International Paper is an American multinational company dealing in pulp and paper industry and is considered the largest in context to paper industry in the world. It has known to have a supply of 60 per cent of all newsprints in the United States. Within the pulp and paper industry, the company was founded in 1898, with the location of it headquarter is based in Tennessee, US. As of 2020, the company generated a reasonable figure of sales of 21 billion dollars and has an active employment figure of almost 48,000 Individuals (International Paper, 2020). The evaluation of Porter’s five powers would be helpful to sustain the future strategies of the company to better grasp its position from the worldwide perception of the pulp and paper industry.
Competitive Rivalry in The Market
The competitive rivalry in the paper industry is high because of the increasing demand and need for paper and packaging in today’s contemporary business society. As a result of this increase, several companies and institutions have captured the market to provide papers and other packaging material made by paper to fulfil the demand, resulting in fierce competition among established players. The Paper industry is constantly growing and expected to grow at a rate of 5 per cent annually. The company’s major competitors are Oji Holdings, UPM-Kymmene, Stora Enso and Nippon Paper group in terms of leading forestry and paper companies. According to Statista (2020), International Paper is leading the table with a revenue figure of 20.58 billion US dollars, while at the same time others showing the figure of 13.01, 10.44, 10.4 and 9.43 billion US dollars. Therefore, such big firms making the environment of the industry more competitive.
Threat of Substitutes
The threat of substitutes is typically high in the pulp and paper industry because it delivers a value offer that differs uniquely from its current offerings. If a new product or service meets similar client requirements differently, the industry’s profitability is impaired. For example, finance and environmental factor play a massive role in replacement in service. The threat of substitutes depends on the buyer’s inclination to replace the product and their respective cost. There is a threat from replacement if the price of the replacement product affects the demand for the product (Patari et al., 2016). Therefore, the risk of substitutes in the pulp and paper sector is high.
The Threat of New Entrants
The threat of new entrants in the pulp and paper business is considered to be low as there are plenty of firms already operating and continuously innovating new ideas to provide better facilities. Big pulp and paper industry enthusiasts bring innovation, new ways to do things, and urge the company through a lower price strategy, reduced costs, and a new value for customers. An entry barrier is crucial to sustainability for a high-profit margin (Maury, 2018). Economies of scale, working capital need and brands identification are critical factors in defining a new entrant risk and hurdles to access the distribution channels and absolute cost advantages. Hence, leaving less chance for a newbie.
Bargaining Power of Buyers
In the pulp and paper sector, the negotiating power of consumers is moderate because often the purchasers are making a challenging deal.. By paying the minimum amount, you wish to buy the best available offer. In the long term, this put pressure on the profitability of the company. Also, the factor for switching cost plays a vital role in influencing buyer power. The greater the negotiating power and ability is of the customers to pursue rising discounts and offerings. Powerful purchasers can extract more value by driving prices down or demanding more effective services to increase producers’ costs (Shantia, Aflaki and Masini, 2021). In light of such a way, because of the nature of the industry, the negotiating force of buyers is relatively moderate.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the pulp and paper industry is moderate as most of them are purchased by several providers from companies in the pulp and paper industry. The suppliers are dominating the market, which can lower the organization’s margins. The prices of raw materials are dictated, and paper manufacturers are passed on the burden. Powerful consumer product suppliers use their negotiation strength to pulp and paper companies with higher pricing (Silva et al., 2019). The major suppliers in the firm are those who provide wood as raw material in different shapes and sizes. Thus, in context to the pulp and paper industry, the bargaining power of suppliers is moderate.
Reference
International Paper, 2020. Delivering Inspired Performance | International Paper. [online] Internationalpaper.com. Available at: https://www.internationalpaper.com/performance.
Maury, B., 2018. Sustainable competitive advantage and profitability persistence: Sources versus outcomes for assessing advantage. Journal of Business Research, 84, pp.100-113.
Pätäri, S., Tuppura, A., Toppinen, A. and Korhonen, J., 2016. Global sustainability megaforces in shaping the future of the European pulp and paper industry towards a bioeconomy. Forest Policy and Economics, 66, pp.38-46.
Shantia, A., Aflaki, S. and Masini, A., 2021. Contracting for technology improvement: The effect of asymmetric bargaining power and investment uncertainty. European Journal of Operational Research, 293(2), pp.481-494.
Silva, B.K., Cubbage, F.W., Gonzalez, R. and Abt, R.C., 2019. Assessing market power in the US pulp and paper industry. Forest Policy and Economics, 102, pp.138-150.
Statista, 2020. Leading global paper companies revenues 2020 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/257407/global-leading-forestry-and-paper-companies-by-revenue/.