Question

Hi, can you answer this question in more detail?

Subject: Business Policy and Strategy

The G2000 Group was founded by Michael Tien in 1980 in Hong Kong. The label G2000, first introduced in 1985, was positioned as a specialty clothing chain distributing fashionable men’s and women’s career wear. Today, the G2000 Group is a multi-brand specialty retailer offering an assortment of men’s and women’s apparel and accessories, operating under different labels: G2000 MAN, G2000 WOMAN, G2000 studio, BLAACK and At Twenty.

(1)

As for the situation analysis of G2000 company, it involves the following topics, shows your theoretical understanding, and uses Porter's 5 forces to analyze the external environment for the local market of Hong Kong.

(Words: 700 Don’t direct copy)

• Threat of new entrants
• Bargaining power of buyer
• Bargaining power of supplier
• Threat of substitute product
• Intensity of rivalry among competitors

Answer 1

Porters Five forces is a model that identifies and analysis the five external forces that shapes an industry and helps determine its strength and weekness.The Five Forces model is named after Micheal E Porter who is a business school professor at Harward.

Threat of new entrants: A companys power is effected by the force of new entrants into its market. An industry with strong barriers to entry is ideal for existing companies within that industry since the company would be able to charge higher prices and negotiate better terms.New entrants in an industry bring new capacity and the desire to gain market share.The higher the barriers to entry the lesser the threat to existing companies. The existing public shows loyality to the brands that they are familiar with which hence becomes difficult for the new entrants. Which inturns demands a huge capital investment that slows down new entrants.

The competition in the retail industry is quite intense. As a result of this, the existing players may impose barriers to entry in the industry for the new players. These barriers can be imposed by strengthening the distribution infrastructure and the supply chain framework. Barriers for the new entrants can also be imposed by gaining a cost advantage or low-cost leadership and also in the form of economic regulations or trade barriers for foreign players. Apart from this, the threat to the entry of new players could be from the differentiation of the product, capital investment strength and strong loyalty of the customers for the existing players.

Bargaining power of buyer: The ability that buyers have to drive prices lower or their level of power is one of the five forces. It is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a company to find new customers or markets for its output. A smaller and more powerful client base means that each customer has more power to negotiate for lower prices and better deals. Buying power is low however when customers purchase products in small amounts, act independently and when the seller’s product is very different from any of its competitors. The internet has allowed customers to become more informed and therefore more empowered. Customers can easily compare prices online, get information about a wide variety of products and get access to offers from other companies instantly.

Bargaining power of supplier:The next factor in the five forces model addresses how easily suppliers can drive up the cost of inputs. It is affected by the number of suppliers of key inputs of a good or service, how unique these inputs are, and how much it would cost a company to switch to another supplier. The fewer suppliers to an industry, the more a company would depend on a supplier. The concentration of suppliers and the availability of substitute suppliers are important factors in determining supplier power. The fewer there are, the more power they have. Businesses are in a better position when there are a multitude of suppliers. The factors which govern the strength of the bargaining power of the suppliers are the uniqueness of the inputs or the raw materials, the quality of the product which is offered by the suppliers and more demand for the supplier’s products will increase the bargaining power of the suppliers.

Threat of substutute:The last of the five forces focuses on substitutes. Substitute goods or services that can be used in place of a company's products or services pose a threat. Companies that produce goods or services for which there are no close substitutes will have more power to increase prices and lock in favorable terms. When close substitutes are available, customers will have the option to forgo buying a company's product, and a company's power can be weakened.However, since both coffee and energy drink fulfill a similar need (i.e. staying awake/getting energy), customers might be willing to switch from one to another if they feel that prices increase too much in either coffee or energy drinks. This will ultimately affect an industry’s profitability and should therefore also be taken into account when evaluating the industry’s attractiveness.If we analyze the retail industry, various factors such as availability of alternative options for buying like online shopping, different modes of payment, availability of home delivery service, and cost of the substitute products can intensify the threats from the substitutes.

Intensity of rivalry among competitors:This last force of the Porter’s Five Forces examines how intense the current competition is in the marketplace, which is determined by the number of existing competitors and what each competitor is capable of doing. Rivalry is high when there are a lot of competitors that are roughly equal in size and power, when the industry is growing slowly and when consumers can easily switch to a competitors offering for little cost. A good indicator of competitive rivalry is the concentration ratio of an industry. The lower this ration, the more intense rivalry will probably be. When rivalry is high, competitors are likely to actively engage in advertising and price wars, which can hurt a business’s bottom line.The other crucial factors which determine the intensity of the competitive rivalry are the pricing of the products, service quality, strategic alliances as mergers/acquisitions, etc. High competitive rivalry can be regarded as a threat because it weakens the profit prospects and the prices. On the other hand, low competitive rivalry can be viewed as an opportunity because this will open new avenues for maximizing profits for the firms.