The ability to purchase items at a lower

The
five forces of completion model otherwise known as Porter’s five forces are
used to determine how profitable and attractive an overall industry is. An
industry is considered attractive if the threats of the five forces are
considered to be fairly low. The five forces include threat of new entrants,
threat of substitute products, bargaining power of suppliers and buyers, and
rivalry among competitors. Within this report I will explain each of the five
forces and their ratings in regard to the Ice-Fili, a Russian ice cream
industry. Also, I will include suggestions to Ice-Fili on how to lower threats
within the industry.

 

New Entrants:

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The
threat of new entrants was a dominating issue for Ice-Fili due to weak barriers
to entry.

Weak
barriers to entry made it difficult for Ice-Fili to remain one of the top ice
cream producer in Russia. In 1991, Russia decided to institute an open market economy.

This policy allowed industries to access any market freely. Industries such as Ben &
Jerry’s and Baskin & Robbins took advantage of this open market policy in
order to increase capitalization. In turn, this created higher
competition with local industries such as Ice-Fili who experienced a heavy drop
in ice cream sales and production. Overall, the threat of new entrants would be
considered high due to its weak barriers to entry.

Substitutes:

The
threat of product substitutes becomes high when outside industries create products
at a lower cost with similar benefits. This threat increases the amount of
competition from industry to industry. Product substitutes that have been
competing with the ice cream industry include items such as sodas, yogurts, chocolates and other confectionary
candies. These substitutes may serve the same purpose to the consumer
which is the indulgence and intake of a sugary substance. In 2000, the production of ice
cream declined 3.5% from the year before compared to the 23-25% increase in competing
products. Overall the threat of product substitutes is considered to be
medium high in regard to the ice cream industry. The ability to purchase items
at a lower price that essentially provide the same amount of benefits is the
reason for higher competition.

 

Supplier power:

The
power of suppliers in the ice cream industry may be considered low. The
supplier power is low when referring to ingredients that compose the ice cream
itself. Ingredients such as milk, butter, and sugar are sold as a commodity. This
means these essential ingredients can be purchased for a lower price through different
suppliers at any time. Having the ability to purchase from different suppliers
who may offer lower prices than others decrease the suppliers actual bargaining
power.

 

Buyer power:

As distributors, Ice-Fili has the power
to decide what products are available to the consumers which is an indicator of
possessing high bargaining power. As mentioned previously there are about 300
active ice cream industries in Russia. The domestic ice cream industries in
Russia have provided similar products that have little differences. Consumers are
then able to choose one product over there other without second guessing. Price
sensitivity is also a factor in bargaining power. Small differences in pricing
of a product will not change consumer buying behavior so the price sensitivity is
low.  

 

Competitors:

 Rivalry amongst competitors is likely to be
high when there is a large number of similar functioning industries. In 2002, a
massive 300 ice cream industries were active in Russia. Many competitors relied
heavily on advertising and marketing to ensure consumers became familiar with
their products. The more familiar consumer became with these new brands the
more likely these industries would be able to convince distributors to sell their
products resulting in higher profits. Ice-Fili did not spend near as much money
advertising compared to its competitors. Because of Ice-Filis lack of
advertising, consumers were more prone to choose other options since they were
more well-known ice cream brands. The competition and rivalry amongst existing
industries would be considered high because of domestic and foreign competition.

 

Final Thoughts:

Through analysis of Porter five forces, I
believe that the overall attractiveness of the ice cream industry is fairly
low. This industry has high threat of entrants, buyer power, high product
substitutes, and high rivalry amongst competitors. The only benefit this industry
seems to have is low supplier power. The risks within this industry outweigh
the benefits making it unattractive

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