The Canadian fradistat industry consists of four companies: Acme Ltd., Beaver Ltd., Canco Ltd., and Deeco Ltd. Though the industry is growing, it needs highly skilled workers where the products cannot be replicated with the current technology but the company focuses on local markets. Canco Ltd. was established in 1976 in Atlantic Canada and is the second largest company with a market share of 29% but the profits in 2007 were only third highest with the products of average quality. The company’s flagship plant in New Brunswick, for the past three years, has been operating below its capacity, as total industry sales in the eastern region have grown slowly and the company lost some of its share of the market to Beaver’s lower-priced products. Though Canco’s products have sold well in Western markets, the plant in Alberta was insufficient to meet the orders but the plant’s issue of bond was well-received by the market.
Problem Statement and Objectives
How does Canco Ltd. improve the strategic positioning and profitability that could enhance its potential to compete in the industry? The company can use overtime to increase output in any plant to 20% above the plant’s capacity. In western region the distribution costs are high while the manufacturing cost of eastern region is increasing in addition the tight labour market for skilled workers results in an increase of 15% in wages. The industry focuses on domestic market and the company has to face competition from the Beaver’s low priced products.
Canadian Fradistats industry is relatively an attractive industry as there are only 4 companies manufacturing fradistats, the key components of many industrial products. In addition there are no close substitutes for the products that the companies have great bargaining power over the buyer. Canco’s strengths outweigh weaknesses as it has second highest shares in the market but its low marketing reduces its sales. Company’s threats outweigh opportunities where the company has to face competition from the high quality products of Acme and the low priced products of Beaver where the return on equity is only third highest while the company has second high market share.
Porter’s Five Forces
The suppliers are manufacturers and distributors. In this industry suppliers power is high because there are only four suppliers in the industry to satisfy customer’s demands. Each company is providing products of different quality at different prices. As there no substitutes, suppliers have great bargaining power. Fradistats are key components in many industrial products that suppliers have advantage over buyers.
Buyers are the manufacturers of many industrial products. The buyers have low bargaining power because the number of suppliers is a few in the industry. The substitutes are not many as these products are highly specialised components that cannot be replicated with current technology; the switching costs are high for buyers.
Threat of Substitutes
The threat of the substitutes is very low in this industry. There are not such substitutes for these products as fradistats are the key components of many industrial products and can’t be replicated with current technology.
Threat of New Entrants
The threat of new entrants is low as the barriers to entry are fairly high. It would take substantial time and investment to compete directly with the existing branded products in the industry. It is very risky to make a new entry in a highly competitive environment and even in past few years it become a tight labour market for skilled workers and it will be really hard to attract them.
The industry is highly competitive as there are only4 companies which produce identical products. The companies compete mainly on price and quality. As the products are identical, and key components in many industrial products, the companies compete each other by marketing and by increasing sales volume.
There are not many political factors in this industry other than the safety regulations, paper works for transportations, shipping license and agreement.
The industry seems to be less cyclical but the production will be low during recession and the sales of companies will grow rapidly during good economic times. As the industry consist of four companies and produces key components that cannot be replicated with technology; and needs skilled workers, buyers have to buy the products to continue the production. The companies with great sales can get financing at the interest rate of 8%.
In the industry, many companies are providing high, average and low quality products at different prices so buyers can choose according to their needs. The advertising plays an important role in the industry that company can enhance their market share. The quality and price plays an important role in creating an image which in turn enhance sales.
Though technology could enhance the productivity of workers and decrease the labour costs, fradistats cannot be replicated by current technology. But the introduction of technology needs huge investment. Technology provides competitive advantage in term of decreasing costs and improving efficiency. In this industry, technology could save increasing wages which increased by over 15% over the past three years in the industry.