Case Scenario 3: Barracuda Inc. Barracuda Inc. is a lamp-fixture manufacturer th

Question

Case Scenario 3: Barracuda Inc.
Barracuda Inc. is a lamp-fixture manufacturer that is considering an entry strategy into the U.S. home-furnishings manufacturing industry. The existing landscape consists of many players but none with a controlling share. There are currently 2,500 home furnishings firms, and only 600 of those have more than 15 employees. Average net profit after tax is between 4 and 5 percent. While the industry still primarily comprises single-business, family-run firms that manufacture furniture domestically, imports are increasing at a fairly rapid rate. Some of the European imports are leaders in contemporary design. Relatively large established firms are also diversifying into the home-furnishings industry via acquisition. Supplier firms to the home-furnishings industry are in relatively concentrated industries (such as lumber, steel, and textiles). Retailers, the intermediate customer of the home-furnishings industry, have been traditionally very fragmented. Customers have many products to choose from, at many different price points, and few home-furnishing products have strong brands. Also, customers can switch easily among high- and low-priced furniture and other discretionary expenditures (spanning big-screen TVs to the choice of postponing any furniture purchase entirely).

(Refer to Case Scenario 3). Is the furniture industry described above attractive?

Explanation / Answer

Porter's five forces model comprises of :

Threat of Competitive Rivalry
Threat of new Entrants
Threat of substituent products
Bargaining Power of suppliers
Bargaining Power of Buyers
Description pertaining to Barracuda Inc is as :

Threat of competitive Rivalry : Barracuda Inc, into lamp fixture manufacturing faces intense competition from the players who are already established in the US market. As there is low switching cost for the customers, they can switch easily from one player to another one. There is a high threat from European manufacturers who exports to the US Market and has got expertise in the contemporary designs.

Threat of Substituent products : There is a high threat of substituent products to Barracuda Inc. This is because furnising industry is highly dynamic and players come up with new designs and patterns everyday. As a result of low switching cost to the customers, they keep switching from one product to another.

Threat of New Entrants : There is a high threat of new entrants. This is because of low investment costs and high profit margins in this industry. New competitors especially the European manufacturers exports to US Market and attracts large number of customers due to their contemporary designs.

Bargaining Power of Suppliers : Suppliers have high bargaining power as the supplier firms to the home furnishing industry are in relatively concentrated industries such a lumber, steel and textiles. Suppliers have high possibility of forward integration as they set up their own furniture manufacturing unit at any point of time.

Bargaining Power of Buyers : Bargaining Power of Buyers is quite low as the retailers have been traditionally very fragmented and thus teh retailers do not have strong market presence. Bargaining power of the end customers is quite high as there is not much brand loyalty amongst the customers. Customers have many products to choose from at many different price points.

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