MASTERS IN BUSINESS ADMINISTRATION (EVENING) COURSE: SUPPLY CHAIN MANAGEMENT LECTURER: DR.

E FEKPE

ASSIGNMENT

NAME INDEX NUMBER:

SAMUEL OBIRI-YEBOAH MBAE10040171

DATE 29TH FEBRUARY 2012

Introduction The model of the Five Competitive Forces was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors in 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes. Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on an understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. This report looks at Accra Brewery Limited, a beverage manufacturing company in Ghana and how these five forces affects it competitiveness. An action plan will also be proposed to help the company to deal with the effects of these forces. Basic Forces Governing Competition Threat of new entrants The alcoholic beer beverage industry in Ghana is dominated by two companies namely Guinness Ghana Breweries Ltd and Accra Brewery Ltd. These two companies have built effective barriers to entry with huge investment in building brand equity and controlling distribution channels through strong trade partnerships. New entrants into the market are mainly exports from Asia and Europe which mainly compete on price. New entrants who want to produce locally have to invest heaving in plants and personnel which also serves as a barrier to entry. The company has also been in operation since the 1930s and has therefore built a substantial experience curve which serves as a competitive advantage Threat of substitutes Accra Brewery Ltd as a producer of beer brands has as its substitutes any product which competes for share of throat with its brands. These include juices, water, coffee, energy drinks, other beer brands, soft minerals etc. Switching costs and perceived value are low as consumers perceive beer brands as comparatively the same and only differentiated by promotional activities Intense rivalry Accra Brewery Ltd faces intense competition from Guinness Ghana Breweries Ltd which is the market leader. The market is growing by only 5% year on year and the therefore both companies if they are to grow need to steal share from the other party. The brands of the two companies have similar positioning and attributes and therefore are not much differentiated. For example, Gulder and Stone Strong Lager are from GGBL and ABL respectively but have the same positioning and functional benefits and this makes consumer choice difficult. Supplier Power Raw materials for beer production are basic and available to every producer and relative costs are low which makes no difference for any supplier. These include barley, maize, hops, water, bottles and crowns. Switching cost is therefore low as materials are available to all manufacturers.

Threat of forward integration is low as suppliers need huge investment in bottling plants, distribution network and promotions to be able to compete. Buyer Power The most important buyers for Accra Brewery Ltd are it network of 23 key distributors nationwide and 10 easy access depots. The profitability of each outlet determines their level of bargaining power. The bargaining power overall for buyers is high because they buy in bulk. How the forces determine potential profitability The strength of the competitive forces affects prices, costs, and the investment required to compete; thus the forces are directly tied to the income statements and balance sheets of industry participants. For example, intense rivalry drives down prices or elevates the costs of marketing, R&D, or customer service, reducing margins. Buyer power lowers prices or elevates the costs of meeting buyers demands, such as the requirement to hold more inventories or provide financing. Low barriers to entry or close substitutes limit the level of sustainable prices. Action Plan In order to counter the effects of these forces, Accra Brewery Ltd needs to strengthen its supply chain to reduce cost, strengthen its distribution network, build the equity of its brands and elevating fixed costs of competing; for instance, by escalating R&D expenditures.. To neutralize supplier power, the company can standardize specifications for formulations and packaging so they can switch more easily among vendors. To temper price wars initiated by GGBL, ABL should invest more heavily in products that differ significantly from competitions offerings.