Analysis and Recommendation Using Porter’s 5- 5-Forces Model
A practical framework for assessing an industry’s desirability and formulating strategic choices is provided by Porter’s Five Forces model. I will use this model to evaluate the nail and bolt production sectors of Ohio Nail Manufacturing’s (ONM) possible purchase of Ohio Bolt.
Threats of New Entries
Accessibility is comparatively poor in the nail production (Loveday, 1980). The raw ingredients (zinc and steel wire) are readily available, and the technique used in nail manufacture is simple. Given the circumstances, there is still a modest danger from new competitors. But the manufacturing sector needs more capital-intensive procedures, such as producing bolts using cutting-edge machinery (Loveday, 1980). With Ohio Bolt as the second-biggest participant, there’s a significant entry barrier because of their established presence.
Bargaining Power of Suppliers
Suppliers with modest influence in the nail production business include those that offer steel wire and zinc. The convenience of having a choice between several different providers contributes to the overall competitive pricing. Low inventory levels and ONM’s just-in-time (JIT) approach provide even more control over supplier relationships (Loveday, 1980). However, manufacturing bolts requires specific raw materials, which gives the supplier a little more clout in the bolt manufacturing process Loveday,1980). However, Ohio Bolt’s probably already-existing supplier ties may assist in lessening this problem.
Bargaining Power of Buyers
The primary consumers in the nail sector are usually big construction companies, and they often ask for quotes from many manufacturers Loveday, 1980). Purchasers will have significant negotiating leverage in this situation. Buyer-supplier relationships are more balanced in the bolt sector due to varied market areas such as civil engineering and automotive (Loveday, 1980). Ohio Bolt’s reputation may allow some price control since these portions often call for specialist bolts.
Threats of Substitutes
There is little risk of alternatives for nails and bolts in the building and manufacturing sectors because of their specific functions (Loveday, 1980). Basic fastening operations need pins because they are simple and economical. Bolts, on the other hand, are essential components of intricate equipment and structures because of their strength and capacity to support loads (Loveday, 1980). These fasteners are impervious to the danger of replacements within their respective domains because of their distinct functions and irreplaceable qualities.
Industry Rivalry
In the very competitive nail manufacturing sector, ONM comes in third place in sales and profitability (Loveday, 1980). Low product differentiation and fierce competition lead to price-based competition. The bolt business, on the other hand, seems to be more stable and to exhibit less ruthless rivalry (Loveday, 1980). A more concentrated and maybe less competitive field is suggested by recent advances and Ohio Bolt’s impressive performance.
Recommendation
It is recommended that ONM go forward with the purchase of Ohio Bolt based on the study performed using Porter’s Five Forces model. The bolt manufacturing business seems more promising than the nail manufacturing industry, which is highly competitive and may experience pricing challenges. The established player positions and increased capital needs in the business make it a more appealing option for ONM’s growth. As the second-biggest participant in this market, Ohio Bolt provides expansion prospects and a varied clientele. This purchase emphasizes the industry’s potential profitability and appeal, which aligns with Porter’s model. To maintain its competitive edge and adjust to changes in the sector, ONM must exercise caution.
References
Loveday, A. J. (1980). Technology, Cost Accounting, and Management in the Cut Nail Industry of the Upper Ohio Valley, 1865-90. Business and Economic History, 41-50.
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