Porters Five Force Model: Electronic Industry - Case Study Example

Table of Contents Introduction 2 Body: 2 Steep Model: 2 Porter’s Five Force Model: Electronic Industry 6 Internal Analysis: 9 External Analysis: 9 Investment Strategy: 15 Conclusion: 16 References: 16 Introduction Elecdyne is a very old Japanese electronics company. This company was started 20 years ago with the contribution of 5 men. It is SME with 100 employees and currently the company struggling in Japan market and getting competition from local market players. It sales decreased in Japan market. Now the company is willing to enter overseas market to make it international and increase their sales to overcome from loss. This report is going to assist company to take decisions for better growth. Here, analysis has been done for the company future’ steps development in the three countries which the manager intends to enter (The US, South Korea, and Brazil). Body: Steep Model: A STEEP analysis model is a tool to assess external factors that impact on the business. The external factors are Social, Technological, Economic, Environmental and Political. Through this model a business can analyses their decision capabilities that assist them in growth. Social: It includes the cultures of market and health related issues, population many more social factors that can influence the business. The culture of Brazil people is enthusiastic. They believe in optimistic and cheerful for their better future. The main issue in Brazil is poverty i.e. 15.9 % The major issue in Brazil is crime which is high. Working hours in Brazil are 8am- 6pm, which includes two hour of lunch. (The use of Social Network sites in Brazil is good; mostly people lie to do facebook, which is very famous in the world. Communication thru internet in Brazil is very good and easily available in most hotels and internet cafes. Currently, electronic market of Brazil is slow, hence FIFA world cup is near and it is going to be held in Brazil. It can make major influence in Brazil market. Mostly sales of televisions and smart phone could increase in Brazil. The consumption of electronic goods in Brazil is low due to per capita income. In South Korea, people are very highly educated and rapid urbanization is a key point. Te income level is very high. Even though, people of South Korea spend less money in social welfare. Working hours in South Korea is forty hours for 5 day of a week. Government of South Korea has increased the number of national holidays then the US and the UK, to provide more relaxation to workers.). The internet users in South Korea are very high, but they mostly prefer CYWORLD social network sites rather than facebook. South Korea is one of the biggest markets of electronic in the world. The people of South Korea are highly advanced and they have all latest technologies. The consumption level in South Korea is high, since it has largest electronic market and very innovative like Samsung. In the US people are mostly educated. The working hours in the US for men are 8.4 hours per day and for women are 7.7 hour per work day. The facebook user in the US is very high; the major reason is facebook is originated in the US. Although others social networking sites like YouTube and twitter is also popular in the US. The US’ electronic market is world largest market. The famous brand like Apple and BOSE are based in the US. The consumers of the US mostly like to buy wireless device and latest technology like smart phones. The consumption level in the US is high, since this country is highly advanced in terms of technology. Whereas in Japan, working hours are 8 hour per work day and overtime hour are 15 hours in a week and maximum 45 hours in a month. Social networking in Japan, Mixi is Japanese online social networking site, which has highest number of users in Japan than facebook. The consumption of electronic goods in Japan is high, since it is one of the largest electronic markets in the world. SONY and Panasonic are two big brand of electronic market in Japan. Mostly consumers prefer smart phones and highly advanced home appliances. Consumption level in Japan is high, due to high economic power. Technological: In terms of technology Japan, South Korea and the US are very advanced in electronic market. They always provide innovative products to the world market, since they have highly skilled labour for this market. SONY, Panasonic, LG, Samsung, Apple and Bose are few big brands or big players of this market have produced lots highly technological products to the world market. There is no such big name in Brazil’ electronic market. Even though, they have no advanced and highly equipped technology to produces good product. They lacking behind from these nations. Economic: Economic of nations are vary from each others. They have their own policies for trade with firm of different nation. There are lots of rule and regulation for cross border trade. Even though, export and import policies of all nations are very different from each others. It depends on many factors like GDP, inflation rates, current unemployment rate, and lots more which