Porter's Five Forces - A Practical Example

Summary

The video script discusses the global sportswear industry's competitive landscape using Porter's Five Forces model. It highlights the industry's maturity with steady growth, expected to reach $180 billion by 2020. Key players like Nike and Adidas dominate with a combined market share of 32.5%. The threat of new entrants is low due to high barriers to entry, including significant marketing investments. Substitute products pose a moderate threat as fashion trends evolve. Bargaining power leans towards suppliers for larger companies like Nike, while customers have extensive choices, emphasizing brand recognition and perceived value.

Takeaways

• 🏃‍♂️ The global sportswear industry is mature and growing, with an expected market value of 180 billion dollars by 2020.
• 🌐 The industry is not highly concentrated, with the top four players (Nike, Adidas, Asics, Under Armour) accounting for only 38% of the market share.
• 👟 Nike and Adidas dominate the market with a 20.1% and 12.4% market share, respectively, followed by Asics and Under Armour.
• 💡 Brand recognition and quality perception are key competitive forces, with larger companies like Nike and Adidas having significant marketing advantages.
• 🚫 The threat of new entrants is relatively low due to high barriers to entry, including the need for substantial marketing investments and expertise.
• 🏡 Local competition is more accessible for new companies, requiring fewer resources and easier access to local distribution channels.
• 👕 Substitute products pose a moderate threat, as changing fashion trends could affect the demand for sportswear, but currently, there's no significant pressure.
• ⚖️ The bargaining power of suppliers is not a major issue for the industry, as there are many suppliers and larger companies can negotiate better prices.
• 🛍️ The bargaining power of customers is limited due to the business-to-consumer nature of the market and the abundance of choices available to consumers.
• 🌟 Branding and the connection between sports fans and sports stars, such as through endorsements, are crucial for customer relationships in the sportswear industry.

Q & A

What is the current state of the global sportswear industry according to the script?

The global sportswear industry is a mature market that is experiencing steady growth with no signs of decline. It is expected to reach a total market value of 180 billion dollars by 2020.

What factors are contributing to the growth of the sportswear industry?

Globalization, economic growth, and favorable fashion and style trends are playing a positive role in the current growth of the sportswear market.

How does the script describe the competitive environment in the sportswear industry?

The competitive environment in the sportswear industry is characterized by the presence of both global giants like Nike and Adidas and numerous smaller firms competing at a local level.

What is the market share of Nike and Adidas in the sportswear industry as mentioned in the script?

Nike and Adidas have a market share of 20.1% and 12.4% respectively in the sportswear industry.

What is the significance of the concentration ratio in the sportswear industry as discussed in the script?

A concentration ratio of the top four players in the sportswear industry is 38%, indicating that the industry is not highly concentrated.

How does the script analyze the threat of new entrants in the sportswear industry?

The threat of new entrants is relatively low due to significant barriers to entry such as the need for substantial marketing investments and expertise in creating globally sold sports apparel.

What strategy does the script suggest for new companies to compete in the sportswear industry?

New companies can enter a smaller niche of the market, which requires a smaller investment and allows targeting a specific customer need.

How does the script evaluate the threat of substitute products to the sportswear industry?

The script suggests that while there will always be a demand for casual sportswear, changing customer tastes and styles may influence this demand, but currently, there isn't significant pressure from substitute products.

What is the bargaining power of suppliers in the sportswear industry according to the script?

Larger companies like Nike and Adidas can obtain cheaper prices from suppliers, while smaller companies may struggle to source raw materials at competitive prices. However, the number of suppliers is relatively high, so this force isn't creating too much pressure.

How does the script describe the bargaining power of customers in the sportswear industry?

Customers have a lot of choice due to the presence of thousands of firms in the market, but they cannot negotiate prices. The main driving force in the client-firm relationship is perceived value and brand recognition.

What conclusion does the script draw about the sportswear industry after applying Porter's Five Forces framework?

The sportswear industry looks very good at the moment, with established brands like Nike and Adidas not facing too much competition globally, having a good relationship with suppliers and clients, and not being threatened by substitute products or new entrants in the near term.