Deere and co. are one of the leading companies in the U.S that is involved in the manufacturing and distribution of machinery used in agriculture, construction, forestry, and turf care. Moreover, the company also provides financial services. The annual revenue of 2020 was almost $35.540 billion (Sabanoglu, 2021 ) and the company operates in nearly 160 countries all over the world. John Deere has mainly taken advantage of the growing population, urbanization, and prosperity, leading to the ever-increasing need to drive agricultural and infrastructural investments (Nelson, 2002). The Porter five forces help analyze the company’s position in the market and develop strategies to assist in the company’s growth.
Competitive Rivalry in The Market
The market in which John Deere operates has a comparatively low competitive rivalry. Since the company is large, so the rivalry among the industry is comparatively weaker. John Deere has almost five main competitors in the market that are Kubota Corp. Japan, AGCO Corporation, The Toro Company, CNH Global N.V., and Caterpillar. Talking about sales compared to the competitor’s Deere and co. has increased its revenue in 2020 by four quarters, that’s 19.41%. Simultaneously, the other competitors have had a contraction in revenues by almost -7.82% recorded in the same quarter. John Deere has a market share of almost 8.35 in comparison to the competitors. The company is thriving to emerge in a high potential market in Brazil, Russia, China, and India, where the mergers in other companies are a threat to the company (Yunes, 2007). Therefore, the company’s brand recognition plays an integral part in capturing the market at large.
Threat of Substitutes
There is a low threat of substitutes in the industry that John Deere operates in. This shows that the customer has no alternative to heavy equipment that the company manufactures. Operating in a specialized market its substitute would consist of manpower that is cheaper but not efficient so in short, there is no substitute for the same job. Using hand tools for farming is ineffective for the farmers that take a lot of time and energy. Today harvesting 90 acres with a how would be a difficult job to do but on the other hand, having heavy equipment gets the task done quickly in no time(Man, 2021). This, in turn, means that there are fewer chances of buyers shifting to substitute.
The Threat of New Entrants
The threat of new entrants to the industrial equipment manufacturing industry is comparatively low because the industry has high production costs. If the manufacturing is not done in bulk, then it is so not profitable. It is less likely for new entrants to enter a market where it is difficult to achieve economies of scale. In this manufacturing industry, product differentiation is vital within the industry. The government policies, on the other hand, are strict for any new entrants that make it difficult for them to enter the market. Talking about network distribution then it is easy for new entrants because the distribution market is always looking for new companies (Krause, 2011). Generally, it is difficult for new entrants to get into a market in which capital expenditure is high and where big giants already dominate the market. Hence, it is not easy for new entrants to survive in this industry.
Bargaining Power of Suppliers
Companies in agricultural equipment manufacturing buy their raw material from numerous suppliers. Talking about the power of suppliers in this industry has weaker force. The raw material is readily available and standardized, making it easy for John Deere to shift to a new supplier. The material that is not readily available has a comparatively adverse effect on the company because suppliers have the power to bargain. On the other hand, the profit margin is closely associated with the suppliers but john Deere is a huge company, they are an important and loyal customer for a supplier (Stank, 2005).Suppliers make sure to get in business with the big giant. Therefore, the bargaining of power is low in John Deere’s case because of the ready availability of raw material.
Bargaining Power of Buyers
The industry in which John Deere operates has a few competitors, which leaves the buyer with limited options to choose from. The product differentiation within the company is relatively high, due to which the pricing also varies at large. This, in return, makes it difficult for buyers to shift. The buyers want to buy the best quality product at less price; the company serves this purpose but lacks the best quality (Porter, 2014). So, the bargaining power of buyers is low because there are limited substitutes with better quality and cheap prices.
References
Krause, M. A. (2011). Impacts of Product Differentiation on the Crop Input Supply Industry. Choices, 26(316-2016-6700).
Man, C. (2021, January 18). Deere and CO. Competition . From CSI Market : https://csimarket.com/stocks/compet_glance.php?code=DE
Nelson, R. D. (2002). John Deere optimizes operations with supply management efforts. Journal of Organizational Excellence, 21(2), 3-11.
Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard business review, 92(11), 64-88.
Sabanoglu, T. (2021 , Feburary 11). Annual net sales of Amazon 2004-2020. Statista. Retrieved from Statista : https://www.statista.com/statistics/266282/annual-net-revenue-of-amazoncom/#:~:text=The%20time%20series%20shows%20the,billion%20US%20dollars%20in%202019.
Stank, T. P. (2005). A strategic framework for supply chain oriented logistics. Journal of Business Logistics, 27-46.
Yunes, T. H., Napolitano, D., Scheller-Wolf, A., & Tayur, S. (2007). Building efficient product portfolios at John Deere and Company. Operations Research, 55(4), 615-629.