Porter’s Five-Forces’ Analysis of the Spanish Olive Oil Industry Essay

Custom Student Mr. Teacher ENG 1001-04 3 January 2017

Porter’s Five-Forces’ Analysis of the Spanish Olive Oil Industry

Introduction

The cultivation of olives and the production of olive oil have deep roots in the history of Spain. The olive, a symbol of peace, and the tree which produces olives (olea europea) are known to have been cultivated around the Mediterranean about 6000 years ago. Its origin could be the eastern Mediterranean, but most probably it originated in Greece. Stone tablets found dating back to 2500 BC from the court of King Minos of Crete make reference to this plant. The olive tree was brought to the Iberian Peninsula by the Phoenicians and the Greeks. Olive cultivation was expanded considerably by the Romans, who also improved the techniques of oil production. Olive oil from Hispania was highly regarded by the inhabitants of Old Rome, as well as by the rest of the Roman Empire, that considered it of superior quality.

Nowadays Spain is the world’s biggest producer of olive oil. With an average annual production of 700,000-800,000 tons, and more than 300 million olive trees covering more than 2 million hectares, its acreage represents more than 25% of the world’s olive surface. The EU/27 production of olive oil accounts for about 73% of the world’s production of which Spain has a share of a 46%. Spain is also the first exporter worldwide, with an annual average in the last 10 years of about 400,000 tons exported. Spanish olive oil is exported to more than 100 countries on 5 continents to: EU, Australia, USA, Brazil, Japan and recently China as main destinations.

1. Intensity of current competence

Nowadays there are more than 44 exporting Spanish companies and more than 120 brands of olive oil in Spain. This sector has a perfect competence, as there are a large number of suppliers and customers there is a very big competence. The product is homogenous, differentiated by the Denomination or Origin; we have 32 different just inside Spain. The olive oil as a product is in a mature state, keeps maintaining and with a little growth from new intensive production that it’s starting. As they have a very little share of the market, the companies can’t influence in the prices. Also there aren’t exit barriers as legal or psychological, neither switching costs, so the buyers can move for another supplier with any costs at all. All these characteristics determine that the intensity of the competence in the olive oil sector is very high.

2. Menace of New Entrance

As we are analyzing a perfect competence market, there is a lot of competence. The entry barriers are low, as the scope economies aren’t really relevant; also there aren´t legal barriers to entry and the switching costs are low. The proprietaries don’t need to have an experience knowledge of the sector to entry or an excessive control of the distribution channels, and don’t need a very high initial capital outlay. The access to raw material is easy, as we produce near 1,000,000 tons of olive oil per year, so the raw materials are highly available. Assuming all these attributes of the sector we can say that the menace of new entrance are high, but in the other hand as it is an industry with a very strong competence it wouldn’t be attractive to a lot of possible competitors.

3. Menace of substitute products

The most significant substitute products for the olive oil are the rest of vegetable oils. For example the soya oil, sunflower oil, palm oil or corn oil. Do these products improve the relationship quality-price compared to the olive oil? All the surveys agree that the customers prefer the quality of the olive oil, than the lower prices of the other vegetable oils. “The society associates the olive oil properties with benefits for their health.

A large part of the Spanish considered to have a positive effect for the treatment and prevention of diseases such as atherosclerosis (28’64 %), cholesterol (17,15%), cardiovascular risks (7.80%), diabetes (7.46%) or tuberculosis (4.46%).” Also it is been proven that the olive oil is the only vegetable oil that maintain all its chemical properties at high temperatures, being healthier than the other oils. Furthermore the olive sector haven’t accelerate technological changes they currently use standard technologies, with low changes, only the companies of largest market share can afford the investment in new production techniques.

4. Bargaining power of Suppliers / 5. Customers

The concentration of suppliers related to the buyers is very low as there are a lot of suppliers for a lot of customers; suppliers have a very low bargaining power. There is a big pressure and competence inside the industry. There is perfect information for example as the prices of the oil settled by Europe that are available in the internet for example for any consumer that wants to check them. There aren’t switching costs for the buyers; they can change of supplier whenever they want without penalties, so they have more bargaining power than the companies. The olive oil can be stored for the customers, but not for a long period of time because of the sale-by date. Also current people can’t negotiate with the companies, so they have more power than the consumers. To sum up, it is not very clear who has a real strong bargaining power in the olive oil sector as the number of suppliers and consumers is very big.

Bibliography

* “Strategic Management. Creating Competitive Advantages.” Authors: G. G. Dess; G. T. Lumpkin; A. B. Eisner. Ed.: McGrall-Hill Irwin.

* “Economía de la empresa” Author: Andrés Cabrera. Ed.: SM

* http://www.portalolivicola.com

* http://www.interprofesionaldelaceitedeoliva.com

* http://www.magrama.gob.es/es/agricultura

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