The five porter’s model that was developed in 1980 has transformed into a vital tool for analyzing a firm’s industry in strategic processes and it is founded on the perception that a corporate strategy should encounter the threats and opportunities in the firm’s external setting. Precisely, competitive strategy of a firm should be based on the comprehension of the industry structure and the manner in which these structures can shift. As a result, Porter introduced five competitive forces that nurture every industry and every market because they form the determinants of the level of competition and, therefore, the profitability and appeal of the industry. Therefore, a firm’s corporate strategy should be focused on modifying the five competitive forces in a manner that the overall position of the business in relation to the industry is improved. Therefore, the industry in which Casio American Inc. operates has a five porter’s model as be illustrated below:
Rivalry
When referring to the old economic structure, competition among competing companies pushes profits to zero, but there is no perfect competition in the market. Therefore, companies are striving to attain competitive advantage over other competing firms, which is similar to what Casio electronic Company is aiming (Porter, 2008). In the electronic industry in the United States, there exists a high competition among companies that mainly comprise of portfolio traversing large market segments like SANYO Company with its Sonny. Each of these brands like SANYO and Sonny are relentlessly striving to establish its image and concept with technology being the driving factor. Additionally, these firms design expensive marketing campaigns as a competition strategy and as a means of raising their power of influencing potential customers.
Potential Entrants
Competition to a firm is not only posed by established companies in the industry but also by the chances that new firms may find their way into the industry. Theoretically, firms should be able to enter and leave the market with ease, and existence of such structure implies that profits will always be maintained at nominal. However, markets have factors in play that guard high profit level companies and prevent extra rivals from gaining entrance referred to as barriers of entry. The electronic industry is very competitive with the competition divided among huge firms like SANYO and SONY, which acts as a barrier for entrance because new firms will have to out a lot of effort in order to overcome such competition. Capital serves as one of the greatest barrier to entry into the US electronic industry because a design of a product like a watch demands that huge funds are raised in addition to the technology level that may be required. Hence, the barrier to entry into the United States electronic industry is high, as new entrants will have to compete with well-established brands.
Bargaining Power of Buyers
This power refers to the influence of the customers on producing firms like Casio where a high power of buyers will imply that they determine the prices of the goods. Casio is in the electronic industry that offers plenty of differentiated products from competing brands. Therefore, the many differentiated products from different brands have limited customer’s free will of shifting from one product to another. In that, customer loyalty is very high because it is nearly impossible for a client who wants to buy a Casio G-Shock to switch almost immediately to Rolex watch, because, even though they are both luxurious brands, the sell two different watches. Hence, the bargaining power of buyers is low in the US electronic industry because the large firms mainly set prices.
Bargaining Power of Suppliers
Producing industries need the supply of raw materials like labor and electronic chips that result to a buyer-supplier association between the producing market and the companies supplying the raw materials; hence, if the suppliers are powerful, they can determine the selling price. In the electronic industry, there also exist firms that produce goods and those with their own factories that do not rely on suppliers (Grundy, 2006). Casio has its own factory where it creates and assembles products; hence, the power of suppliers in the industry is low.
Threat of Substitutes
Substitute products are goods of other industries and a threat exists when a change in price of goods from other industries affects the demand of goods in another industry. In the electronic industry, there are no substitute products from other industries; hence, the threat of substitute products is low. However, the G-steel watch among other watches can literally have substitute products because people have become fond of glancing at the smartphones to check the time.
In conclusion, the porters five model was is based on the concept that corporate strategies of a firm like Casio American Inc. should be designed in a manner they the meet the threats and opportunities of its external environs. The level of potential entrants into the electronic industry is low because of the cost needed to design new products in addition to the already established brands dominating the market. Additionally, Casio Company faces a low threat of substitute products because the industry prices cannot be affected by the changes in prices from other industries.
The bargaining power of suppliers is also low because Casio Company has an established factory in which it designs and assembles its products; hence, doing away with influential suppliers in the industry. The bargaining power of buyers is also low because of customer loyalty where clients who are aligned with a particular brand will most likely no change their taste at the buying point. Finally, the rivalry in the rivalry in the electronic industry is considerably high because established brands like SANYO and Sony are striving to establish their images.
References
Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213-229. doi:10.1002/jsc.764
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93.
