Vanke is one of the largest real estate developers in China. It works on developing, managing, and selling properties across the nation. In 2012, the company expanded into other nations such as the United States, Hong Kong, and Malaysia. The company was found in 1984 and has headquarters in Shenzhen, Guangdong (Vanke, 2019). Vanke is also listed in the Fortune Global 500 company classification. In 2018, the company generated revenue of $36.6 billion and had 77708 employees across the globe. The company continues to grow its portfolio of services and products in the real estate industry.
Following is a detailed Porter Five Forces Model Analysis of China Vanke:
Competitive Rivalry – High
China Vanke competes against Agile Properties, Dalian Wanda, Intershanghai Real Estate, CA Ventures, and numerous others. The industry continues to grow as more land is developed and properties are created. The fixed costs of doing business are fairly high in terms of property and development costs. The products the various competitors offer differ in location, design, and various other factors. The companies have long-term contracts with customers and cannot easily exit the business. Customers would also incur a high cost if they switch to another player as property costs are high. The products require a detailed introduction and interaction with the consumer before any sales are made. This creates an intense competitive rivalry for China Vanke.
The Threat of New Entrants – Low
China Vanke and other firms have developed performance and cost advantages through their experience. The product designs are also propriety. Once a customer purchases a property, they have to start paying installments and down payment. Switching to another seller would force them to lose the payments made. A lot of capital is needed to enter the industry in terms of purchasing land, initiating development, marketing the products, and executing sales (Zhang & Ren, 2006). Those already in the industry continue to gain competitive advantage through performance and experience. Also, government authorization is needed to start property development and sales. This makes the threat of new entrants low.
Bargaining Power of Suppliers – Low
The suppliers to the company include landowners selling land to the company for development, raw material providers, power and energy companies, and so on. All of these are standardized materials easily available in the market. Only a landowner, who has a land at a particular valuable location desired by real estate companies, can bargain with the company to get higher rates. Other suppliers are not in any such position. Various suppliers are providing these supplies in the market and would be happy to gain business from the company. The company offers business in large values making it attractive for the suppliers. Also, the switching costs for the company are low. This makes it difficult for any supplier to attempt to bargain with Vanke.
Bargaining Power of Buyers – High
The number of buyers is moderate in relation to the number of firms in the industry. Also, each buyer purchases properties having values in thousands and millions of dollars. This makes the switching cost for the buyers high once a deal is established with a property seller. The buyers need a significant amount of information about the products and they are aware of it (Zhang & Ren, 2006). The customers are not highly sensitive to price and seek out properties that have desired characteristics and offer good future value. The customers can also purchase and develop their land but it takes time and effort. The products Vanke and others offer are unique in terms of design and location. Therefore, buyers have excessive bargaining power with real estate companies.
The Threat of Substitutes – Moderate
The substitutes of the company include customers developing their own homes, renting out properties, living in shared accommodations, and so on. Each of these has certain performance limitations, such as in a rented property, monthly rent has to be paid while there is no such thing in personal property. Also, switching from one substitute to another has switching costs which can be high. There are available substitutes that are often utilized by customers who cannot afford their property at the moment. Customers are also willing to go for substitutes as they may not be able to afford their own property. As a result, the threat of substitutes is moderate for the company.
References
Vanke, 2019. CHINA VANKE CO., LTD. [Online] Available at: https://www.vanke.com/en/about.aspx [Accessed 17 Dec. 2019].
Zhang, G.Q. & Ren, X.T., 2006. ANALYSIS OF THE COMPETITION ENVIRONMENT FOR REAL ESTATES. [Online] Available at: https://www.irbnet.de/daten/iconda/CIB5813.pdf [Accessed 17 Dec. 2019].