orter’s five forces
In determining the competitive intensity and attractiveness of the market, Porter’s five forces is a framework that would help analyze the manufacturing industry of Lincoln Electric and observe the external and internal environmental factors that influence business strategy development for companies within the industry. The five forces are assumed to determine competitive power in a business situation in which these five forces are Supplier Power, Bargaining Power, Competitive Rivalry, Threat of Substitution, and Threat of New Entry.
These industry possess characteristics that protect the high profitability of firms, with that said, the threat of entrants within this market is relatively low. This makes entering the market difficult for new startup companies due to the high levels to entry barrier. One of the factors contributing to the barriers to entry is the high capital requirements that are needed in order to compete in the market. Large investments are required in acquiring facilities and maintaining them along with purchasing the expensive equipment relative to manufacturing welding products. Purchasing the equipment is not enough but new companies are also required to develop the advanced technologies before effectively competing in which is really time consuming. With these asset specificities, potential entrants are discouraged to commit to obtaining these specialized assets that have no other means of use or profitability if the venture fails. When existing firms acquire these specialized assets, they are more inclined to resist efforts by other competitors from stealing market share, therefore enhancing the competitive disadvantage for new entrants.
When new competitors enter the market, they will have high costs of production due to the lack of economies of scale. Existing large companies thrive in this industry because they have the ability to produce the next level of unit at lower costs relative to the size and efficiency of the existing companies. They have all the necessary resources to maintain this level of production and profitability which start of companies lack. To maintain low-cost efficient level of production, firms would have to sell at premium price which can be achieved through successful product differentiation. Lastly, of the many other factors that may contribute to the barriers of entry, geographic locations are important to assess when considering competitive disadvantages of entering the market as an undeveloped company. Existing firms have the opportunity to expand and are first movers in acquiring facilities at practical locations. All of these components are contributors to the high levels of market entry which supports the positioning of Lincoln Electric within the industry.
The threat of Rivals is another force to consider when analyzing the competitiveness of the industry. The competitive rivalry within the welding equipment manufacturing industry is considered to be moderate due to...