DowDuPont was formed through the merger of Dow and DuPont. The chemical conglomerate is the largest in the world. It generated more than $86 billion in sales in 2018 (Root, 2019). It competes at the international level with various Middle East and European companies. The company is headquartered in Midland Michigan, United States. It also has several subsidiaries. The company has more than ten thousand employees across the globe (LinkedIn, 2019). The company provides chemicals to the manufacturing, agricultural, automobile, and various other sectors. It is a publicly-traded company.
Following is a detailed Porter Five Forces Model Analysis of DowDuPont:
Competitive Rivalry – High
The chemical industry in which DowDuPont operates is highly competitive. The various competitors of DowDuPont include Exxon, BASF, and Sabic. The industry is not rapidly growing. New entrants are not regular as the ease of entry is low. The fixed costs incurred in the form of establishing new divisions and maintenance of existing plants is high. Each competitor produces similar products. The ease of exit is also low as such firms usually have long-term contracts and huge investments made in the machinery. The switching cost for the buyers is relatively low. These functions make the chemical industry highly competitive.
The Threat of New Entrants – Moderate
The costs of establishing a plant and its marketing are in billions of dollars and the time needed is also long. Also, those already in the business have generated reputations and created brands. They have also created distribution channels to cover large global areas. They have worked on refining their products, establishing connections in the industries they serve and spent huge amounts on research and development. Developing a brand and marketing the products at the global level also requires extensive investment and time. At the same time, the threat is low if an established organization in the related industry decided to diversify its products and enter the chemical industry. For example, a petroleum organization entering the chemical industry. Thus, the threat is moderate.
Bargaining Power of Suppliers – Low
DowDuPont does business in billions and purchases products in millions from suppliers including raw material and spare parts for the manufacturing units. Thus, it provides suppliers with a great business. Also, the suppliers provide almost similar inputs which are a standard to all organizations in the industry. If a supplier attempts to influence the pricing of the products, DowDuPont can switch to another supplier at a relatively low cost. There are contracts that bind suppliers to stick to the rate offered. If a supplier loses business, it would become difficult for him to survive. Thus, the bargaining power of the suppliers is low.
Bargaining Power of Buyers – High
The company sells its products to consumers and businesses. Thus, the number of buyers is relatively moderate. The businesses make long-term purchases while consumers may make small purchases in retail. The cost of switching to another brand is also low for a buyer. Most of the products in the market offered by the industry are standardized and the customer does not need a lot of information about the product. If DowDuPont attempts to raise the prices of the products, the customers may switch to a product offered by the competitor that can fulfill their needs. The customers are not highly sensitive to price as the products are usually higher in value (FFU, 2018). These make the bargaining power of the buyer high.
The Threat of Substitutes – Low
The products manufactured and sold by DowDuPont do not have many substitutes. Products such as chemicals for the manufacturing and agricultural industry do not have substitutes that can offer similar functions. If there are any, they would have performance limitations and higher prices. Also, the business consumers have adjusted to these products and would require modifications to start working with the substitutes. The switching cost would be high for consumers. At the same time, the customers have developed their systems with the products offered by DowDupont and its competitors to such an extent that they are not likely to go for a substitute. This almost reduces the threat of substitutes for DowDuPont to zero. The company does not have to worry about its products being substituted by others.
References
FFU, 2018. The Dow Chemical Company Porter Five Forces Analysis. [Online] Available at: http://fernfortuniversity.com/term-papers/porter5/analysis/133-the-dow-chemical-company.php [Accessed 30 Nov. 2019].
LinkedIn, 2019. DowDuPont. [Online] Available at: https://www.linkedin.com/company/dowdupont/about/ [Accessed 30 Nov. 2019].
Root, A., 2019. DowDuPont Is Splitting Into 3 Companies. Here’s Everything You Need to Know. [Online] Available at: https://www.barrons.com/articles/dowdupont-spinoff-dow-dupont-corteva-51556552428 [Accessed 30 Nov. 2019].