may affect direct or indirect way to economic of nation. Tax policies of nations are also different. GDP of Brazil is $2,252,664 million whereas wages of employees are low. GDP of South Korea is $1,129,598 million whereas wages of employee are high. GDP of the US is $16,244,600 million whereas wages of employee is medium. GDP per capita in Japan is $34,294 million (2011) whereas wage of employee is high. Unit labor costs in US dollars of 2011 are 109.7 annual growth rates. Unemployment rate in 2011 is 4.2% of civilian labour force. Environmental: There are lots of harmful contains are present in electronic products. This contains are one of the cause of pollution to environment. Hence, many electronic industries of different market are resolving this issue. They are now recycling the products and landfill those products which could not be recycled. Political: The government of Japan has lots of good policy for electronic market. However, the US and South Korea governments have also good policies of electron market, since the both countries are largest electronic market of the world and exporting to all nations. Whereas, Brazil is in little weaker side, since the electronic market of Brazil is not big as compared to Japan, South Korea and the US. Although, there no such restriction from Brazil government in electronic market. Conclusion: Since, South Korea and the US has big players in the world electronic market, such as Apple, BOSE, Samsung etc. they are very dominating in this segment and doing well. So it will be very difficult for Elecdyne to compete in these markets. However, Brazil market is small and has many cheap labors is available. In Brazil, there is no such competition for Elecdyne in electronic market. Porter’s Five Force Model: Electronic Industry Threat of New Entrants: Low For a new player it will be difficult to enter in the electronic market. Since, initially it require huge amount of capital to investment. However, technologies are rapidly evolving day by day, according to the need of market demand. An old player of this market is to be called as an expert and they are fulfilling the needs of market demand. They are also known as game changer or evolutionary in this market. So it will be very difficult for new player to meet with old players. Since, new players will take lots of time to understand advanced technology and market condition. Old players like LG, BOSE and SONY, all they have potential supply chain and hence it will be very difficult for any player to compete them in terms of price of products. Even though these old players are kings of this market, they have huge brand equity. In spite of the fact that brand loyalty is moderate in this segment. Threat of Substitute: High Day by day, technologies are evolving and getting more advanced than past. Therefore, threat of substitute is high in this market. For example, consumer were use CRT televisions, after 2010 consumer shifted to Plasma, LCD and LED televisions because of innovations and demand of the new generation market. Hence, the buyers have huge potential to shift or substitute from old technology to new one. Bargaining Power of Buyers: High Currently, it is an era of internet. The buyers are more advanced and smarter than past. They are gathering all information through internet. They have power to go online and seek all information related to product, such as price of product, features of product and it policies. Even though, they can compare price and features of product with different brand over internet. Hence, the buyers are much smarter and educated with respect to products and this quality leads to increase their power. Since, the buyers are very price sensitive. Over internet the buyers are easily access the reviews and feedback related to products. This things influence more on buying decision of the buyers. Even though, the buyers switching cost is less, hence it also leads to increase the bargaining power of the buyers. Bargaining power of suppliers: Low In electronic market, the bargaining power of suppliers would be consider low, since product differentiation is low. The big players like LG and SONY have homogenous type of products, like Plasma, LCD, LED and Smart TV in homogenous product range. Therefore, power of supplier is less. In electronic segment, the cost of raw materials cannot be negotiated due to the heavy competition among players. Since, switching cost of supplier is negligible. Degree of Competition: High The competitions between players are high due to advanced and innovative technologies are coming day by day in the electronic market. The innovations and advanced technologies are cause to lead high competition in to the market. For example, if LG launched a new technology in the market then SONY will start focusing on product diversification and innovation and they will launch their new product in to market against of LG product. The diversification and innovation may be in term of quality and technology. Hence, it leads the degree of completion high. Conclusion: From Porter’s five force model, it has been cleared that new market for Elecdyne will be