Level of Competition Tends in Market †Free Samples to Students

Question: Discuss about the Level of Competition Tends in Market. Answer: Introduction: The five forces model is a potent approach which can be used to analyse any given industry or a firm and based on the existing environmental factors, it can be used to outline the expected profitability of the underlying industry or firm. For the chosen industry, the five forces model framework can be applied in the manner highlighted below. The internal rivalry indicates the level of competition that tends to exist in a given market. In case of Australian textile industry, the internal rivalry is quite high which is primarily attributed to the attributes of Australian economy. Owing to the underlying geography and demographics, the market is quite fragmented with a plethora of smaller players which are serving specific geographies and niche segments. While at the national level, couple of players (David Jones Myers) may dominate but simultaneously there exists a host of smallEconomics clothing manufacturers that are serving dedicated niche clientele (IBISWorld, 2017). Further, a more intense rivalry is faced by the foreign firms especially based in countries in China and India which tend to bring in cheaper fabric and textiles and thus pose a significant challenge to the existing players. Owing to this cost pressure, the Australian textile and clothing industry has progressively declined over the last two decades. This is because the Australian textile or cloth manufacturers have a significantly higher labour costs as compared to their Asian counterparts and hence it is not feasible to manufacture the textiles in Australia. The big firms tend to import textiles from China only and focus at value addition activities in the form of designing and branding only (Nimbalker, Mawson and Harris, 2015). Thus, owing to the unique geography of Australia a host of players exist which tend to lead to high amount of competition. This has adverse impact on profitability of the industry as the requisite scale is not achieved and hence economies of scale are not reaped. In the absence of economies of scale, the overall cost remains high and the same tends to reflect in the lower profit margin considering the fragmented nature of the industry and low spending on clothes by Australians (IBISWorld, 2017). The suppliers in case of clothing and textile business tend to have a low bargaining power. This is on account of several reasons. The first reason contributing to the same is the existence of a number of suppliers resulting in high competition amongst the same. This has worsened in the last two decades as the foreign suppliers have also penetrated the Australian markets. These suppliers tend to deal with big wholesalers and national players and provide them with supplies imported from China. Also, it is imperative to note that the underlying raw material cost is not a very high or significant proportion of the overall selling price and hence cost considerations are not very critical (IBISWorld, 2017). Additionally, for the input supplies, there are wide range of substitutes available which further impacts their bargaining power adversely. The distribution network also has become more diversified with the advent of online shopping especially in urban centres. Hence, this further weak ens the role of suppliers. Besides, the switching costs for the manufacturers and retailers amongst the suppliers tend to be low only which further erodes the supplier power (Nimbalker, Mawson and Harris, 2015). It is apparent from the above discussion that the power of the suppliers does not adversely impact of profitability as they have low power owing to the high competition, presence of easily available substitutes and the low input cost for the goods. Further, it is essential that the core focus for the clothing is on branding and focusing on the niche segments which is essentially not done by the suppliers but rather the retailer. Hence, the supplier has limited power to pass on any price hikes to the various retailers or manufacturers (Nimbalker, Mawson and Harris, 2016). The profitability of the industry is influenced by the power possessed by the buyers or customers. The higher the power, the lower would be underlying profit margins (Modern, 2007). For the clothing industry, the power of the buyers is typically high which is apparent from the trend of decreasing expenditure on cloth over the last two decades. The clothing industry is highly fragmented with very few national players which ensure that buyers have many options. Fragmentation is also observed at a number of levels since there are retail clothing chains but also dedicated boutique shops which cater to the individual needs of the customers based in specific geographies. Hence, it is apparent that the customers tend to have a host of choices (IBISWorld, 2017). In the clothing industry, the key differentiator is not price but rather the Economics quality and brand. This is because the customers are not price sensitive and hence are willing to pay the premium in case their needs could be met. One of the reasons for the lesser price sensitivity may be on account of the lesser expenditure of cloth due to which the customers would not paying a premium for exclusive designs or premium quality. This presents ample opportunity for the clothing industry to earn a higher profit by ensuring that the products are catered to the target customers. The critical element is to keep up with the changing preferences which are typically less dynamic than Europe and hence not difficult for the sellers (Nimbalker, Mawson and Harris, 2016). Typically for an industry that offers products that can be easily substituted, the profit margins tend to be low as higher prices would push the consumers into evaluating the available alternatives. On the other hand, for an industry which offers products or services that cannot be easily substituted, the demand would be inelastic and hence profitability would be potentially higher (Modern, 2007). It is apparent that there are not many substitutes for the clothing industry and eventually the customers have to buy from the various options in terms of players or sellers. There are a plethora of complements available in the form of fashion industry and other services such as stylists which also tend to play a critical role in informing the customers about the ongoing trends especially in Europe (IBISWorld, 2017). This is imperative for the clothing industry as this tends to enhance the awareness of the consumers towards the value added aspect of clothing in the form of design, style, fabric quality along with exclusivity. Further, substitute is available in the form of channels since online shopping is becoming more prevalent but in terms of clothing as a product, there is not much availability of substitutes. As a result, the presence of complements along with absence of substitutes tend to contribute towards the enhanced profitability for the industry. Typically for industries where the threat of new entrants is higher, the profit margins tend to be lower. This is because as the profit margins of the industry remain high, more players would enter the market and increase both supply and competition, thus leading to lower profit margins. On the other hand, for industries where the threat of new entrants is low, the profit margins tend to be higher (Modern, 2007). Considering the dynamics of the given industry, it is apparent that the threat of new entrants is low. One of the key reasons responsible for the same is that the Australian clothing industry is not very price sensitive and hence superior customer understanding, established brand and distribution network so as to reach the customer is imperative. While it may be easier for a player to import clothes from China, it would be a time and resource consuming to establish a distribution network along with a brand. Further, considering the geographical distribution of customers, it would require significant upfront investment to cover a large geography. A new entrant would need to decide whether it wants to focus on a particular geography or have a wider reach. The presence of these factors ensures that there is limited entry of new players in this market. Also, considering the empirical evidence over the past two decades, it is apparent that consolidation is taking place in the industry esp ecially amongst the larger players as scale leads to lower costs. However, there is ample space for boutique players to exist provided they can cater to the needs of the consumers (IBISWorld, 2017). Conclusion On the basis of the above discussion involving the five forces, it is apparent that the profitability of the industry tends to be moderate to high. One of the reasons is the non-price sensitive nature of the buyers which ensures that a suitable premium would be paid for any product which meets the preferences of the customers. This ensures that the players do not have to compete on price and therefore could potentially have higher profitability margins. Aid in this regards is also provided by the limited power of suppliers and also higher entry barriers considering the focus on brand building and understanding of the preferences of the consumers. References IBISWorld (2017), Clothing Industry in Australia, [online] Available at https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/other-store-based-retailing/clothing-retailing.html [Accessed October 1, 2017] Modern, T. (2007), Principles of Strategic Management(3rd ed.), NY: Ashgate Publishing Nimbalker, G., Mawson, J. and Harris, C. (2015), 2015 Australian Fashion Report, [online] Available at https://www.abc.net.au/cm/lb/6398294/data/fashion-report-data.pdf [Accessed October 1, 2017] Nimbalker, G., Mawson, J. and Harris, C. (2016), 2016 Australian Fashion Report, [online] Available at https://baptistworldaid.org.au/wp-content/uploads/2016/05/2016-Australian-Fashion-Report.pdf [Accessed October 1, 2017]