Mesoenvironment basically decides the competitive position of the industry vis-a-vis the organisation we study. The environment comprises all those organisations or groups with which firm usually maintains contacts and the firm’s performance is being affected by those groups. Let us discuss the supply chain, of which customers are also part and parcel, which affects the performance to a very large extent.
All the organisations involved into from production to consumption (in case of flowers from ‘field to vase’ and in case of bear from ‘grain to glass’) form part and parcel of supply chain management. These include original producers, intermediaries,
semi-manufactured products makers or spares producers, producers of end products, distribution channels, transporters, warehouses, cold storages, and consumers. Any weak link will cripple the entire supply chain management.
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In some of the industries, like petroleum, all the links are directly controlled by the marketer. But in case of other products, help is sought from many agencies/organisations. Today supply chain management is used to coordinate and integrate all the activities of SC members.
Mesoenvironment or competitive environment can be best understood through Porter’s Five Forces Industry Analysis.
1. Threat of New Entrants:
Very few industries remain static. New entrants change the rules of the game. Entry of budget airlines in India like, Deccan airlines, Indigo, Go Air, etc. have forced regular airlines like Indian Airlines (now National Aviation Company Ltd.) and Jet Airlines to lower their costs. Many of the new entrants in beverages industry have forced the established giants – Coca Cola and PepsiCo to offer juices and energy drinks.
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The new entrants are particularly important in the context of economies of scale, government policy, capital requirements, and proprietary products/services/technologies. In some of the industries the economies of scale are so important that most of the auto majors have shifted their operations to India, because it offers skilled labour at lower rates. The new entrants may be regulated by the government through investment caps due to potential job losses or in some sectors caps have to be upped because of paucity of local funding. In case of pharmaceuticals business, patenting is important and costly affair.
It is leading major pharmaceutical companies to merge. Merger of Glaxo with SmithKline and then with Beecham is an example to this effect. Since a large chunk of patents are expiring in the very near future, there is a flurry to acquire India pharmaceutical companies in certain industries, appropriate channels may not be available, Government legislation and policies on patent protection, investment caps, state-owned monopoly may good at producing generic medicines, by MNCs. In the recent past Ranbaxy was acquired by Daichi of Japan, Shanta Biotech by Sanofi of France, and Piramal Healthcare by Abbot of US. Entrants’ entry depends upon the barriers to entry that may exist in any given industry. Entry may be restricted because of high capital requirement, late entry, achieving of scale be a necessity.
2. Substitutes:
“Competitors may hurt you, but substitutes can kill you.” Substitutes present a threat if switching costs are minimum (like, portability of mobile numbers has created a new competition for the existing service providers) and there is high propensity to substitute. Indian Railways have not increased upper class fares for long time due to fear of substitution effect by no-frill airlines.
On the shorthaul budget airlines do not increase fares because of railways and the roadways. The airlines increase their fares on last minute bookings as they have no fear of any substitution. While deciding our place in the industry, we must analyse the alternative product offerings and to what extent they meet customers’ needs.
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A new product may eliminate the need for a previous product like ‘pager’. A new product replaces an existing product or service. Cassette tapes replaced vinyl records, and cassette tapes being replaced by compact disks. There is also a danger of generic substitution. Consumers may decide to buy a car instead of going in for an expensive holiday.
3. Buyers:
“When buyers are powerful, suppliers suffer. Bargaining power of buyers will decide as to what price can be charged. Most of the auto manufacturers are going in for small cars, because of price sensitivity. To lower prices and increase the speed, the auto companies are doing their best to lower the weight and replace mettle by plastic.
It is the bargaining power of buyers forcing the stores to come out with their own labels to bring down the prices. Many of the marketers get into backward integration to bring in economy of operation. A buyer buying in bulk shall have definitely better bargaining power. Many Indian producers are feeling the pinch of foreign cash and carry stores whose purchases demand very low margins for them.
4. Suppliers:
The number of suppliers shall determine whether the industry shall have competetive position in buying. If the number of suppliers is small in an industry dominated by large number of competitors, the suppliers shall have the bargaining power, and vice versa. If the suppliers are able to supply unique products, they will enjoy better brganing positions. In case of jeans manufacturing the suppliers operate on a very low margin, because their number is too much and they cannot provide differentiated products. The suppliers will not be having better bargaining power if there is concentration of them in one or few clusters. The suppliers being threatened may go in for forward integration. Many of the companies can not switch to some other supplier due to high switching cost, economic, resource, or time cost, like swiching to other than MS Windows, then the suppliers will continue to hold stonger bargaining power.
5. Competitive Rivalry:
The rivalry depends upon the number of operators. In case of mobile phones in India there are many players, viz., Nokia (39%), Samsung (17.2%), Micromax (6.9%), Blackberry (5.9%), LG (5.5%), G’Five (4%), Karbonn (3%), Spice (2.8%), Maxx, etc. The stage of the industry life cycle will have an effect. Companies having high fixed costs will always try to grab market share based on price discounting, creating more competition. There might be barriers preventing companies from withdrawing from an industry. Competitors can be classified into four types:
Brand Competitors:
Marketing products with similar features and benefits to the same customers at similar prices, like diet Coke or diet Pepsi. These marketers face competition from other beverage marketers.
Product Competitors:
Compete in the same product class but market products with different features, benefits, and prices. In beverages market apart from aerated drinks, iced tea, coffee, tea, bottled water, juices are also available.
Generic competitors:
Provide different products that solve the same problem or satisfy the same basic customer need. For example in a party the need for dessert may be fulfilled by Indian sweets, ice cream, Matke Wali Kulfi or pastry.
Total Budget:
Competitors compete for the limited resources of the same customers. For example, movies, fruits, restaurants, newspapers may compete for the same customers’ limited resources.
Competitive structures include monopoly (no close substitute – like public utilities), oligopoly (few sellers controlling the supply), Monopolistic competition (many potential competitors differentiating products), and pure competition (large number of sellers).
Coca Cola and PepsiCo just do not compete – the two are bitter rivals for domination across the globe. The rivalry can be gauged by the fact that Rick Bronson, delivery truck driver for Coca Cola was fired for drinking a Pepsi on the job.