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Analysis of Porter'S Five Forces Model in Tuong An: Threats of New Entrants

Tuong An Vegetable Oil Joint Stock Company faces threats from Porter's Five Forces model. [1] New entrants could lower prices and reduce costs, so TAOIL must innovate new products and build economies of scale. [2] Suppliers have bargaining power since raw materials are imported, so TAOIL must diversify suppliers and experiment with alternative materials. [3] Buyers demand low prices and discounts, so TAOIL must expand its customer base and rapidly innovate new products. [4] Substitute products pose threats since cooking oil demand is price elastic, so TAOIL must understand core customer needs and increase switching costs. [5] Intense rivalry exists as the market has over 40

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25 views3 pages

Analysis of Porter'S Five Forces Model in Tuong An: Threats of New Entrants

Tuong An Vegetable Oil Joint Stock Company faces threats from Porter's Five Forces model. [1] New entrants could lower prices and reduce costs, so TAOIL must innovate new products and build economies of scale. [2] Suppliers have bargaining power since raw materials are imported, so TAOIL must diversify suppliers and experiment with alternative materials. [3] Buyers demand low prices and discounts, so TAOIL must expand its customer base and rapidly innovate new products. [4] Substitute products pose threats since cooking oil demand is price elastic, so TAOIL must understand core customer needs and increase switching costs. [5] Intense rivalry exists as the market has over 40

Uploaded by

Thịnh Nguyễn Trường
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ANALYSIS OF PORTER’S FIVE FORCES MODEL IN TUONG AN

* Threats of New Entrants:


New entrants to the Food & Beverage industry bring innovation through lower pricing
strategies, reduce costs, and deliver new value propositions to customers. TuongAn Vegetable
Oil Joint Stock Company (TAOIL) must manage all these challenges and build effective barriers
to protect its competitive advantage by:

- Innovating new products and services. New products not only brings new customers to
the fold but also give old customer a reason to buy TAOIL‘s products.
- Building economies of scale so that it can lower the fixed cost per unit.
- Building capacities and spending money on research and development. New entrants
are less likely to enter a dynamic industry that already has large established companies
such as Tuong An or Cai Lan. It greatly reduces the chances of unusual profits for new
companies, so it is easy to discourage newcomers in the industry.

* Bargaining Power of Suppliers:

Almost all companies in the Food & Beverage industry buy raw materials from multiple
suppliers and Tuong An does the same, so suppliers in a dominant position can reduce the
profits that TAOIL can make on the market. In addition, the main raw materials must be
imported along with having to buy indirectly through the parent company Vocarimex, which
has made TAOIL unable to take the initiative in the source of raw materials.

How TAOIL can tackle the Bargaining Power of Suppliers is:

- Building efficient supply chain with multiple suppliers.


- Experimenting with product designs using different materials so that if the prices go up
of one raw material then company can shift to another.

* Bargaining Power of Buyers:

Buyers are often a demanding lot. They want to buy the best offerings available by paying the
minimum price as possible. This put pressure on TAOIL profitability in the long run. The smaller
and more powerful the customer base is of TAOIL the higher the bargaining power of the
customers and higher their ability to seek increasing discounts and offers. The smaller TAOIL's
customer base, the higher the bargaining power of customers and their increasing ability to
seek discounts and offers.

How TAOIL can tackle the Bargaining Power of Buyers:


- Building a large base of customers. This will be helpful in two ways. It will reduce the
bargaining power of the buyers plus it will provide an opportunity to the firm to
streamline its sales and production process.
- Rapidly innovating new products. Customers often seek discounts and offerings on
established products so if TAOIL keep on coming up with new products then it can limit
the bargaining power of buyers.
- New products will also reduce the defection of existing customers of TAOIL to its
competitors.

* Threats of Substitute Products or Services:

When a new product or service meets a similar customer needs in different ways, industry
profitability suffers. Competitive pressure is still very fierce because cooking oil is a substitute
product, the price elasticity of demand is high, so only a little price fluctuation is enough to lead
to a change in consumer behavior.

How TAOIL can tackle the Treat of Substitute Products:

- Understanding the core need of the customer rather than what the customer is buying.
- Increasing the switching cost for the customers.

* Rivalry amongst Competitors:

The edible oil market in Vietnam is a vibrant market with high growth potential. Therefore, this
is a fiercely competitive market with over 40 domestic and foreign enterprises. And Tuong An's
rival with 20% market share is Cai Lan (Calofic) with nearly 40% market share with familiar
brands such as Neptune, Simply, Meizan... This competition affects overall long-term profits.
organization's.

How TAOIL can tackle Intense Rivalry among the Existing Competitors:

- Building a sustainable differentiation by improving product features, applying new


improvements in production processes or on products.
- Collaborating with competitors to increase the market size rather than just competing
for small market.
- Creative use of distribution channels.

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