Global Paper and Paper Products Industry Porter's Six Forces - Report Example

Global Paper and Paper Products Industry Porters Six Forces Analysis Overview In recent times, with the advanced technology and continuous modifications of various electronic tools, people have comparatively reduced the usage of paper but still could not ignore it. The daily need of paper, newspapers, writing pads, various paper products is served basically by one source, the paper and paper products industry. The paper industry is majorly settled in Northern Europe, Northern America, China, Japan, Brazil and Australia among others. The paper industry consists of many companies. Notably, these paper making companies have been observed to affect the forests and the environment on the whole using wood as main resource and their raw materials in the paper industry (United Nations Industrial Development Organization, 1993). Hereby, the major objective of this paper is to highlight the nature of the global paper industry. The study would include Porter’s six forces analysis framework in order to assess the industry structure and operations in the current scenario. Analysis Porter’s six forces analysis of the global paper industry would involve certain factors such as threat of new entrants, rivalry among existing firms, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers and relative power of other stakeholders. The explanations of the factors are given below: Threat of New Entrants Economies of scale The Gross Domestic Product (GDP) of the global paper industry has increased simultaneously with the growing usage of the paper by its consumers. In certain cases, the usage of papers remains intact where the GDP growth is witnessed to be almost stagnant. The global paper industry produces paper products of $750 billion each year comprising small enterprises globally (Scheihing, 2005). Product Differentiation Product differentiation is one of the most challenging measures of expanding or intensifying a business or industry. With the intense use of internet, the usage of paper is however decreasing day by day and as a result the global paper industry is trying to diversify or differentiate their products and trying to expand their product lines, especially based on the quality aspect (Scheihing, 2005). Capital Requirement A new entrant to the paper industry initially requires around $4.5 Million capital which may be recognized as a demanding level to position themselves in the industry (Scheihing, 2005). Switching Cost The switching cost for the paper industry is low. Therefore, the scope of new entrants is high, as new entrants can any time switch over to another industry if they do not feel competitive in the paper industry incurring minimum cost (Uronen, 2010). Accesses to Distribution Channels The distribution channel of the paper industry comprises of various, dealers, shareholders, retailors, and consumers to serve the ultimate customers in the corporate and educational sectors. Notably, these better facilities to an industry encourage the new entrants to enter the existing market (Uronen, 2010). Cost Disadvantages Independent of Size Due to the high installation cost, and high maintenance cost, the probability of new entrants reduces. However, due to the independence of determining the size of the firms the scope of new entrants rises depicting a moderate level of threat to new entrants (Uronen, 2010). Government In relation to the global paper industry, the government has implemented certain rules and norms, laws, and regulations. In addition, there are many associations who are protesting against paper industry due to the usage of forest products and deforestations (Uronen, 2010). Rivalry among Existing Firms Number of Competitors There are too many paper mills or companies existing within the global paper industry, but the top five existing competitors are Paper Associates PTY.LTD, International Paper Company, Kimberly-Clark de Mexico, Georgia-Pacific LLC and Svenska Cellulosa Aktiebolaget SCA among others (SKC, 2012). Rate of Industry Growth According to a survey report in 2008, the growth of paper industry has declined within the period of 1973-74 to 1993-94 for 1.1% per annum on an average. The decline was caused due to various difficulties regarding resources, skilled labors, legal and environmental conflicts among others. However, the main factor to cause growth decline has been recognized as lack of the demand of product, majorly due to the rapid technology advancements (International Council of Forest and Paper Association, 2008). Product or Service Characteristics Paper products can be of many types such as uncoated papers, specialty papers, consumer and industrial packaging papers, paper boards, corrugated packaging papers, pulp-cellulose papers, market pulps, Kraft pulps, writing papers, newspapers, tissue papers and art papers among others indicating a widely differentiated array of product characteristics (SKC, 2012). Amount of Fixed Costs In the global paper industry the amount of fixed costs for the new start up or an existing firm is high. In this regards, the global paper industry can be recognized as extremely capital concentrated or intensive in nature (Wisconsin Paper Council, 2003). Capacity In a recent report of 2007, it was found that the global paper industry has showed the capacity of 9.18 million tones making 5.47 billion USD which embarks a substantial figure of capacity held by the industry (International Council of Forest and Paper Association, 2008). Height of Exit Barriers The height of exit barriers in paper industry is low, as the switching cost from global paper industry is low. However, once a new entrant enters the paper industry with high installation cost, it becomes difficult for them to switch easily until and unless they are into a successful business (Uronen, 2010). Diversity of Scale Paper industry has manufactured industrial goods, public goods and also chemical products. Global paper industry has provided the world with various or diverse products for each and every class of people in the society with their low to high price ranges of products (International Council of Forest and Paper Association, 2008). Threat of Substitute Products or Services Beneficial Alternatives According to Uronen (2010), the global paper industry is getting affected by certain substitute products and services such as internet service, mobile and pagers among others. These are the services or products which serve the same purpose with time-efficiency and cost-efficiency as well (Uronen, 2010). Cheap Alternatives The paper industry is currently observed