Five Forces: Analyzing Business Competition - Essay Sample

Introduction

Five Porter's forces is a special analytical framework that plays a critical role for both small business owners and large firms to analyze the nature and strength of competition their business face or is likely to experience in near future. The tool primarily addresses five major elements such as exist competitive rivalry, bargaining power of both suppliers and customers, the threats of the new entrants, and the threats of substitute service or product (Varelas & Georgopoulos,2017). Therefore, the paper analyzes the Nestle industry specialized in food products and services using porter's five framework strategy.

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Competitive rivalry. The company faces strong competition based on its consumer food industrial production it operates in. The company's main competitors are the P&G food industry, Kraft Foods, and Group Danone that provide the same products and services. In some of the products the company engages in such as breakfast cereal, the rivalry industries produce it at low cost enable them to have competitive advantages over Nestle Industry (Dummett,2020). To respond to intense competition over its food products, the company is currently planning to implement its holistic approach to health by diversifying its resources to the skin-health unit rather than concentrating on "mere nutrition" alone.

The reason why the industry is trying to invest more into holistic health products and services is based on the fact that the competitor holds significant market share control with effective product and service providers regardless of the Nestle company being the largest food industry. The competition Nestle food industry receives does not depend on price variation alone, but also from the variety and nature of products and services it offers, level of creativity, and type of promotional offers provided by other food industries in the region.

It makes it not an attractive business opportunity to venture in at the moment and does not advisable to continue putting more resources into similar products and services. Therefore, the competitive rivalry between the Nestle industry and its competitors is high.

The threat of new entrants. There exist several barriers that threaten the entry of new products and services. It indicated that there are minimal chances, or opportunities to exploit by starters entrepreneur who wants to venture into food products and services within the region. The main reason which limits the new entrant to enter into business operation is based on the fact that the existing market players had established a strong client base with good reputations making them control large marketing shares. Besides, the existing product and market players had long term experience meaning that they have intensively invested in the market and consumer need research, thus understand more what the market and consumer needs. When existing major market shareholders over a particular product or service had earned long-lasting loyalty from the social system they operate it becomes more difficult to attract new entrants into the market. The new entrant every year tries to enter the industry to grab market shares, but as a result of lack of space and a tough working environment, only a few entrants succeed.

Based on the entrepreneurial point of view, nestle industry and other market players have developed a firm network of products and service distribution and their respective economies of scale allow them to manufacture, or produce at the lowest cost of productions. Therefore, the threat of new entrants can be rated as low for the Nestle industry.

Suppliers' bargaining power. Regarding the market shares as stated above, the Nestle food industry controls the market with pig share. It creates an ideal contract for its investors and consumer for the sellers. Therefore, this implies that interested suppliers who want to start supplying to Nestle industry has never interfered with bargaining power, or influenced the price of products and services received. Besides, it also indicates that the Nestle industry treats and holds its suppliers with a higher level of esteem and always takes handle its suppliers in a friendly way. The industry prefers establishing a long-term relationship with all of its suppliers to ensure it continues to receive quality and high quantity of raw material to sustain continuous industrial operations.

If the Nestle industry wishes to change suppliers or its investors, it always moderates its contract to all they enter into a new business deal rather than dissolving. Without using the retention approach, it could create a chance for its competitors to absorb its investors or suppliers who play a significant contribution to the industry's market share control.

For instance, the industry entering into new exclusive talk with EQT private firm and Abu Dhabi investment had already informed its investors and suppliers raw to its skin-health business about the plans regarding future capital structure. By doing so, it can retain its suppliers and investors. Therefore, the supplier bargaining power for the Nestle industry is low.

Buyers' bargaining power. Nestle experiences a high level of bargaining power as a result of the highly competitive environment over its product and services provided. The main reason why the company wants to sell its skin-health business entity that had been used as a holistic nutrition option is a result of failure to receive profit revenue expected, fear of market shift which might affect its revenue, or increased cost of production. When the market competition is high over particular products and services, the industry lacks control over price and spends more capital revenue in promotional offers leading to the high cost of production. To reduce the level of risk, the company needs to transfer risk either by reducing the cost of production or signing a contract by a new market shareholder.

Besides, the buyers can switch from one brand to another, unlike when the competition is low they do not easily switch products, as a result of the low cost of switching from one bran to another by the consumers. It caused by the ability of the Nestle industry or any other market player attempting to influence the price to attract more consumers.

Therefore, from an entrepreneurial perspective, the market is attractive to enter as long as the quality of the brand maintained or improved but at a low price. If the Nestle industry wants to maintain its consumers, it is important to strive to satisfy its clients by improving the quality of products. Therefore, the buyers have great power of driving price down making the bargaining power to be rated as high for the Nestle industry.

The threat of substitutes. The product produced by Nestle industry such as Purina pet food has several substitutes that are easily accessed by its consumers. Besides, most of its products can be made locally at home such as baby food. There exist some allegations that some of the Nestle's nutrition and health food products do not meet health standards. Therefore, it increases chances for selling and buying substitutes among more health-conscious individuals.

From an entrepreneurial point, the industry should consider striving to highlight and put into consideration aspects regarding health and nutrition standards that are exposing the industry to substitute threats. The market is attractive to an individual who wants to venture into production. Based on this, the threat of substitutes rated as high.

Conclusion

In conclusion, by analyzing the current situation of Nestle food production using the five competitive forces, the company can be able to put forward suitable strategies to address main issues exposing and making it vulnerable to its market shares. Besides, the industry can be able to establish its game-changing plan to address emerging trends.

Reference

Dummett, B. (2020). Nestle Enters Exclusive Talks to Sell Skin-Health Business. Retrieved from https://www.wsj.com/articles/nestle-enters-exclusive-talks-to-sell-skin-health-business-11557988848?mod=searchresults&page=1&pos=2

Varelas, S., & Georgopoulos, N. (2017). Porter's competitive forces in the modern globalized hospitality sector-the case of a Greek tourism destination. J Tour Res, 18, 121-131.Retrieved from http://jotr.eu/images/T18/T-18.pdf#page=122