The outside industries create products at a lower cost

The
five forces of completion model otherwise known as Porter’s five forces are
used to determine how profitable and attractive an overall industry is. An
industry is considered attractive if the threats of the five forces are
considered to be fairly low. The five forces include the threat of new
entrants, threat of substitute products, bargaining power of suppliers and
buyers, and rivalry among competitors. Within this report, I will explain each
of the five forces and their ratings in regard to the Ice-Fili, a Russian ice
cream industry. Also, I will include suggestions to Ice-Fili on how to lower
threats within the industry.

 

New Entrants:

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The
threat of new entrants was a dominating issue for Ice-Fili due to weak barriers
to entry.

Weak
barriers to entry made it difficult for Ice-Fili to remain one of the top ice
cream producers in Russia. In 1991, Russia decided to institute an open market
economy. This policy allowed industries to access any market freely. Industries
such as Ben & Jerry’s and Baskin & Robbins took advantage of this open
market policy in order to increase capitalization. In turn, this created higher
competition with local industries such as Ice-Fili who experienced a heavy drop
in ice cream sales and production. Overall, the threat of new entrants would be
considered high due to its weak barriers to entry.

 

Substitutes:

The
threat of product substitutes becomes high when outside industries create
products at a lower cost with similar benefits. This threat increases the
amount of competition from industry to industry. Available substitute products
include sodas, yogurts, chocolates and other confectionary candies. The
products mentioned above have been competing with the ice cream industry for
some time. These substitutes may serve the same purpose to the consumer which
is the indulgence and intake of a sugary substance. In 2000, the production of ice
cream declined 3.5% from the year before compared to the 23-25% increase in
competing products. Overall the threat of product substitutes is considered to
be medium-high in regard to the ice cream industry. The ability to purchase
items at a lower price that essentially provide the same amount of benefits is
the reason for higher competition.

 

Supplier power:

The
power of suppliers in the ice cream industry may be considered low. The
supplier power is low when referring to ingredients that compose the ice cream
itself. Ingredients such as milk, butter, and sugar are sold as a commodity.

This means these essential ingredients can be purchased for a lower price
through different suppliers at any time. Having the ability to purchase from
different suppliers who may offer lower prices than others decrease the
suppliers actual bargaining power.

 

Buyer power:

As
distributors, Ice-Fili has the power to decide what products are available to
the consumers which is an indicator of possessing high bargaining power. As
mentioned previously there are about 300 active ice cream industries in Russia.

The domestic ice cream industries in Russia have provided similar products that
have little differences. Consumers are then able to choose one product over
there other without second-guessing. Price sensitivity is also a factor in
bargaining power. Small differences in pricing of a product will not change
consumer buying behavior so the price sensitivity is low. 

 

Competitors:

 Rivalry amongst competitors is likely to be
high when there is a large number of similar functioning industries. In 2002, a
massive 300 ice cream industries were active in Russia. Many competitors relied
heavily on advertising and marketing to ensure consumers became familiar with
their products. The more familiar consumer became with these new brands the
more likely these industries would be able to convince distributors to sell
their products resulting in higher profits. Ice-Fili did not spend near as much
money advertising compared to its competitors. Because of Ice-Filis lack of
advertising, consumers were more prone to choose other options since they were
more well-known ice cream brands. The competition and rivalry amongst existing
industries would be considered high because of domestic and foreign
competition.

 

Final Thoughts:

Through
analysis of Porter five forces, the overall attractiveness of the ice cream
industry is moderately low. This industry has a high threat of entrants, high
buyer power, high product substitutes, and high rivalry between competitors.

The only advantage this industry seems to have is low supplier power. The risks
within this industry outweigh the benefits making it unattractive.