to get affected due to some special substitutes in terms of electronic study boards in schools and colleges, laptops, desktops and tablets among others. Though these are not cheap gadgets, once bought will serve the mean for long. Whereas, for the same purpose, lots of papers are required, which are also quite perishable (International Council of Forest and Paper Association, 2008). Low-Cost Switching The switching cost in paper industry is comparatively low than the other industries so it becomes easy for the existing firms to switch to another industry very easily. They do not have to incur much valuable resources to leave the industry, which is actually a threat to the global paper industry in terms of substitute products and/or services (Uronen, 2010). Bargaining Power of Buyers Buyer Independence In the global paper industry, the buyers are free to buy products according to their capability. Buyer can be direct buyers, who buy the finished goods like writing paper, newspapers, writing pad and other consumable paper products among others (SKC, 2012). Buyer size Buyer size for the global paper industry is quite large, as each and every age group requires paper products in their daily life, even though the rate of consuming paper products has declined due to the increased rate of usage of internet and other electronic media (International Council of Forest and Paper Association, 2008). Financial Muscle Financial muscle in the global paper industry is somehow lacking, as the paper industry has become stagnant and it is losing its customers due to the substitute products (SKC, 2012). Low-Cost Switching Due to the low-cost switching options in the paper industry, the business gets affected, as firms can easily move out of the industry. The low-cost switching also influences the buyers to switch to substitute products and as a result the paper industry loses customers or buyers easily (Uronen, 2010). Price Sensitivity Price sensitivity is the practice which makes an individual sensitive to price of the product, rather being sensitive to the quality of the product. The global paper buyers are both price and quality sensitive, based on their income capacity (SKC, 2012). Product Dispensability The global paper industry produces paper products which is quality wise effective and efficient. Most of the paper products are made to last for long time, as these are made of natural resources (Uronen, 2010). Tendency to Switch With the growing usage of internet and other various electronic media, the usage of paper is reducing. Thus, the tendency to switch to the substitute products seems to be quite high (SKC, 2012). Undifferentiated Product The global paper industry has a wide range of products; it does not manufacture a particular product to serve the buyers. The wide product range consists of writing paper, specialty paper, uncoated papers, newspapers and industrial paper products among others (International Council of Forest and Paper Association, 2008). Backward Integration In certain cases the buyers in the paper industry buy the power of the suppliers to decrease or reduce the cost of input. Basically the buyers themselves produce the goods rather going to the paper sellers (United Nations Industrial Development Organization, 1993). Bargaining Power of Suppliers Differentiated Input The global paper industry involves various differentiated inputs like; woods, pulps, skills, labors, technologies, machineries and other natural resources among others (Uronen, 2010). Forward Integration Forward integration refers to the process where a business distributes its operations and functions in various sectors to reduce the pressure. A business can be divided in different segments like sales, manufacturing and marketing among others (United Nations Industrial Development Organization, 1993). Importance of Quality In the paper industry or in any other industry the quality of product is one of the vital matters, as the customers should always be served with quality goods to retain the goodwill of the company or of the industry (United Nations Industrial Development Organization, 1993). Number of Substitute Inputs There are many substitute inputs in the paper industry. The nature and number of the substitute inputs depend on the expected outcome and the purpose of usage (Uronen, 2010). Player Dispensability Players in the global paper industry can sustain quite long managing different criticisms and barriers. Once they enter the industry they can either settle down strongly or can easily switch over to another industry as the switching cost is low (Scheihing, 2005). Player Independence In the global paper industry the players can run their business as they desire to. It might be small or large, depending upon their requirements and capacity, but every player have to follow certain rules and norms determined by the government which influences players independence within the industry to a certain extent (Scheihing, 2005). Supplier Size Size of the supplier in the global paper industry depends upon the firm size and their capacity of producing. It also depends upon the financial stability of the particular firm (Uronen, 2010). Switching Cost Switching cost in the paper industry is low which in turn affects the players, buyers as well as the suppliers (United Nations Industrial Development Organization, 1993). Relative Power of Other Stakeholders Customers Customers are the main element of any industry to decide whether it is a successful business. Customers decide the growth of an industry, the demands and the successes among others (Scheihing, 2005). Local Communities Local communities and the local people are the stakeholders of the local paper industries, as they get affected by the operations of the businesses and its ups and downs as well (Uronen, 2010). Creditors Creditors are the special investors or shareholders who have interests and incentives for the business and its regular operations (United Nations Industrial Development Organization, 1993). Competitors Without competitors no business can identify their unique features. Almost every industry and business has competitors, which results in motivation and inspiration for the individual firms to do better (Scheihing, 2005). Special Interest Groups Special interest groups are a group of people who invest in certain business for some special reasons and occasions. These people are indirectly affected or influenced by the function of the business (Uronen, 2010). Unions Unions are part and parcel of every business. They are there to help the laborers and workers and their requirements in the firms and thus, these