The exercise of completing a five forces analysis is useful to any company to es

by | Nov 20, 2021 | Business | 0 comments

The exercise of completing a five forces analysis is useful to any company to estimate it’s competition, understand the factors in affecting profitability, assist in decision-making, and to develop a business strategy. The five forces analysis is broken up into five parts described as supplier power, buyer power, rivalry among existing competitors, threat of substitutes, and the threat of new entrants (Miro, n.d.).
A five forces analysis is an important exercise for businesses like Loos Machine & Automation to measure the competition in their market so they can develop competitive strategies. (CGMA, n.d). The exercise is also important to identify the company’s strengths, make improvements where needed and avoid making mistakes (CGMA, n.d.).
Threat of New Entrants
The threat of new entrants for a manufacturing company like Loos Machine & Automation is low. The Company has built strong relationships with their customers which makes their customers comfortable going to them over their new competition. With the current low status of our economy’s labor pool, the demand for automated food processing equipment has increased, and Loos Machine & Automation has been able to keep up with the demand by providing innovative solutions to their customers. The profitability of the market is appealing, however, the startup costs for a company similar to Loos Machine and Automation would make it difficult for new entrants to be profitable, which in turn is a low threat to the Company.
Threat of Substitutes
The threat of substitutes for Loos Machine & Automation is low to moderate, given the company’s OEM status. There are substitutes, but their customers are in need of customization, not “out-of-the-box.” There are other customers that provide similar products, but may not have the infrastructure to deliver the same high-quality product that Loos Machine & Automation delivers to its customers. The customizations will result in premium prices, so if a customer is looking for a standalone piece of equipment, the threat of substitutes may be higher as less customization (or none at all) is needed and a competitor may have a similar piece of equipment already manufactured at a more attractive price. Another substitute threat could be semi-automated over fully automated. If customers are looking to save money, they may opt for the less expensive semi-automated line that the Company’s competition could be pushing; although that may not work out in the customer’s best interest depending on their goals.
References:
Baker, Colin (2021, October 7). Threat of New Entrants: Get to know one of Porter’s Five Forces. Leaders.com. Retrieved on November 17, 2021 from https://leaders.com/articles/executives/threat-of-new-entrants/
Porter’s Five Forces of Competitive Position Analysis. CGMA.org (2013, June 11). Retrieved on November 17, 2021 from https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html
About Porter’s Five Forces Template. Miro.com (n.d.) Retrieved on November 17, 2021 from https://miro.com/templates/porters-five-forces/

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