The Evergrande Group of China is the largest real estate company in the world. The company was established in 1996 in the Guangdong Province of China (Hua, 2018). The company operates in the real estate industry and sells apartments to upper and middle-income residents of the area. The company was found by Xu Jiayin, who is one of the wealthiest men in China and Asia (Fortune, 2019). Jack Ma, the CEO of Alibaba, holds minority shares in the company. The company continues to grow as it develops more land and projects on the Mainland of China.
Following is a detailed Porter Five Forces Model Analysis of Evergrande Group:
Competitive Rivalry – High
The various competitors of Evergrande Group in China include Country Garden, Hopson Development, Agile Properties, and Guangzhou R&F Properties. The industry is moving towards saturation as these real estate companies develop their brand name and repute. The fixed costs are also high in terms of land, leases, and other similar costs. The products’ different competitors offer differ in value, design, and appeal (FFU, 2018). There are long-term commitments in the form of a lease between the company and its clients. Switching to another real estate company would also incur great costs for clients. Customer-producer interaction is also high as customers want to be briefed about property designs, values, completion times, and other aspects. As a result, the overall competitive rivalry is high.
The Threat of New Entrants – Low
As the Evergrande group continues to develop one project after another, it has developed cost and performance advantage in the industry. The designs and layouts it offers are proprietary. People trust the brand name with their real estate needs. To enter the real estate industry, significant capital is needed to procure land, develop it, and then sell it before making any earnings. Those already in the industry have developed cost and performance efficiencies that allow them to deliver projects quickly and at less cost. Authorization from local authorities is also needed before a project can be initiated. Marketing costs are another initial cost a new entrant would have to bear to develop brand repute (FFU, 2018). Thus, the threat of new entrants for the Evergrande Group is low.
Bargaining Power of Suppliers – Low
The suppliers of the company provide the company with raw materials such as sand, rock, cement, bricks, and other material needed for construction. All of these are standard products and not differentiated in any way. Numerous suppliers offer similar products and the company can easily switch to another supplier at a low switching cost. Also, since the company offers extensive business when a new project starts, suppliers would be more than happy to gain business from the company. The business is important for the suppliers. They cannot bargain for prices or attempt to influence the projects in any manner. This reduces the bargaining power of the suppliers to low.
Bargaining Power of Buyers – High
The number of buyers, as compared to the number of firms, is large. However, each of them purchase in hundreds of thousands and even millions. Once they make a purchase, the cost of switching is high as it takes time to sell a property and it may not offer the same price brought at earlier leading to a loss. Buyers do need detailed information from the company about the project and the payment plans. Buyers can also purchase their land and hire a contractor to build for them but the hassle is too much which many buyers would prefer to avoid (FFU, 2018). Price matters for the buyers and they may even bargain on the payment plan or seek out a company that offers greater flexibility in the payments. The designs and homes are unique. Individual buyers may also be offered discounts on upfront payments and payments in a shorter time. This provides buyers with high bargaining power.
The Threat of Substitutes – Moderate
The substitutes for the products of Evergrande Group are renting property, sharing accommodation with others, staying in a hotel, and so on. However, each of these substitutes has a performance limitation in terms of costs and other factors. Switching to a substitute also involves costs in terms of contracts, advance payments, and so on. Customers are also likely to adopt substitutes but only until they have gathered enough amount to purchase an apartment from the company. The substitutes have running costs while the products of the company do not. As a result, the threat of substitution is moderate.
References
FFU, 2018. Lendlease Group Porter Five Forces Analysis. [Online] Available at: http://fernfortuniversity.com/term-papers/porter5/asx/1854-lendlease-group.php [Accessed 12 Dec. 2019].
Fortune, 2019. https://fortune.com/global500/china-evergrande-group/. [Online] Available at: https://fortune.com/global500/china-evergrande-group/ [Accessed 12 Dec. 2019].
Hua, X., 2018. China’s Evergrande tops world’s most valuable real estate brand: report. [Online] Available at: http://www.xinhuanet.com/english/2018-09/05/c_137446988.htm [Accessed 12 Dec. 2019].