As of the time of the case, 2007, although IMAX was involved in three different industries, the case suggests that it was primarily in Photographic Equipment and Supplier industry primarily because about 51 per cent of its total revenue of IMAX was system sale. Therefore, the following analysis will focus on that industry. Bargaining Power of Suppliers Major suppliers of photographic equipment and supplier industry may include manufacturers producing relevant components of any kind of equipment, contractors making the complete equipment, and so forth.
From my viewpoint, the suppliers’ bargaining power is low because of several reasons. First, along with the development of photographically relevant equipment, although the products firms provide are technically concentrated, there are certain standards recognized and adopted, such as film size of 35 mm or certain sizes of lens filter, in the industry. Therefore, the switching cost for their buyers is low. Second, photographic equipment and supplier industry is an important customer to its supplier group.
Specifically, the usage of the products that the supplier group provides is limited to machinery or equipment in other industries. Besides, although there are few substitute products, which situation generally increases supplier group’s bargaining power, firms in photographic equipment and supplier industry still can easily find other manufacturers with lower cost. Bargaining Power of Buyers The buyer group of photographic equipment and supplier industry is enormous, ranging from B2B buyers like motion picture production firms to B2C buyers like customers who purchase digital single lens cameras.
Considering the difference of consuming difference of buyers and following reasons, the bargaining power of buyers is medium. First, sales volume varies among different segments. For example, motion movie production studios or chain multiplexes may have high bargaining power because of high purchasing volumes; on the other hand, customers who go to Staple to purchase a copy machine have little or no bargaining power. Second, the products in photographic equipment and supplier industry are generally undifferentiated because of aforementioned regular standard existing, and therefore bargaining power increases.
However, exception could be that once new products are launched with attracting feature and highly accepted by buyers, such as IMAX format, the bargaining power decreases. Moreover, because of the great scope of photographic equipment, switching cost varies extremely, taking the difference between cameras shooting in IMAX digital format and little digital cameras from all brands in the market as example. Besides, backward integrations are less likely to happen compared to forward integrations from supplier group. Threat of Substitute Products
In photographic equipment and supplier industry, treat of substitute is low primarily because products from this industry has been evolving for decades and has become essential goods. For instance, copy machine, also provided from the industry, has become essential equipment in firms and institutions. Although the substitute products to this example could be pens and paper, few people really would do that for efficiency concern, and therefore the switching cost is high. Intensity of Rivalry Competition in photographic equipment and supplier industry is intense for reasons.
Because of the specialized nature of the products, generally exist barrier is high for big companies like Cannon, Nikon, and Xerox, and those major competitors are highly committed to the industry by providing products with advanced technology and competing against each other intensively. Although some products in the industry can differentiate themselves from others and protected by patents for a period of time, new film format from IMAX for example, once competitors foresee the great potential profitability, it is not difficult for them to produce products with similar features to split the market share.
Threat of Entry From my viewpoint, the threat of entry in the industry is medium. Take multi-business electronics suppliers such as Sony and Samsung as example, they supply various lines of products and compete against each other. Even photographic equipment is not their primary selling product, supported by strong capital and experienced R&D departments, those companies are able to enter photographic equipment and supplier industry and split a piece of market share, primarily because of their existing reputation from relevant electronics industry.
To deal with new coming competitors, current suppliers are less likely to have continuous price cutting battles because of high fixed costs; instead, it is more likely to increase investments, like R&D, and product lines to keep market share in every targeted segment. An obvious example is that when Sony entered digital single lens camera market with cheaper price, other major suppliers like Nikon and Cannon did not cut price on existing premium products but expanded product lines to launch cheaper products competing directly to Sony.
In short, the barrier is not so high for certain new competitors to come into the industry, but because of the intense reaction from existing players, the impact and threat new comings bring in is moderate. Competitive Advantages Advanced Technology One of the competitive advantages of IMAX and the most distinguishing characteristics that differentiate the company from its competitors is its advanced and unique technology that brings new formats, and other associated system equipment like screen and projector into the industry. The key element contributes to this advantage is that the company was committed to invest in R&D.
