is a high rate risk for businesses especially those operating in highly profitable markets. This is because these markets have the potential to attract new firms that lead to erosion of profit making capabilities for the existing organizations. To respond to these threats, the incumbents should have pre-established entry barriers such as economies of scale failure to which profitability suffers. Second, the bargaining power of the buyers is a high rate risk. It is the idea of the buyers driving the prices down. It is a high risk especially in the areas where there are few powerful buyers. These buyers have the capacity to dictate terms that determine the prices of the goods offered. In addition, when the cost for switching to another buyer is low, then the power of the buyers is significantly low with respect to determining the prices offered. Therefore, the number of powerful individual buyers in a specified market determines the prices of the products. Third, substitute threats can also be rated as high risks. This is because the existence of substitutes increases the likelihood of the customers switching to them leading to loss and loss of market share, which all businesses attempt to avoid. This affects the attractiveness of a market cautioning companies from increasing prices. Fourth, the power of the supplier can be rated medium risk. The number of suppliers for each input can determine how easy it is for them to drive up prices. This can be negotiated and a company can switch to another supplier in response to price increase. Fifth, the level of rivalry can be rated as low under the condition that an organization can come up with a competitive advantage and beat all other businesses in the same sector. Existence of many rivals affects the attractiveness of the market as well as the profit making capabilities of the rivals. Lastly, the relative power of unions and governments is of low risk rate. This is because unions’ bargaining power is not above organization administrators and its proposals are considered by the individual organizations. These forces keep the business world in balance. With respect to Carnival Corporation and plc, the immediate environment is affecting the outcome of the business. The environmental factors affecting the organization include customers, unions, competitors, suppliers, and governments. In the year 2009, the government had been at the forefront providing travel advisories to individuals amid terrorism fears, the flu virus and a host of other issues. This reduced the number of available cruisers for Carnival leaving few for the whole industry. Carnival’s sales reduced because of the same. The customers have also affected the outcome of the organization in that Carnival estimates that only 20% of the overall U.S population had taken a cruise. The same has been experienced at other regions such as U.K with nearly 10% and continental European region with nearly 5% (Keeffe et al., 2010). If the number were high, the company would realize higher profits. Its profit making capacity has been limited because of this aspect. The organization had also entered into agreements with unions that covered certain categories of employees. This implies that the unions affected the salaries being offered to employees. The other important aspect that was affecting Carnival’s operations was the competitors. The competitors ranged from large cruise line companies to small companies. These companies also had unique features that were not available to Carnival. This implies that they had established their own competitive advantages to cope with the competition. For instance, the Royal Caribbean Cruises was considered more upscale when compared to Carnival. This implies that these companies presented high levels of competition prompting Carnival to look for additional counter measures so as to remain competitive. The suppliers also had a positive impact on the company (Keeffe et al., 2010). This is because since most of its products included travel agent services, the organization had a large base of suppliers although it chose to outsource from a select few. This implies that the existence of many suppliers reduced the prices to the point that the selected suppliers could offer discounts that would be reflected in improved profitability and affordable prices for the customers. With respect to the future, there are various threats as well as opportunities. As for the threats, competition is a key threat. The market is emerging and profitable. This implies that many organizations will be willing to enter the market and lead to reduction of the market share. In addition, the existing organizations are innovative and may overcome Carnival if competitive measures and strategies are not taken. The level of rivalry is most likely going to increase in the industry. Therefore, rivalry, competition, and new entrants are the key threats with respect to the future of Carnival. With regard to the opportunities, expansion is one of the key opportunities followed by additional discounts from the existing suppliers as the company may begin to dictate prices as it is a powerful buyer from a large pool of suppliers. As for expansion, the organization can expand to U.K because a small portion of the overall population has taken a cruise. This implies that the services are either too expensive or not enough. References Keeffe, M. J., Ross III, J. K., Ross, S. K., Middlebrook, B. J. & Wheelen, T. L. (2010). Carnival Corporation & Plc (2010) New York: Prentice Hall. Read More