Hydrocan
Essay Preview: Hydrocan
Report this essay
Dibrell Case:
To assess the competition and attractiveness of the tobacco industry, Porters five forces model of industry competition will be utilized. Using analysis from the Porter model, the tobacco leaf industry is shown to be an impenetrable market using three factors: 1) the tobacco industry is presently encapsulated in a state of flat growth, 2) the players in this industry are absorbing smaller companies, and 3) mergers amongst the big four tobacco companies have been considered. With support from Porters model, these three factors will show the associated risks that a prospective entrant would have to endure in order to penetrate the tobacco leaf industry.
The first of Porters five forces is the threat of new entrants. Threats of new entrants into the tobacco leaf industry are low according to the material presented in the case. Reasons that may lead an entrant to conclude this are associated with low access to specific tobacco types and subsequent financial capital that would be required for a new player to infiltrate the industry. Corporations currently involved in the tobacco leaf industry are international companies that have tobacco plantations all over the globe. Furthermore, the customer base that this company has spans over 60 countries; this would seem to be the largest tobacco company in the world, however, it is not as it places third in terms of the four major international tobacco players in the world. The size of Dibrell and other tobacco corporations has allowed them to differentiate a standard product (the quality of their flue-cured and burley tobaccos) and in turn retain customer loyalty; this was made possible by processing standards that exceeded the demands of their customers. Accordingly, the possibility of a new entrant is unlikely because the industry is saturated with big corporations that meet the desires of their consumers.
Porters second force is the bargaining power of buyers. The bargaining power of buyers in this industry would appear to be high for the reason that fifty three percent of Dibrells sales stem from three corporations and a further seventeen percent of Dibrells sales come from their associated subsidiaries. Therefore, in order for manufacturers to maintain their cliental they must continue to have a consistent product to meet the demands of their consumer. Profit margins associated with manufacturers is sufficient for the reason that the main focus of their business is to provide cigarettes, which is contingent on purchasing tobacco at a cost that can be turned over for their profitability. Also, backward integration is highly unlikely because tobacco leaf processing corporations do much more then supply the product, as they prepare, manufacture, and market the products using competencies lacked by suppliers.
The third force in Porters model is the bargaining power of suppliers. This bargaining power associated with the suppliers is contingent on the diversification and number of suppliers available. Accordingly, the fewer suppliers equate a bigger bargaining power over the buyer for the associated supplier, which is present in the tobacco leaf industry. For example, their are four major tobacco players in the world located within two hundred miles of each other, therefore, this represents a select amount of alternatives to the buyer. Another factor in this industry that ways in favor of the supplier is the fact that their customers are required to purchase their product, as their manufactured goods are solely dependent
upon the tobacco leaf industry. Hence, tobacco leaf suppliers seem to have an upper hand by providing a product that is partially manufactured and by existing in limited numbers, making