Porters Five Forces For Steel Industry Worksheet

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Threat of
New Entry

Supplier Power Competitive Buyer Power

Rivalry

Threat of
Substitution

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Competitive Rivalry:

• The steel industry in India is highly competitive, with several major players vying for market share.
• Intense competition can lead to price wars, reduced profit margins, and constant innovation to differentiate products.
• Companies need to focus on operational efficiency and innovation to stay competitive.
Analysis:

Intense competition among existing steel producers is a significant factor. Overcapacity issues and a price-focused market
contribute to a higher level of rivalry.

Threat of New Entrants:

• It is Low to Medium
• The steel industry is capital-intensive and requires substantial investments in infrastructure, technology, and raw materials.
• Existing companies benefit from economies of scale, making it challenging for new entrants to compete on a large scale.
However, niche or specialized steel products might attract new entrants

Analysis:

 High government regulation tends to act as a barrier to entry, making it more difficult for new entrants to navigate the industry
landscape.
 Having proprietary techniques or patents can act as a barrier to entry, giving an advantage to existing players
 High asset requirements act as a barrier for new entrants, making it more difficult for them to establish themselves in the
industry
 If high-profit margins are widely known, it can act as a deterrent for new entrants, as they may perceive it as difficult to
compete and achieve similar profitability.
 A rapidly growing industry attracts new entrants, as there is perceived potential for profit. This increases the threat of potential
entrants

Threat of Substitution:

 It is moderate to high
 High in applications where strength is not a crucial concern but cost is(e.g. plastic, wood, synthetic materials, fiberglass)
 Moderate in applications that require strength since substitute materials are just not strong enough
 Threat of cheaper Chinese steel could take sales from domestic players too.

Analysis:

 If steel is considered a commodity, it might face higher substitution threats.

 A large number of competitors could increase substitution risks.
 If competitors are concentrated in the same location, substitution risks may be higher
 Dramatic differences with competitors can reduce substitution risks.
Buyer Power:

 It is moderate to high
 High in applications where strength is not a crucial concern but cost is(e.g. plastic, wood, synthetic materials, fiberglass)
 Moderate in applications that require strength since substitute materials are just not strong enough
 Threat of cheaper Chinese steel could take sales from domestic players too

Analysis:

 If the steel company has five or fewer customers, this would suggest a higher degree of buyer concentration.
 If buyers have considerable influence on the pricing of steel, it suggests higher buyer power.
 Selling to distributors instead of the end user may reduce direct buyer power as the distributor acts as an intermediary.
 Being the only supplier for a buyer increases the buyer's dependence and, in turn, reduces buyer power.
 A good relationship with buyers or their representatives can mitigate buyer power.

Supplier Power:

• For the steel industry, it is low to medium

• The steel industry in India relies on raw materials such as iron ore and coal.
• The bargaining power of suppliers can be influenced by factors like the availability of these raw materials and the number of
potential suppliers.
• While there are multiple suppliers, the concentration of key resources can give suppliers some leverage.

Analysis:

 It is challenging to find alternative suppliers quickly, it increases supplier power.

 If you are a relatively small buyer, suppliers may have less incentive to cater specifically to your needs.
 If the supplier has a monopoly on a critical component, it significantly increases their power.
 If you have a strong relationship, suppliers may be more willing to work with you, potentially decreasing their power.
 If the supplier is flexible, it can be an advantage for the buyer, reducing supplier power.