Question

Subject: Global Strategic Management

12.  Industries are characterized by very different levels of profitability, caused by different industry structures and competition.

1. Provide two examples of “high-profit industries” and two examples of “low-profit industries”. Briefly explain your choice.
2. Now select only one industry (among the four examples you have previously provided) and apply the Five Forces framework to the selected industry to illustrate why its level of profitability is so high (or so low).

Answer 1

High-profit industry: The high-profit industry assures maximum profit in minimum effort and investment. For example: The real estate industry and warehouse and storage industry.

Low-profit industry: The low-profit industry assures profit after a large investment of effort and resources. For example; oil and gas extraction industry and beverage manufacturing industry.

My choice of industry is the high-profit industry. The high-profit industry is capable to deliver a maximum output of the effort invested on it.

Five forces analysis of beverage manufacturing industry

• Bargain power of the buyers: The beverage manufacturing industry is one of the largest industries. It provides sufficient scope of business for both new and existing entrants. Around 56 gallons of soda is consumed by the beverage manufacturing industry. The cost of the products varies from region to region which is impactful on buying capability o the consumers. The bargaining power of consumers is high. Thus, they never stick to any particular brand. The companies under this industry must look out the consumer buying power.
• Bargain power of suppliers; The industry expects the best quality product from the suppliers. The companies switch the supplier regularly in order to deal with the high demand of the suppliers.
• Threats from new entrants; The beverage manufacturing industry is one of the largest growing industries. Various companies are coming with different kinds of beverages with different ingredients. Thus, the existing companies face threats from the new entrants.
• Threats form substitutes: The costly beverage affects the sales as the consumer switches to different brands of drink due to quality and price factor.
• Rivalry among the existing players: There is strong rivalry among the existing beverage organizations. Each company brings innovative product strategy, marketing strategy and pricing strategy to expand their consumer base.