unions also influence or affect the business operations and competencies to a large extent (United Nations Industrial Development Organization, 1993). Shareholders Shareholders are the part of the business, which reserves a specific percentage of the share related to the business functions being equally responsible and accountable for the ups and downs in the business as well as for the successes of the business (Scheihing, 2005). Appendix Factors – Ratings Explanation Source Threat of New Entrants – http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf Economies of scale – 3 Stagnant GDP growth results into average economies of scale http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf Product differentiation – 4 Better scope of product differentiation http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf Capital requirements – 6 High capital required to enter the global paper industry http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf Switching costs – 2 Low-switching Cost http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Access to distribution channels – 4 High scope of accessing distribution channels http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Cost disadvantages independent of size – 3 High capital, but independence to decide the size of the firms http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Government – 4 Various rules and norms are applicable http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Rivalry Among Existing Firms – Number of competitors – 4 Large number of competitors http://www.skcinc.com/instructions/1448.pdf Rate of industry growth – 3 Low rate of industry growth http://www.icfpa.org/_documents/ICFPAStatement1.pdf Product or service characteristics – 4 Products are different in nature http://www.unido.org/fileadmin/import/userfiles/puffk/paper.pdf Amount of fixed costs – 5 Large amount of fixed costs http://www.unido.org/fileadmin/import/userfiles/puffk/paper.pdf Capacity – 4 Average capacity of production http://www.icfpa.org/_documents/ICFPAStatement1.pdf Height of exit barriers – 3 Low height of exit barriers http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Diversity of scale – 3 Average diversity of scale, as paper products can be used by every class http://www.icfpa.org/_documents/ICFPAStatement1.pdf Threat of Substitute Products or Services – Beneficial Alternative – 4 High scope of beneficial alternative http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Cheap Alternative – 4 High scope of cheap alternatives http://www.icfpa.org/_documents/ICFPAStatement1.pdf Low-cost switching – 4 Paper industry involves low cost switching http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Bargaining Power of Buyers – Buyer Independence – 3 Buyers are independent to select what to buy http://www.skcinc.com/instructions/1448.pdf Buyer Size – 3 Average numbers of buyers http://www.icfpa.org/_documents/ICFPAStatement1.pdf Financial Muscle – 3 Average financial muscle to attain buyers http://www.skcinc.com/instructions/1448.pdf Low-cost Switching – 5 Involves low cost switching http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Price Sensitivity –3 Average price sensitivity, depends on the choice/purpose of the buyers http://www.skcinc.com/instructions/1448.pdf Product Dispensability –4 High product dispensability http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Tendency to Switch – 4 High tendency to switch due to low cost switching http://www.skcinc.com/instructions/1448.pdf Undifferentiated Product – 4 High range of undifferentiated products http://www.icfpa.org/_documents/ICFPAStatement1.pdf Backwards Integration – 3 Average backward integration, depends on the customer choice http://www.unido.org/fileadmin/import/userfiles/puffk/paper.pdf Bargaining Power of Suppliers – Differentiated Input –4 High range of differentiated inputs http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Forward Integration – 4 Average forward integration, based on the situation and purpose http://www.unido.org/fileadmin/import/userfiles/puffk/paper.pdf Importance of Quality –4 High quality of products http://www.unido.org/fileadmin/import/userfiles/puffk/paper.pdf No Substitute Inputs –5 Large number of substitute products http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Player Dispensability –3 Average player dispensability, due to low cost switching http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf Player Independence – 3 Average player independence http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf Supplier Size –4 Average number of supplier size http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Switching Costs –2 Low-switching cost http://www.unido.org/fileadmin/import/userfiles/puffk/paper.pdf Relative Power of Other Stakeholders – Customers – 5 Large number of customers http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf Local Communities – 4 Average number of affected local communities http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Creditors – 4 Average number of creditors http://www.unido.org/fileadmin/import/userfiles/puffk/paper.pdf Competitors – 4 Average number of competitors http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf Special-Interest Groups –3 Less number of special-Interest Groups http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Unions – 3 Less number of Unions http://www.unido.org/fileadmin/import/userfiles/puffk/paper.pdf Shareholders – 4 Global paper industry involves average number of shareholders http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf References International Council of Forest and Paper Association, (2008). Sustainability. Retrieved from http://www.icfpa.org/_documents/ICFPAStatement1.pdf Scheihing, P, (2005). Department of energy resources to make paper mills more energy efficient. Retrieved from http://www1.eere.energy.gov/manufacturing/industries_technologies/forest/pdfs/tappi_presentation.pdf SKC, (2012). Pulp and paper mills. Retrieved from http://www.skcinc.com/instructions/1448.pdf Wisconsin Paper Council, (2003). Paper industry economic cluster initiative. Retrieved from http://www.wipapercouncil.org/documents/StateReport.pdf United Nations Industrial Development Organization, (1993). Paper & pulp industry. Retrieved from http://www.unido.org/fileadmin/import/userfiles/puffk/paper.pdf Uronen, T. (2010). On the transformation processes of the global pulp and paper industry and their implications for corporate strategies. Retrieved from http://www.ey.com/Publication/vwLUAssets/Timo_Uronen_doctoral_dissertation/$FILE/isbn9789526033921.pdf Read More