Perform a brief 5 forces analysis on the textile industry. For each force, write no more than 1 or 2 sentences to explain the strength of the force. Please state the overall attractiveness of the industry at the end of your answer.
The textile industry consists of firms that manufacture and distribute fabrics for use in clothing, furniture, carpeting and so forth. Several firms have invested heavily in sophisticated manufacturing technology; many lower cost firms in Asia have begun fabric production. Textiles are not branded products. Recently, tariffs on some imported textiles have been implemented. There are numerous firms in this industry, the largest have less than 10 percent market share. Traditional fabric materials (such as cotton and wool) have recently been threatened by the development of alternate chemical based materials (such as nylon and rayon), although many textile companies have begun manufacturing with these new materials as well. Most raw materials are widely available, although some synthetic products may be in periodically in short supply. There are numerous textile customers, but textile costs are usually a large percentage of their final product’s total cost. Many users shop around the world for low prices on textiles.
Mini Case Scenario (1)
International cow packers (ICP) is a $12 billion meat processor (slaughter, processing, and packing). Founded in 1943, ICP has grown to become the largest beef and pork processor in the United States (revenues come 90% from beef and 10% from pork), and also has a growing export market to Japan. The company follows a cost strategy, delivering USDA graded meats primarily to the institutional (schools, prisons, hospitals) and supermarket channels. ICP’s entire value chain is organized to deliver volume product at the industry’s lowest per-unit cost. Its supplier industries, primarily cattle and swine feedlots have relatively little power since prices for these raw materials are determined in the commodity markets. While entry barriers to the industry are high due to high minimum start-up costs, industry rivalry is primarily between the three large companies (including ICP) that control 80% of the market for processed meats. The threat of substitutes is high with an increasing trend for consumers to favor poultry and other non-beef proteins. Buyers are also powerful since supermarkets are relatively concentrated at a regional level and end-consumers have ample choices.
1. Based on this scenario, is ICP’s low-cost strategy appropriate for its industry? Why? (2 points)
2. Based on the scenario, what risks is ICP accepting by adopting its low-cost strategy? (2 points)
3. Based on the scenario, what can ICP do to decouple itself from the ups and downs of the pure commodity markets? What specific actions might ICP undertake? (3 points)
Mini case scenario (2)
Your friend from high school calls you and asks to borrow $10,000 so that he can open a pizza restaurant in his hometown. He acknowledges that there is a high degree of rivalry in the market, that the cost of entry is low and that there are numerous substitutes for pizza. However, he believes that his pizza restaurant will have some sustained competitive advantages. For example, he is going to have sawdust on his floor, a variety of imported beers, and a late night delivery service.
- Will you lend him the money?
- Why or why not?