Porter’s Five Forces is a strategic analytical framework developed by Michael Porter (1979)[1]. The framework consists of five individual forces that shape an overall extent of competition in an industry. W.W. Grainger Porter’s Five Forces are illustrated in figure below: Porter’s Five Forces Threat of new entrants in W.W. Grainger Porter’s Five Forces Threat of new entrants into traditional B2B distribution is not significant. Inter-relationships of the following factors determine the extent of threat of new entrants into industrial distribution: 1. Economies of scale. Economies of scale is a critical success factor in B2B distribution. Grainger purchases more than 1,7 million types of products from approximately 5000 suppliers worldwide.[2] Accordingly, Grainger benefits from the economies of scale to a great extent with positive implications on the cost structure of the business. However, new market entrants are not able to benefit from the economies of scale to a similar extent and therefore, economies of scale emerges as an important entry barrier to the B2B distribution industry. 2. Capital requirements. Industrial distribution is a highly capital-intensive business. In order to be successful and challenge established market players, new entrants need to have wide range of products stored in warehouses and distribution centres. Substantial capital investments are needed to achieve all of these and unless new market entrants do not come up with innovative business models to disrupt the industry, capital requirements are likely to persist as an important entry barrier to the industry. 3. Expected retaliation from existing businesses. Current market players in B2B distribution are likely to retaliate against any new entrants that possess a considerable threat to their market share. This is a noteworthy entry barrier for potential new entrants to the industry. For example, once Amazon Business started to become a formidable player in the global market of…W.W. Grainger Porter’s Five Forces Analysis
Wednesday, August 19, 2020
Research Methodology
Porter’s Five Forces is a strategic analytical framework developed by Michael Porter (1979)[1]. The framework consists of five individual forces that shape an overall extent of competition in an industry. W.W. Grainger Porter’s Five Forces are illustrated in figure below: Porter’s Five Forces Threat of new entrants in W.W. Grainger Porter’s Five Forces Threat of new entrants into traditional B2B distribution is not significant. Inter-relationships of the following factors determine the extent of threat of new entrants into industrial distribution: 1. Economies of scale. Economies of scale is a critical success factor in B2B distribution. Grainger purchases more than 1,7 million types of products from approximately 5000 suppliers worldwide.[2] Accordingly, Grainger benefits from the economies of scale to a great extent with positive implications on the cost structure of the business. However, new market entrants are not able to benefit from the economies of scale to a similar extent and therefore, economies of scale emerges as an important entry barrier to the B2B distribution industry. 2. Capital requirements. Industrial distribution is a highly capital-intensive business. In order to be successful and challenge established market players, new entrants need to have wide range of products stored in warehouses and distribution centres. Substantial capital investments are needed to achieve all of these and unless new market entrants do not come up with innovative business models to disrupt the industry, capital requirements are likely to persist as an important entry barrier to the industry. 3. Expected retaliation from existing businesses. Current market players in B2B distribution are likely to retaliate against any new entrants that possess a considerable threat to their market share. This is a noteworthy entry barrier for potential new entrants to the industry. For example, once Amazon Business started to become a formidable player in the global market of…
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