Analysis of the external forces is necessary to assess the environment in the particular industry and to create a competitive strategy for the company. Porter’s five forces offers a framework for industry assessment in terms of 5 parameters: rivalry, threat of new entrants, substitutes, the bargaining power of suppliers and the power of buyers. This framework will be further applied to M-Tronics company.
Rivalry threat in the industry is medium, since the company holds 40-60% of the market share, especially in the Electronic Division. Here M-Tronics already has approximately 60% of the market share and expects further increase, since the industry is still in the growth phase. Machinery division is in the decline phase, therefore it is not likely to attract new rivals. Competitive situation in the machinery market is not expected to change, due to the fact that high exit barriers would encourage current competitors to remain in the industry. However, they do not pose a significant threat for M-Tronics, since it is currently the market leader and it can maintain leadership relatively easily due to low dynamics of the mature machinery industry.
New entrants pose little threat for M-Tronics in both electronics and machinery businesses. Firstly, high initial investment into capital, R&D and resources create significant entry barriers. It is especially true for the machinery business, but this segment is also not attractive for the new entrants due to its maturity and decreasing profitability. However, once the technology is developed, it is relatively cheap for the followers to enter electronics market, since they do not need to invest in R&D. This increases the threat of the new entrants in the electronics segment, which is characterized by high growth and profitability.
Substitutes present a significant threat for M- Tronics. Due to high initial investment, it is hard for the company to switch to new types of products. However, current market environment is characterized by high dynamism, especially in the electronics sector, thus products and technology become obsolete very fast, giving rise to new substitute products.
Buyer power in the market is also medium. Although M- Tronics mostly serves business sector, where customers are usually not very numerous, there is no significant threat for the company due to relatively high switching cost for their clients. Moreover, the demand for the products, especially in the electronics segment, has been continuously increasing due to the superior nature of the M-Tronics’ innovative products.
Supplier bargaining power is quite low, since the market is characterized by numerous suppliers with little consolidation among them. In some instances, M- Tronics does not need external suppliers, since their own subsidiaries produce inputs for the parent company. However, the new low-cost suppliers threaten to jeopardize company’s subsidiary strategy and become a source of competitive advantage for their rivals.
In general, the industry is characterized by medium attractiveness. On the one hand, relatively high barriers to entry and high growth potential ensure profitability. However, high switching cost and significant initial investment make both machinery and electronics segments less attractive for companies.
Herzog, C. (2010). Strategic tools in dynamic environments: A framework. Norderstedt,
Germany: Grin Verlag.