Analysing the Competitive Landscape of the Global Supply Chain using Porter’s Five Forces Model

Introduction:

The global supply chain is a complex network of companies and organizations that work together to deliver goods and services to customers around the world. The supply chain includes suppliers, manufacturers, distributors, logistics companies, and retailers, all of which must work together efficiently to ensure the timely and cost-effective delivery of products. Porter’s Five Forces model can be used to analyse the competitive environment of the global supply chain and identify factors that can affect the profitability and competitiveness of companies.

1. Threat of New Entrants:

The threat of new entrants into the global supply chain is relatively low due to the high barriers to entry. Companies must invest significant resources in infrastructure, technology, and logistics to establish a global supply chain. Additionally, established companies have built relationships with suppliers and customers that new entrants would need to develop. The threat of new entrants can be further reduced by the economies of scale enjoyed by large companies, which allow them to operate more efficiently and effectively than smaller competitors.

• Bargaining Power of Suppliers:

Suppliers play a critical role in the global supply chain, as they provide the raw materials and components needed to manufacture products. The bargaining power of suppliers is typically higher in the global supply chain than in domestic supply chains, as suppliers may have fewer competitors and be located in regions with limited resources. Additionally, suppliers may have significant bargaining power due to the high switching costs associated with changing suppliers in the global supply chain. Companies can reduce the bargaining power of suppliers by developing alternative sources of supply and building long-term relationships with suppliers.

• Bargaining Power of Buyers:

The bargaining power of buyers in the global supply chain is relatively high, as they have access to a wide range of suppliers and can easily compare prices and quality. Additionally, large buyers such as retailers and distributors can leverage their size and bargaining power to negotiate favourable terms with suppliers. Companies can reduce the bargaining power of buyers by developing differentiated products and services, building strong brands, and establishing long-term relationships with customers.

• The threat of Substitutes:

The threat of substitutes in the global supply chain is relatively high, as companies must compete with both domestic and international suppliers. Additionally, technological advancements and changes in consumer preferences can create new substitutes for existing products. Companies can reduce the threat of substitutes by developing differentiated products and services, investing in research and development, and building strong brands.

• The intensity of Rivalry among Existing Competitors:

The intensity of rivalry among existing competitors in the global supply chain is high due to the large number of companies operating in the industry. Competition is further intensified by the low switching costs associated with changing suppliers and the ease with which companies can enter new markets. Companies can increase their competitive advantage by developing differentiated products and services, building strong brands, and investing in research and development.

KEY TAKEAWAYS

• “Porter’s Five Forces is a framework for analysing a company’s competitive environment.
• Porter’s Five Forces is a frequently used guideline for evaluating the competitive forces that influence a variety of business sectors.
• It was created by Harvard Business School professor Michael E. Porter in 1979 and has since become an important tool for managers.
• These forces include the number and power of a company’s competitive rivals, potential new market entrants, suppliers, customers, and substitute products that influence a company’s profitability.
• Five Forces analysis can be used to guide business strategy to increase competitive advantage.”[i]

Conclusion:

Porter’s Five Forces model can be used to analyse the competitive environment of the global supply chain and identify factors that can affect the profitability and competitiveness of companies. The model highlights the importance of developing long-term relationships with suppliers and customers, investing in research and development, and building strong brands. By using the model, companies can identify areas of strength and weakness, anticipate changes in the competitive landscape, and adjust their strategies accordingly. Ultimately, companies that can effectively navigate the competitive environment of the global supply chain will be best positioned to succeed in the global marketplace.

[i] Porter’s 5 Forces Explained and How to Use the Model (Investopedia, Aug 2022)