Midea Group is the producer of home and electrical appliances. It was incorporated in 1968 in Guangdong Province, China. It is the leading manufacturer of electric appliances. Xiaomi, a Chinese smartphone maker, has invested in Midea Group in 2014 to collaborate on smart appliances. The group has more than 150,000 employees and is ranked at 312th in the Fortune Global 500 (Midea, 2020). In addition to electrical appliances, it also operates through the following departments: HVAC, Smart logistics, and Robotics and Automation (Midea, 2020). The group is among the top industry players in China and has a significant global presence. Porter’s five forces model is a suitable analysis tool to recognize opportunities groups can have and threats it can encounter in the global market.
Competitive Rivalry in the Market
Midea Group has a global presence that exposes it to competition from domestic competitors as well as global competitors. The electrical appliances industry is highly competitive due to the presence of mega-companies. Midea group’s major competitors are Gree, Haier, and Whirlpool. Gree and Haier are based in China, while Whirlpool is based in the United States. According to a report by Jan Conway (2020), the Midea group lead the market with annual sales of $39.8 billion, whereas Gree, Haier, and Whirlpool had annual sales of $28.5 billion, $26.8 billion and $21 billion respectively. In conclusion, the electric appliances industry is highly competitive. Large enterprises in Asis and Globe are pushing to get their share. LG corp also has a $9.7 billion share of global sales in 2019.
Threat of Substitutes
The threat of substitute is high in situations when there are better alternatives available. Buyers perceive a substantial improvement in quality. In this industry, companies that are based in China take advantage of low labor costs and are net exporters to the world. They are experienced in making products with decent production quality and therefore cut production costs. In contrast, Whirlpool is leveraging technology by switching from SAP to IBM cloud that would leave them with vital time to provide better quality and innovative products (J. Michael Berendsen, 2017). These products are only marginally differentiated, and brands develop loyalty among their customer base. There is no substitute available for the electrical appliances industry.
The Threat of New Entrants
The threat of new entrants is high in the industry, where there are few barriers to entry. Either the industry is less capital intensive, or the finances can be raised at a subsidized rate. Profit margins are high, and there is less operating cost. According to Robert M. Grant (2010), the common barriers to entry in the industry are a capital requirement, differentiation among products, regulatory environment, and economies of scale. There is no or little differentiation in the products offered by competing companies. Incumbents can take advantage of economies of scale by producing large quantities. They also have sorted out their supply chains and have access to different markets with a coordinated network of distribution channels. All these factors deter new entrants from entering the industry as there are high barriers to entry.
Bargaining Power of Buyers
Buyers can exercise higher bargaining power in case of excess available options. They can choose a single product from many variances on offer. The market is highly competitive, where multinational and domestic companies are competing for the same segment of the market. The only factors that companies can leverage to retain customers are brand loyalty and customer satisfaction. As reiterated in the study by N. Aburumman and A. Nieto (2019), the relationship between customer satisfaction and brand loyalty is strong, and if customers are satisfied, then they are going to stay loyal with their brand and considering the above mentioned factors buyers have moderate bargaining power.
Bargaining Power of Supplier
Suppliers can exercise high bargaining power if there are few suppliers of the required material. As the electrical appliances industry is vast, and companies have complex supply chain models. The companies have a global outreach with production and assembly in multiple locations domestically and internationally. Their supply chains are virtually integrated and many vendors for procuring the same items because a single vendor cannot fulfill the orders and to avoid over-reliance on a single vendor. Companies can leverage economies of scale in their favor by order bulk supplies. The companies have resources to dictate payment terms in their favor by paying in advance. In light of all the factors discussed, suppliers have low bargaining power.
References
Aburumman, N., & Nieto, A. (2019). The Effect Of Products Attributes Customer Satisfaction On Brand Loyalty In The Electronic Appliances Industry: Case Of Jordan. Oradea Journal of Business and Economics, 4(Special), 39-51.
Berendsen, J.M. (2017). Whirlpool Corporation: Why not move everything to the cloud?. Available at: https://www.ibm.com/blogs/client-voices/whirlpool-move-everything-cloud/
Conway, J. (2020). Sales of the leading household appliance companies worldwide in 2019. Available at: https://www.statista.com/statistics/257968/sales-of-the-leading-household-appliance-companies-worldwide/
Grant, R. M. (2010). Contemporary Strategy Analysis. 7th Edition.
Midea. (2020). About us. Available at:https://www.midea-group.com/About-Us
Midea. (2020). Our Businesses. Available at: https://www.midea-group.com/Our-Businesses