In return, the company was granted many patents that would keep the company in a unique position and from direct competition in the industry. Products Quality Control and Relationship Another IMAX’s competitive advantage is its quality control of products and system implementation. With its distinguishing technology, IMAX had been implementing the system into multiple locations, including multiplexes and education institutions, and because of its strict quality control and maintenance service, the company could maintain good relationship with diverse customers.
The agreement of theatrical system implementation and service is an advantage for IMX to generate revenue not only from one-time transactions but long term profit splitting. Brand image and Product Distribution Diversity IMAX has built a unique brand image both from hardware and software perspectives and that also remains the company competitive. First, people would recognize IMAX as a prestigious theatrical system supplier based on their experience from multiple locations.
Especially when major multiplex brands and education institutions carry its system, it’s very likely that people would naturally feel IMAX credible. The consequence is beneficial for IMX to expand business later, such as entering home theater system market. From the software perspective, especially the company’s educational entertainment production, not only create revenue other than just from commercial production but catch the trend of increased consumption of educational entertainment.
The situation help IMAX build up a unique brand image that its production is not only commercial but educational so that people would have more trust in the company’s future motion picture production. To sum up, although IMAX has several competitive advantages, not all of them will last for too long. For instance, competitors could match up with its advances technology by inventing other formats and once they are accepted by end consumers, it will become a big threat for the company; On the other hand, some advantages could last for a long time once IMAX take good care of them.
For example, the brand image being as a well motion picture production supplier is one that can remain in consumers’ minds for a long time and that’s not what new competitors can achieve in a short time. Corporate Advantages From my viewpoint, IMAX has corporate advantages because of its diverse productions from equipment supplier, motion picture production, and distribution industry. However, the most important issue is how to leverage those segments to increase the company’s growth.
Business & Resources IMAX’s core business, photographic equipment and supplier, provides capabilities to enhance all its business. The company has created competitive advantages as mentioned and those advantages enhance the company’s business across industries. For instance, for its motion picture production business, all the films are shot in new IMAX formats, film or digital, by the equipment its own supplier segment produces, it reduce huge cost for format conversion compared to other films shot in different formats y other studios. Organization Because of the narrow scope of the business, coordination among different sectors in the organization is critical for IMX. For instance, the vertical integration of the business allows the company to share resources such as instant feedbacks for its R&D department from motion picture production sector. By sharing these experience and information, the company will have the ability to forecast and adapt to new opportunities shortly in the future for every sectors in its value chain.
In short, IMAX’s corporate advantages come from its competitive advantages and vertical integration. Because its business is based on unique technology and coordinated the whole value chain, it is not easy for competitors to imitate and therefore time for its corporate advantages is expected to last. Recommendations Keep Diversity of Production To answer the question that if IMAX would lose its differentiation because of numerous Hollywood films, my recommendation is that IMAX should keep doing converting Hollywood films and at the same time producing educational films.
One reason is that format conversion brings good revenue for IMAX and people would be able to tell the difference between Hollywood movies in IMAX format and its own production. On the other hand, IMAX should keep catching on the trend of the increasing consumption of educational entertainment, because the company has been building up a good image distributing films in educational institutions and such would also prevent the erosion of its brand image.
Not Sold to Larger Studios Another recommendation for IMAX is that it should not be sold to a larger studio, and the main reason is that IMAX has already created its own competitive and corporate advantages and they are not easy to imitate. What IMAX should do is properly exploiting its assets, both tangible and intangible. Although the company in motion picture production industry is small and face competitors like Pixar, it should still stay on the track catching the trend by coordination and support from its other business ectors. Expanding Market & Production Diversity IMAX’s new technology is standing in a niche market without sustainable growth. Even though the company is able to keep generate great revenue from equipment sales, saturation in USA will become an issue someday. To deal with that, IMAX has to make a short term strategy doing business in USA and expand to global market, because from Exhibit 11, we can see that films generated revenue approximately two times overseas more as those in USA.
However, for long term strategy, IMAX has to find a way to expand its business in a slow-growing market. For instance, the company can expand its product lines into home theater system because the case indicates a high usage rate of DVD, and the system is still highly relevant equipment to the current product lines. By doing so, IMAX can benefit from creating potential revenue from new sources and from keeping its brand image as a innovating company in the equipment supplier industry.
Courtney from Study Moose
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