Question

Apply Porter's five forces to the air courier industry. Industry participants include such firms as FedEx, UPS, and DHL. Your work should generally not be more than one page, but your review will promote a good discussion on the Air Courier Industry!

Answer 1

The strategic managers apply Porter’s five forces model to generate an advantage over other competing firms. Porter’s five forces model presents that the five forces influence the industry.

These five forces Porter’s model are as follows

1. Competition among existing firms
2. Threats from New Participants
3. Threat from Substitutes
4. buying power of customers
5. Supplying power

Porter’s model in air courier industry:

The air courier industry is one of the influential industries in the world and overgrowing. Due to tremendous growth in the industry, competition is also growing. Let us employ Porter’s five forces model in the air courier industry and examine the conclusions:

(1) Competition among existing firms:

Straight competition between existing firms is frequently the prime degree of competition in an industry. Some industries can be distinguished by intense competition, whereas others have scattered competition across various firms. Economics explains that the higher the industry intensity, the lower the competition between existing competitors and thus, the profit will be higher.

Despite a few competitors, the logistic industry remains a competitive area due to the vast numbers of consumers, the inexpensive cost of changing providers and poor differentiation among competitors.

This competition measure by factors such as industry concentration that estimates the percentage market share of its competitive competitors such as FedEx, UPS and DHL.

Modern firms of this industry like FedEx, UPS and DHL are competing with each other to gain market share. The rising level of quality, diminishing costs, improving customer satisfaction, modifications are some of the outcomes seen in this industry due to competition and endless battle among firms.

(2) Threats from New Participants:

If there exist entry restrictions like substantial capital investment, technological expertise, licenses, or laws that restrain new participants, then the firms in the industry will probably generate higher profits than if new entrants can infiltrate the market quickly.

This industry considered to have a minimal threat of new participants due to the high costs associated. Set up costs includes the high cost of operations and capital machinery. High fixed costs associated with obtaining and sustaining infrastructure to give world-class facility puts new entrants away from this industry. Thus, boundaries to entry are comparatively quite high.

(3) The threat from substitutes:

If there are resembling substitutes in a market, competition rises, and profitability reduces. Different products with fewer substitutes improve profitability.

In contradiction to other areas, the threat of substitutes in the logistic industry is insignificant because of a low number of alternatives because of few companies offering air delivery services.

(4) Buying power of customers:

Buyer power compares the corresponding number of buyers and sellers in a particular industry, and the buyers are more price concern. If there are multiple sellers of a product and an inadequate number of buyers making important purchase choices, the buyer can exercise significant downward force on prices. If there are some sellers and multiple buyers, the sellers have higher bargaining power.

Customers have the individual choice to take their providers according to their attachment and requirements, though they do not have powers to bargain prices. As large companies have vast quantities of freight to transfer, they have bargaining power with air courier companies.

(5) Supplier power:

The logistic industry conduces to have weak bargaining power because they contribute their product in bulk. Most of the products are conditionally accessible from other market leaders; therefore, this tends to reduce bargaining power.

The skills needed to deliver air courier services is moderate. Consequently, buyers can move from one courier to other regularly in search of more beneficial services and economical prices. Thus supplier power is considerably low in this industry.

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