Question

Apply the five forces framework to analyze the sustainability of an industry’s profits.

Short answer

The five forces frame work are :

1. Threat of new Entrants.

2. Bargaining power of suppliers.

3. Bargaining power of Buyers.

4. Threat of substitute products or services

5. Rivalry among existing competitors

Step-by-step solution

(a) Threat of new entrants.

In the office furniture industry, the sustainability characteristics and certification requirements of furniture products are likely barriers to new entrants. Larger, incumbents firms are better able to build at scale and to more efficiently certify products that can add to the LEED certification of new buildings.

(b) Bargaining power of suppliers.

The bargaining power of suppliers increases when relatively few alternatives are available to downstream firms, allowing suppliers to dictate prices.

One beverage company has stated that they face increasing “raw material, commodity, and water costs as a result of weather, climate changes, and the availability of water.

(c) Bargaining power of buyers.

Large retail customers can have significant bargaining power over suppliers and influence the sustainability characteristics of the product they purchase and ultimately sell to the consumer.

This action may directly result from a retail company’s competitive strategy to address growing consumer demand for sustainable products.

(d) Threat of substitute products or services.

New regulations and growing consumer preference for sustainable products are changing the containers and packaging industry.

As trends shift in favor of more environmentally friendly packaging, demand for traditional substitute materials (metal, glass, plastic, paper) will also change as their environmental characteristics become better understood.

(e) Rivalry among existing competitors.

Firms constantly position and re-position themselves to gain a competitive advantage in the marketplace.

The firms typically compete on price or with new products and services but also increasingly differentiate themselves through sustainability performance. For some companies, sustainability has become central to their rivalry, not just for building brand equity.