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Industry analysis: Transport and distribution

Porter’s five forces analysis is a tool that provides a clear picture of the nature of a specific industry. The characteristics of an industry are analyzed in terms of threat of new entrants, threat of substitute products, rivalry among competitors and bargaining power of suppliers. Closes look at the transport industry shows a wide range of characteristics which are distributed in all sectors of the industry. Players in the transport and distribution industry are providers of services such as air travel, train services, vehicle transport, and mail delivery among other services. China has a well developed transport and distribution systems and many companies find it easy to trade and operate in the country (The Ministry of Communications, 2005). The paper focuses on the Porter’s five forces analysis of the transport and distribution industry in China. The transport and distribution industry in China has been very competitive and this has encouraged many investors to enter the market.
Threat of new entrants
The transportation and distribution industry is open to as many investors as possible. This attracts many investors into the industry and creates threat to the existing companies. Many investors have started focusing on the industry due to the high profits being reaped by the existing companies. The large companies in the industry are adopting the strategy of acquiring other small companies to reduce threat of new entrants. There have been several regulations in the country about some sectors of the industry, for example the air transport. The government regulates the number of players in the industry and new entrants are restricted for safety purposes (Golubov and Mostafa, 2005).
Threat of substitute products
There are many substitutes in the industry and this has increased the number of companies offering different services. There are many companies in the industry which carry out air transport, road transport, and water transport, parcel delivery among other transport and distribution services. Product diversification has been experienced in the industry and companies use different strategies to bring new and competitive products (Golubov and Mostafa, 2005). As technology advances more products in the transportation industry are being developed and this is creating competition in the market. Some products have been eliminated by the introduction of advanced technologies such as the use of internet. The transport sector continues to experience growth in the number of substitute products and this has encouraged players to become innovative (Steele, 2000). Threat of substitute products has been intensified by the fact that the switching costs are very low. This means that customers incur low costs to switch from one product to another.
Rivalry among competitors
Rivalry among competitors in the transport and distribution industry has been very high due to the existence of a large number of companies in the industry. China has adopted open trade and this policy has attracted many investors from other countries (China Briefing Media, 2000). Due to the good business environment in China many investors find it profitable to operate in the country. The transport and distribution industry has been very attractive and this has intensified competition from different investors. To secure the market share companies are cutting down the prices of products offered to attract as many customers as possible. Domestic and foreign companies have started operating in the country and this has intensified the competition. Some of the companies in this industry are FedEx, DHL, TNT and United Parcel Service (UPS) among others. Product diversification has been a major characteristic of this industry because companies seek to attract as many customers as possible. Competition for customers has increased and this has brought about rivalry among the existing firms (Golubov and Mostafa, 2005).
Bargaining power of suppliers
The petroleum industry is a major supplier to the transportation industry and has exclusive control on the prices offered in the market. The profitability of the transportation industry has been affected by the increasing oil prices. Oil prices have been increased by a large extent in the last one decade and this has caused the transport to incur a lot of costs. Therefore, oil suppliers have a higher bargaining power in the transport industry. Other suppliers have minimal bargaining power in the industry because they have small control over the prices offered to the transport industry. For example, companies supplying packaging equipments do not have high bargaining power. Suppliers of vehicles have no bargaining power because there are many automobile companies in the market. Suppliers providing special services such as catering services in aircrafts have a high bargaining power because they have specialized in the provision of these services. These specialized suppliers have high switching costs and companies in the transport industry are unable to change service providers. Transport companies have used new technologies to automate some processes as a means of reducing the number of services obtained from other companies. Suppliers of services in information technology have no large bargaining power due to the high switching costs involved (Golubov and Mostafa, 2005).
Bargaining power of buyers
Transport and distribution companies compete to provide services to large companies. The emergence of e-commerce has caused the companies to focus more on many consumers as possible. Some companies do not offer their customers the freedom to select specific transport companies to deliver their products but assign them to certain transport companies to offer transport services. Buyers incur low switching costs and this provides corporate buyers with a higher bargaining power. Individual customers have little or no bargaining power because they buy in small quantities and no exclusive control over the pricing strategy of the industry. The switching cost for individual buyers is also low and this makes it possible to change transport service providers (Golubov and Mostafa, 2005).
Summary of the analysis

Bargaining power of buyers
Relatively low for corporate buyers
Very low for individual buyers

Bargaining power of suppliers
Very high for oil suppliers
Very low for other suppliers

Rivalry among competitors
High competition in the industry

Threat of substitute products
There are many substitute products

Threat of new entrants
High threat of new entrants

The transport and distribution industry in china is very attractive and this has caused penetration of large number of companies in the industry. The intense competition in the industry has made players to adopt different strategies of attracting and retaining customers. Product differentiation is a common feature in the industry and this has provided customers with a wide range of products to purchase. Most of the suppliers and buyers in the industry have minimal bargaining power due to their limited control over the industry. To protect players in the industry, the government should regulate the number of companies in the industry to avoid intense competition and rivalry among the existing companies. Therefore, it is evident that the transport and distribution industry in China has been very competitive and this has encouraged many investors to enter the market.

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