BASF is the Germany based chemical producing company, known to be the largest company across the globe in the production sector of chemicals. The Group’s comprise of many mergers and subsidiaries around the world approximately over 80 countries. It operates 6 major sites of integrated production and about 390 sites of other production in Asia, Europe, America, Africa, and Australia. Its headquarters are in Ludwigshafen, Germany. It supplies chemicals to more than 190 countries and has wide variety of supplies. The company is famous for combining the economic success along with social responsibility and environmental protection. It’s around 122,000 employees work towards contributing the customer success in every country they are operating. The portfolio of BASF is organized among six segments; Industrial solutions, Chemicals, Surface technologies, Materials, Agricultural Solutions, and Nutrition and care (BASF, 2019). Operations at such large level requires lot of strategies and decision making according to the changes in industry. This industrial analysis could be done with the help of Porter five forces, as this model determines the strategic position of the company and also helps in making decision according to the actions of the competitors. Here is the detailed porter analysis of BASF;
Bargaining Power of Buyers
The bargaining power of the buyers in the chemical production industry is moderate, mainly in the case of BASF as it is the world’s largest producer and has more customers than the competitors. However, there are very less chances of decrease or increase in the bargaining power of buyers because chemicals are main raw material in mostly companies. The switching cost o the suppliers is high, and it is difficult to find supplier with a quality product in affordable prices. Moreover, contracts with the suppliers are long term, which also increases the switching cost. It is important for the BASF to increase the customer base in different countries for diversifying the risk (Graduateway, 2019).
Bargaining Power of Suppliers
Bargaining power of suppliers is moderate because of the few suppliers available in the industry who require materials for chemicals. Mainly in the case of BASF, suppliers are willing to work with the largest chemical producer of the world because they will get more business from BASF, and so agree on their terms and conditions. Moreover, the supply chain of BASF is very efficient which gives it the edge to have control over prices. It is important for the BASF to maintain the efficiency of supply chain in every region for gaining cost advantage (Murphy, 2018).
Threats of New Entrants
Threats from the new entrants in the chemical industry is not so high because of various factors which influence the decision of entering into a new market. Requirement of high capital is the major reason, as lots of capital is needed to run the company and building a strong brand image. Many operations of the newcomer in the industry are expensive. It is difficult for the new entrant to attain the quality product with maximum effectiveness and efficiency likewise of BASF. There are different rules and regulations of every country and some countries have strict policies which are hard to follow. Patent regulations are difficult to follow and expensive in case of chemical producers. BASF is having advantage in this field as it has maintained a good brand image (Graduate way, 2019).
Threats from the Substitute Products
Threats from the substitute products are weak for the BASF as there are very few substitutes available and few companies are able to make exact composition of the chemical require for particular product. Moreover, the compositions of the chemicals require high Research and development costs which are not affordable by every company. Many companies have their fix suppliers like BASF supplies to majority of the chemical companies, this means clients have reliance on BASF and will not switch to other substitutes (Murphy, 2018).
Rivalry of Existing Players
There are many rivals in the industry of BASF group like SABIC, Grace and Royal, etc. who are competing with BASF directly. The competition is intense as everyone is striving to increase its data base. BASF is already looking for more mergers and acquisitions of the competitors to lower the competition level in the industry (Consulting, 2019).
References
BASF, 2019. Who we are? [Online], Available at: https://www.basf.com/global/en/who-we-are.html, [Accessed on: 16th July, 2019].
Consulting, 2019. BASF Evaluates Cognis as Possible Acquisition Target. [Online], Available at: https://www.consultingcase101.com/basf-evaluates-cognis-as-possible-acquisition-target/, [Accessed on: 16th July, 2019].
Graduate ways, 2019. Chemical Industry analysis using porter five forces model. [Online], Available at: https://graduateway.com/chemical-industry-analysis-using-porters-five-force-model/, [Accessed on: 16th July, 2019].
Murphy, E. 2018. Basf Se Porter Five Forces Analysis. [Online], Available at: https://www.essay48.com/term-paper/10638-Basf-Se-Porter-Five-Forces, [Accessed on: 16th July, 2019].