In this essay, the Porter’s five forces theory is used to analysis the industry structure. These five forces are Intensity of rivalry within the industry, Threat of substitute products, Bargaining Power of Buyers, Bargaining Power of Suppliers and Threat of New Entrants. Through them, it will know the industries profitability whether is high or low. Based on Australia’s industry, Mining and retail are the industries I chose to analysis.
High Profit Industry- Mining Industry Australia’s mining industry has earned Au$84 billion of profit before tax in 2010-2011. It increase 32.4% compare with 2009-2010. It is the largest contributor to support Australia’s GDP.
(Australian Bureau of Statistic2012) The amount of industry rivalry will be relative low if the industry is growing rapid. (Hubbard, G & Beamish, P 2011, p.78)On the other hand, all of the mining company around the world has their special commodities.So the product differences will be happened between different providers.
For instance, BHP Billiton is refined in mineral exploration and production, and Rio Tinto Alcan is refined in aluminum smelting, technology sales and service, engineering services, smelting equipment sales and smelting equipment sales, and smelting consumables production. Because they have their specific product, so the industry rivalry will become low. As BHP Billiton is the world’s top mining company around the world. It can provide a very strong identify of the mining company.
To the rivalry company, it is a strong competitor which they cannot fight down. Therefore, it is also low of industry rivalry. Overall, mining industry in Australia is at the mature and stable market and the intensity of industry rivalry is low. (Market Line, 2012)In the mining industry, absolutely there are some different of materials can be substitutes by others. However, just a few buyers will replace metal with these alternatives, because they do not provide all of the same properties and are hardly 'drop-in replacements'.
They are required to use the substantial re-tooling of an assembly line. Sometimes the switching cost is higher than the original product price. For instance, coal has a few substitutes in the power generation market like oil, gas and nuclear fuels. For example, coal has several substitutes in the power generation market: oil, gas, nuclear fuels, etc. At the same time, while power companies can modify the original energy mix to a small extent without incurring many costs, a totally transition to these substitutes would require investment in different generation facilities, which constitutes a very high switching cost. (Market Line, 2012) Overall, Threat of substitute product’s level is low because no company will in order to switch product and use more expend.
About the Bargaining Power of Buyers, because the mining commodities like coals and copper are useful to the whole world. In 2009, coal sales income increased by $4.6 billion during a year around the world. BHP Billiton is the biggest supplier in the world which record $4.
1billion in coal income. As the most power supplier of mining industry in the world, the bargaining power of buyers will become small. As Australia mining’s company is the leader in the world and it provided diversify resources, so the buyer also need to respect them. To sum up, the bargaining power of buyers are low. ( Pui Kwan T, 2009)Regarding to the Bargaining Power of supplier, the level is medium. However, the IT providers, producers of mining and production equipment and the raw materials are also the supplier in this industry.
Company such as BHP Billiton, CVRD and Rio Tinto are the supplier to this industry. They supply nearly two-thirds of the processed iron ore to steel mills. Fortunately, BHP Billiton is also the supplier, so the mining industry can rely on BHP Billiton. Mining industry need to through these powerful suppliers to manufacture their material.
About the threat of new entrants, the level is low. BHP Billiton is an Australia company operated in mining industry over 150 years (BHP Billiton, 2013). This brand identity can be an effective barrier to the company who wants to entry. (Hubbard, G & Beamish, P 2011, p.75) Capital requirement is also the barriers for the entrant.
According to Australian Bureau of Statistic2012, Mining industry had recorded $57.1 billion expenditure in 2010-2011. That mean the capital of the entrant also need to have a huge capital property. However, the mining industry is not attracting to the business man, because it is too much risk as they need to expend lot of money in the beginning of the operation.Overall, the mining industry is the high profit industry in Australia. All of the forces are low expected the bargaining power of supplier is medium.
(see table 1)It is fine for the mining industry, because the BHP Billiton also will support Australia’s mining industry. Low Profit Industry- Retail IndustryThe intensity of Industry rivalry is high. As the fixed cost which organized retail shop is not that high and many people will sell online. Everyone virtually can be the owner of the retail shop. Moreover there are diverse ways and differing objectives between competitors.
These are all factors that lead a high force but the exit barriers will become low. (Castro, 2013)In Australia, the substitute is low because there are not many substitutes that can offer a low price for buyers. Grocery’s successful reason as people can buy all the things they want in one stop shopping location. For the tourist, they will choose Hong Kong to be their shopping destination rather than Australia, because the luxury product in Hong Kong is without tax.
It is cheaper than many countries. So the threat substitute’s level is medium. (Productivity Commission Inquiry report 2011)Australia Retail Companies are very respecting each other. They not really care about competitor profit.
Also, owner just needs to have small capital to run the retail shop, not same like mining industry. Therefore, there are many entrants is the first time operated a business. All of them take this chance to earn an experience rather than earn profit, but it will also affect the market share. So, there are lot of new entrants every year. The level of threat of new entrants is high.As the supplier power, the bargaining power of supplier is relatively low.
Because the competition between suppliers is high, which means they have no enough ability to raise the price or reduce quantity. (Hubbard, G & Beamish, P 2011, p.76) Local and international manufacturers are also the supplier and because lot of retail products are standardized, retailers have low switching costs which make the supplier power low.Grocery Retail Company is the most revenue retail company in Australia, such as Woolworths and Coles. They have 38 per cent and 27 per cent in the Australia retail market share.
(Productivity Commission Inquiry report 2011) The target buyers of these two groceries are all the people live in Australia. So the bargaining power of buyer is relatively high. If the company have any accident of their product, people will have consumption to this company and reduce to expend there. Therefore, the buyer power is very high in retail industry in Australia.
Overall, the profit of the retail industry in Australia is low. (See table 2).It because Australia does not has one brand which is significant around the world and become top ten. Australia retail industry needs to put effort to sustain this industry. Otherwise, the profit of the retail industry will decrease rapidly in the future.