very difficult. Since there lots innovation and creative work is requiring. So it will be better for Elecdyne to go for joint venture with big brand otherwise they should go friendly takeover, which will resist them from loss. Even though, they should go for internationalization, which will give them a fame and reputation in to electronic market. Internal Analysis: A SWOT analysis is performed to analyze internal and external factor of the business, which could influence in the business development. It used to assess the strengths, weakness, opportunities and threats, which involved with business. Tough the managers can understand the problems and able to fix it to make business better. Strengths Weakness Initial success on competing price Skilled employee Old player (more than 20 years) Market Knowledge Licensing cost Impossible to hire research graduate student Paying high wages relative to China and Eastern Europe countries Stopped growth rate Opportunities Threats Enter the new market Diversification of products Globalization Skilled labour High Competition in the market New Culture Financial Issues Supply Chain problems Trade barrier External Analysis: Japan Brazil South Korea USA Political Short term[1] 1 1 1 1 Medium/long term[1] 1 1 1 1 Special Transactions [1] 1 1 1 1 War risk[1] 2 4(crime rate is high) 1 1 Risk of expropriation/government action[1] 1 1 1 1 Transfer Risk [1] 1 1 1 1 Total tax rate, % of commercial profits[2] 49.7 68.3 27.9 46.3 Time required to start a business[2] 22days 108 days 6 days 5 days Economic Japan Brazil South Korea USA Interest Rate%[6] (average) 3.16 15.93 3.69 6.06 Unemployment Rate% [9] 3.60 5.10 3.70 6.30 Inflation Rate%[2] (avergae) 3.61 396.60 7.89 3.33 GDP growth rate %[2] 1.9 0.9 2.0 2.2 GDP Per Capita us$ [2] 46,720.36 11,339.52  22,590.16  49,965.27 Tax revenues (average) %[6] 39.80 34.00 25.06 40.00 Average wages[3]( per month) 317.85 PYP THO 1593.82 BRL 710136.18 KRW 10.22 USD Social Japan Brazil South Korea US Individualism [4] 46 38 18 91 Uncertainty Avoidance[4] 92 76 85 46 Masculinity[4] 95 49 39 62 Power distance[4] 54 69 60 40 Labour Population (average in million)[2] 112.68 137.24 39.69 246.12 Technological Japan Brazil South Korea US Research and development expenditure (% of GDP)[2] 3.26 1.16 3.74 2.83 High technology export(in USD)[2] 123,411,773,351 8,820,260,626 121,312,606,727 148,772,488,404 Rankings for Networked Readiness Index[6] 19 56 10 5 World innovation ranking[5] 4 45 1 3 Internet Users per 100 people[2] 79.1 49.8 84.1 81.0 The World Bank, 2013. Total tax rate. [Online]. Available at: http://data.worldbank.org/indicator/IC.TAX.TOTL.CP.ZS. [Accessed on May 19, 2014]. The World Bank, 2013. Time required to start a business. [Online]. Available at: http://data.worldbank.org/indicator/IC.REG.DURS. [Accessed on May 19, 2014]. Trading Economic, 2014. Japan : Economic Indicators. [Online]. Available at: [Online]. Available at: http://www.tradingeconomics.com/japan/indicators. [Accessed on May 19, 2014]. Trading Economic, 2014. Brazil: Economic Indicators. [Online]. Available at:http://www.tradingeconomics.com/brazil/indicators. [Accessed on May 19, 2014]. Trading Economic, 2014. South Korea: Economic Indicators. [Online]. Available at:http://www.tradingeconomics.com/south-korea/indicators. [Accessed on May 19, 2014]. Trading Economic, 2014. United States: Economic Indicators. [Online]. Available at:http://www.tradingeconomics.com/united-states/indicators. [Accessed on May 19, 2014]. BLOOMBERG RANKING, 2014. MOST INNOVATIVE IN THE WORLD 2014: COUNTRIES. [PDF]. Available at:http://images.businessweek.com/bloomberg/pdfs/most_innovative_countries_2014_011714.pdf. [Accessed on May 19, 2014]. Conclusion: According to analysis best country for Elecdyne will be Brazil, since it is developing nation and cost of labour will be cheap in Brazil. Even though, there most chance of growth. If Elecdyne do joint venture with any local firm of Brazil then it much better for them. Otherwise, they should go for friendly takeover with any firm of South Korea. It will give them a brand for the world market. Investment Strategy: Joint ventures [1] Greenfield sites [2] Mergers /Acquisitions[3] Advantages Share risk (loss and profit) Able to enter into new technology Friendly takeover Increase brand into the world market Increase sales Will get large area for work New technology and equipment can be installed Give a better infrastructure to workforce Better supply chain it is not limited to buying direct competitors Reduce overhead expenses Cost efficiency and increase market share Generate tax gains Disadvantages Culture problem Work culture and new management issues Take long time to setup It will expensive Increased risk of investment unnecessary duplication Hard to manage in the early stage Conclusion: Elecdyne should go for joint venture with firms of Brazil like Bravax or IGB Electronica. This venture will give lots of potential to Brazil electronic market. Hence, FIFA world cup is near, so it will increase the sale of Elecdyne and give a reputation in Brazil market. 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