Roll Royce External Analysis

Suppliers generally have a moderate to high bargaining power within the industry due to the limited number of suppliers which forces aviation companies to choose from the number available and accordingly to accept their prices. In fact, fuel is the second highest cost for aviation companies. There are highly depended on supplier’s prices and the availability which indicates on a relatively high bargaining power of suppliers. In addition, there are high switching costs which are strongly in favor of the suppliers and means that the company experiences an increase in operating costs when switching to another supplier as flying another type of aircraft leads to additional costs (maintenance, training etc.).Aircrafts are vulnerable to delays due to the location of gate locations which leads to a decrease in utilization and therefore to an increase in costs.

Bargaining Power of Suppliers: The bargaining power of suppliers in the industry is low. There are numerous suppliers in this industry, and the large department stores have the ability to negotiate for the lowest prices. In addition, the switching costs are low, as the products are not highly differentiated. There are a large volume of purchases in the industry, allowing the department stores to exert even more power over the suppliers.

A. Describe the environment, as viewed by Michael Porter’s model of competitive forces, that Valuejet was trying to compete in. consider competition, suppliers, customers, new entrants, substitute products? The five competitive forces that shape strategy are competition, suppliers, customers, new entrants, substitute products. Michael E. Porter demonstrates how the five competitive forces can be used in any industry. The results from all five forces not only look at the narrow aspect of competition rivals but as well as broader aspect of competitive interaction within an industry. These five competitive forces can also be used in the case of Valuejet. Competition within the airline industry is highly

Bargaining power of supplier: High levels of competition among suppliers act to reduce prices to producers. This is a positive for Ford Motor Company. Standardization of parts allowed Ford to reduce dependency on fixed supplier/vendor which goes into producer’s favor.

Power rests with the suppliers in the form of price and quality of supplies. Suppliers can increase the price or lower the quality of their goods and services. The power of supplier in the Indian airline industry is immense because of the three major inputs from the supplier are all affected by the external environment. These 3 factors and the power of supplier for each component is explained below.

Bargaining power of customers: In airline industry the bargaining power of the customers is low to medium, because the buyers are not concentrated; there is no threat of backward integration.

There are only 3 main competitors in the commercial jet engine-making industry which operates as an oligopoly. Historically, all of these companies have competed with each other for jet engine contracts which led to intense price wars. To avert ruinous price wars, these companies typically enter into exclusive supplier contracts with aircraft manufacturers. In such arrangements, the engine maker becomes the sole provider of jet engines for a specific aircraft model.

For the purpose of internal analysis, I have selected civil aerospace SBU of Rolls-Royce. This analysis has been done considering the fact that the case study was published in year 2005.

Second, Airbus, McDonnell Douglas, and Boeing are multi-product firms that are selling several products during most time periods. When Boeing considers lowering a price of one of its products, this will not only reduce the market share of Airbus’s products, but it might also undercut the sales of Boeing’s other products. Boeing may then lower its prices by less than in a situation when it only sells one product.

The following analysis discusses the suppliers, buyers, industry competition, threats to entry, and substitutes that exist within the large commercial aircraft industry. Additionally, the analysis identifies the pressure that each of these groups applies on the industry and estimates the impact this pressure has on potential industry profits. Each group is identified using a high, medium, or low-pressure classification. A high-pressure classification indicates the group reduces industry profit potential and vice versa.

The supplier power in airlines is dominated by the world’s two largest aircraft manufacturers are Airbus and Boeing. The competition between the two manufacturers is neck to neck but that would prove to be a boon for Emirates as the prices would not rocket through the ceiling. A study shows that Emirates holds 93 Boeing aircrafts and 83 Airbus units (Planespotters, 2009). In 2007, Emirates purchased 81 Airbus flights, to extend it services- however, they chose Airbus over Boeing as the latter failed to deliver its latest aircrafts on time and moreover, Airbus had quoted a good price (Barryl, 2007). The changing oil prices also have an adverse effect on the aviation industry. In a nutshell, the bargaining power of suppliers is high.

If suppliers are limited, they have a greater opportunity to charge higher prices for raw materials, and they may also pose a threat of forward integration to the industry.  Similarly, if an industry has few buyers, or buyers can cheaply and easily change suppliers, they can make demands for less expensive higher quality products, causing impact to profit (Porter, 2008, p. 83).

There are two different buyers in the industry; businesses and consumers. The bargaining power of business buyers is high. Business buyers are the biggest purchasers of Corning’s products. They purchase Corning’s glass and ceramics as by-products for subsequent manufacturing of other goods. Business buyers are sensitive to the price of Corning’s products, as slight differences in material prices would impact the cost of production. Conversely, the bargaining power of the consumer buyers is low. Consumer buyers do not have as much bargaining leverage when compared to business buyers.

For example, Boeing and Airbus supply most commercial aircraft. The concentration within the suppliers segment of the industry makes it very difficult for competitors to exercise leverage over another supplier and obtain lower prices. The power of the supplier is one key in prohibiting the ability of competitors to earn higher profits.

Porter’s five forces are used to determine the competitive intensity and attractiveness of a market. These are close forces that affect a company’s ability to make a profit and serve customers. If any of these forces change, a company must reassess its marketplace. The five forces include: the threat of substitute products, the threat of the entry of new competitors, the intensity of competitive rivalry, the bargaining power of customers and the bargaining power of suppliers.