Schneider Electric is a multinational company that operates in the electric equipment industry. It has more than 135,000 employees globally and in 2019 its earned annual revenue of € 27.2 billion (Schneider Electric, 2020). The company was originally founded by the name of Schneider and Cie approximately 180 years ago. The company started its operations in the first industrial revolution and was the major player in the steel and machinery industry. It stood the test of time and grew steadily into one of the forces to reckon with. After the turn of the century, Schneider pursued organic growth through accusations and by targeting different segments of the industry. Since 2010, the company has pursued growth in new avenues by exploring software applications, IoT, and smart appliances (Schneider Electric, 2020). Porter’s five forces analysis will further help us understand the risks and Opportunities the Company is exposed to.
Competitive Rivalry in the Market (Industry)
The electric equipment industry has grown invariably and is one of the important proponents of growth. The industry is at the forefront of every industrial revolution and played a significant role in it. Now it is leading the charge by making eco-friendly products. Products are tested against critical benchmarks of efficiency by the consumer. The industry is comprised of multinational companies operating across the globe the biggest competitors of the Schneider are Emerson Electric and Siemens. Schneider has earned $2.75 billion profit in the last fiscal year; it is ranked 424 in Fortune 500 companies (Fortune, 2020). On the other hand, Emerson Electric has posted $17.4 billion in revenue and $2.2 billion in profits (Fortune, 2020). Siemens has posted annual revenue of $87.6 billion and a profit of $ 8.3 billion (Fortune, 2020). The competitive rivalry is high due to the presence of multinational companies with specialized entities.
Threat of Substitutes (Alternatives or Replacement)
Threats of substitutes are high when there are alternatives available in the market. These alternatives are of better quality and at a better price. There are many firms available in markets and the switching cost is moderate among competitors. Consumer prefers established household companies and it is difficult to compete with established companies. There are not many companies those who provide a suitable alternative to Schneider’s products in all market segments. Although there is a perceived cost-benefit, efficiency is a benchmark against which these products are tested. Schneider spent a substantial amount on research and development to leverage cutting edge technology. According to Wagner (2020), Schneider has spent € 597 million in 2018 on R&D. Considering all the above-mentioned factors there is a low threat of substitutes.
The Threat of New Entrants (New Players/Companies in the Same Industry)
The barriers to entry are low where it is easy to set up a business in said industry. The cost of setting up a business is low or the cost of capital is low compared to the return on capital. The electrical equipment industry is highly specialized in nature. It requires a large amount of initial capital to set up. The capital is not the only deterrent; the established companies are multinational and have significant resources. The industry is highly innovative and companies have to spend a huge amount on research to produce efficient products. The companies have exclusive contracts with suppliers and they have huge distribution channels. All these factors deter the new aspirant to pursue business in this industry. Thus, the threat of new entrants is low.
Bargaining Power of Buyers (Consumers and Customers)
Consumers can exercise higher bargaining power when they have available options. They can impact the companies’ bottom line by driving down the selling price. The buyers have few options available in the market and the switching cost is moderate among different providers. The deciding factor for any consumer is cost and efficiency. In electrical equipment efficiency leads price, the product must be efficient and reliable. Then buyers have an association with brands and they tend to stick with sit despite moderate switching cost. The companies try their best to hold onto customers by leveraging customer loyalty and their market presence. Considering all the above-mentioned factors buyers hold moderate bargaining power.
Bargaining Power of Supplier (Raw Material Providers)
The major suppliers in the electrical equipment industry are providers of raw material. The raw material used in the industry is of various types. These companies have multinational operational bases and have suppliers in different parts of the world. That gave them an edge over suppliers as they have multiple suppliers to choose from. In the electric equipment industry, the quality of raw material has a lot of weight. If the material is of good quality it can significantly increase efficiency otherwise it can hamper it. Few companies have vertically integrated supply chain or they have exclusive buying contracts with suppliers. These companies leverage their financial resources. By analyzing all the above-mentioned facts suppliers hold moderate bargaining power.
References
Fortune. 2020. Emerson Electric. Available at: https://fortune.com/fortune500/2019/emerson-electric/
Fortune. 2020. Schneider Electric. Available at: https://fortune.com/global500/2019/schneider-electric/
Fortune. 2020. Siemens. Available at: https://fortune.com/global500/2016/siemens/
Schneider Electric. 2020. About Us. Company profile. Available at: https://www.se.com/us/en/about-us/company-profile/
Schneider Electric. 2020. About Us. Company profile. History. Available at: https://www.se.com/us/en/about-us/company-profile/history/schneider-electric-history.jsp
Wagner, I. (2020). Schneider Electric’s research and development costs 2014-2018. Available at: https://www.statista.com/statistics/597070/research-and-development-expenses-of-schneider-electric/