Essay About Established Companies And High Initial Capital Requirements

Whirlpool Industry Analysis
Industry AnalysisFor this analysis, the industry is defined as household appliances, with the boundaries including washing machines, refrigerators and ranges. The market segments are switch between location, being Europe and the United States.         The overall threat of new entrants is relatively low. The established companies in the industry have already established many entry barriers that would make it hard for a new competitor to enter the industry. The established companies have created a product-specific economies of scale. With their history of creating appliances, per unit cost to create each machine gives them an advantage to new competitors. Also, the high initial capital requirements also deters many new competitors away with companies such as Whirlpool, General Electric and Electrolux established and profitable. If the new competitors could even afford the startup costs, these established companies pose an incredibly high threat of retaliation, and a marketing or price war could run the company out of business. In addition, these established companies already have access to distribution channels, creating another way to deter the new competition. The threat is also minimized due to the high switching costs for the consumers. These appliances are expensive, and granted their appliances were working fine at the time that they are switching products, than it would not be worth the costs to the consumer to switch brand names. Lastly the exit barriers are very high, as there would be a high volume of sunk costs if the business were to run out. All of these affect the threat of new entrants, making this a rather low threat for the industry.

The overall threat of the suppliers is low to medium for the industry. The supplier’s products are not highly differentiated, with low switching costs for the firms in the industry. This allows the industry companies to be able to switch between suppliers easily, and this dramatically decreases the threat of the suppliers. However, the product is an important input to the buyers’ business which poses a small threat for the industry. Lastly, the supplier can pose a minimal threat of forward integration. This is possible due to the fact that the supplier is creating the inputs for the appliances, and could possibly make an attempt to create their own appliance as well.        The buyers have an overall medium bargaining power. This is due to the buyer group (large contract customers) accounting for a majority of the industry sales. However, the high switching costs for the buyers is created due to the contracts that have been made. The buyers also do not pose any threat of backward integration, decreasing their bargaining power. There are also no viable substitutions available to the buyers, as these are the only credible appliances to clean laundry, or refrigerate food with.