Vershire Porter's Five Forces
1. Prepare an industry analysis using Porter’s 5 Forces model.
What are the key determinants of Vershire’s aluminium can profitability? Explain. (20%) * Barriers to entry
I would suggest that the barriers to entry are relatively high in this industry. Although there would not be huge capital requirement to enter into the aluminum cans producing business and customer-switching costs are considered to be low, the fact is that the competition in this industry is very intense.
There are already many aluminium cans manufacturers exist in the market, with some large packaging manufacturers dominating the market shares. Some large beverage processors even manufacture cans themselves (one large beverage company produced one-third of its own container requirement and ranked one of the top five beverage producers in the industry). Also, three of the global aluminum supplier companies also themselves manufacture aluminum containers.
Although there would be high demand in the industry (from both small and large breweries and soft drink bottlers), there are too many competitors that could keep new entrants out of the market.
* Power of suppliers
There are four global companies supplied aluminum to can producers: UC Rusal, Alcoa, Alcan, Chalco (as shown below). There are many buyers (can producers) in the market while there are only few major suppliers. In addition, aluminum is a highly differentiated product. Resources of bauxites, the raw material for aluminum, are not widespread throughout the world. The main deposit of high-quality bauxites are already dived by those main players. Therefore, whoever owns the resources ‘wins the game’.
Today the ‘Big Ten’ aluminium manufacturers are:
Although it can be argued that steel is one of the substitutes, aluminum has many advantages over steel: it is easier to shape and allowing more attractive packaging; it reduces the problems of flavouring and it reduces the transportation costs because of its lighter weight.
What are the key determinants of Vershire’s aluminium can profitability? Explain. (20%) * Barriers to entry
I would suggest that the barriers to entry are relatively high in this industry. Although there would not be huge capital requirement to enter into the aluminum cans producing business and customer-switching costs are considered to be low, the fact is that the competition in this industry is very intense.
There are already many aluminium cans manufacturers exist in the market, with some large packaging manufacturers dominating the market shares. Some large beverage processors even manufacture cans themselves (one large beverage company produced one-third of its own container requirement and ranked one of the top five beverage producers in the industry). Also, three of the global aluminum supplier companies also themselves manufacture aluminum containers.
Although there would be high demand in the industry (from both small and large breweries and soft drink bottlers), there are too many competitors that could keep new entrants out of the market.
* Power of suppliers
There are four global companies supplied aluminum to can producers: UC Rusal, Alcoa, Alcan, Chalco (as shown below). There are many buyers (can producers) in the market while there are only few major suppliers. In addition, aluminum is a highly differentiated product. Resources of bauxites, the raw material for aluminum, are not widespread throughout the world. The main deposit of high-quality bauxites are already dived by those main players. Therefore, whoever owns the resources ‘wins the game’.
Today the ‘Big Ten’ aluminium manufacturers are:
Although it can be argued that steel is one of the substitutes, aluminum has many advantages over steel: it is easier to shape and allowing more attractive packaging; it reduces the problems of flavouring and it reduces the transportation costs because of its lighter weight.