How the Five (5) Forces of Competition Impact Boeing Inc
Boeing, Inc. like any other corporate organization is affected by the five (5) forces of competition. According to Sheehan (2013), the five forces of competitions are: (1) threat of substitutes; (2) threat of new entrants; (3) Buyers’ bargaining power; (4) suppliers’ bargaining power; and (5) Competitive rivalry. These are Michael Porter’s five competitive forces that influence the strategy of the business. It is upon this five force model that economists consider when it comes to industry analysis.
Threat of substitutes
According to (Sheehan, 2013), many people from various parts of the globe prefer Boeing aircrafts and, therefore, this is a sure indication that the threat of substitution is mild. This implies that the number of substitutes is limited making it a little hard for customers to find another aircraft manufacturing company that can satisfy their expectations as Boeing. However, considering the current technological development in cars, bullet trains and many others, there is likelihood that the trend may have adverse effects on the business of manufacturing aircrafts in the future.
Threat of new entrants
In the case of Boeing, Inc., there is low threat of new entrants. This is mainly attributed to huge amounts of funds required as fixed cost in order to join the industry and compete. There are various factors that require consideration before new entrants can join the industry: they include: all-encompassing level of activities and R&D budget, high level technology required, enormous sums of capital required for investment among other factors (Sheehan, 2013). Other factors that limit entry include strong networks of distribution, huge sunk costs that reduce competition, economies of scale requirement and patents. These factors are significant for creating extreme entry barriers leading to minimal success for new entrants. Nonetheless, there are a few companies that have conducted their operations in regional levels. For instance, China’s aircraft manufacturers do take advantage of the niche market due to the preferential benefit that a specific nation state arranges.
Buyers’ bargaining power
According to Sheehan (2013), buyers generally have mild bargaining power. In most cases, buyers can only have high bargaining power if the product is common. There is also high switching cost for the buyer. This is because of long-term contracts and technological factors involved as well as low bargaining power. It is worth noting that purchasing an aircraft is capital intensive investment, and that the buyer and the seller require engaging in a long-term contract, which limits the buyer’s bargaining power. There are also limited buyer choices, most customers cherish Boeing services, and limited information is available to buyers and this limits their ability to negotiate with sellers (Sheehan, 2013). All these factors have a positive impact on Boeing, Inc.
Supplier’s bargaining power
In the case of aircraft manufacturing, suppliers usually have low bargaining power. Boeing, Inc., for instance, makes outsourcing arrangements with many suppliers around the world. There are over a hundred companies around the world supplying Boeing, Inc. with aircraft parts. These huge numbers of suppliers limits their bargaining power, and this has positive effects on the aircraft company (Sheehan, 2013).
According to Sheehan (2013), there is high competitive rivalry. This is because of high barriers preventing exit, undifferentiated strategies and lack of a clear market leader, and slow industry growth are some of the factors that drive competitive rivalry in the aircraft manufacturing industry. This market phenomenon happens as a result of the market being extremely duopoly in the sense that players do realize minimal profit margin in the industry. This is the reason for continuous competitive rivalry between Airbus and Boeing for more industrial share.
SWOT Analysis for Boeing, Inc.
One of the greatest strengths of Boeing, Inc. is their ability to meet the huge customer demand by ensuring that they produce their products in different varieties. Having a well-recognized global image is also great strength for the company. It is worth noting that the company can comfortably provide customers with various products and services that include: integrated defense system, commercial airplanes, space and communication, and military and missile system (Magretta & Porter, 2014). Boeing also delights in the quality of the products that they create. So far, it is the best aircraft manufacturing company in the world and this has enabled it to have competitive financial performance. The company has the capacity to manufacture highly advanced aircrafts that are able to satisfy the expectations of customers in the modern society.
High pension costs have continually become one of the greatest weaknesses of the company. The company’s latest financial report indicates that it has a pension load of more than $75 billion dollars, a figure that is almost higher than the value of the assets of its plan (Magretta & Porter, 2014). The second weakness of the company is the high R&D spending. In 2012; for instance, the company’s R&D expenditures stood at $3.3 dollars, a phenomenon that negative effects on its profit margins. During other times, the company has had problems with execution especially during the implementation of the essential 787 program.
One of the greatest opportunities for the company is the 787 Dreamliner. On rare occasions in the past few years, this company’s platform has had problems related to delays and even execution (Magretta & Porter, 2014). However, being the first ever fuel efficient, revolutionary long-range jet airliner that utilizes composite materials, it has opportunities of becoming the most profitable program in the coming years. The second opportunity is industry fundamentals. In the recent years, the airline industry has exhibited powerful recovery after the recession financial crisis period that had caused it to crash (Magretta & Porter, 2014). In this regard, opportunities for company include enhanced microeconomic backdrop, stable fuel prices and increasing demand for the products and services.
One of the greatest threats the company continues experiencing is defense spending (Magretta & Porter, 2014). There has been reduction defense spending by the U.S. federal government and this negatively affects results across space and security division, and defense. The problem is that this situation may not reverse in the near future. Increasing competition is also another threat that the company faces. China’s Comac and Canada’s Bombardier Aerospace are the greatest threats to Boeing, Inc.
Based on the SWOT analysis, the best strategy for the company, which can help it capitalize on its strengths and opportunities and minimize its weaknesses and threats, is globalization strategy. Considering that there are only a few players in the industry due to huge capital investment and stiff competition, the company requires emphasizing globalization strategy in order to tap into all the available markets (Shaw, 2011). Besides, globalization strategy is effective for optimizing the company’s financial performance on a short-term basis. It should also be clear that there are various strategies that Boeing, Inc. can embrace to maximize its competitiveness and profitability in the industry. The first one is embracing union leadership. The company should have policies that drive the management to work in collaboration with all employees. The second strategy is development and initiation of programs and processes in such a way that the company continuously makes improvement in its manufacturing aspect and guarantee safety for all employees. The following is an outline of the communication plan that Boeing, Inc. can embrace to inform all stakeholder about the above mentioned strategies. The plan may include: employee special events, bulletin board messages, employee annual report, electronic email messages, newsletters, letters sent shareholders through their mail boxes, and annual meetings Sheehan, J. (2013).
The five forces of competition affecting Boeing are: threat of substitutes; threat of new entrants; Buyers’ bargaining power; suppliers’ bargaining power; and Competitive rivalry. Based on the SWOT analysis, the best strategy for the company, which can help it capitalize on its strengths and opportunities and minimize its weaknesses and threats, is globalization strategy.