Porter’s Five Forces Analysis
Rivalry
Crown, Cork & Seal is one of the leading companies in the metal container market, alongside other strong competitors. Continental Can, American National Can, Reynolds Metals, Ball Corporation, and others have been successfully doing business in this environment for many years, and each company has a guaranteed market share (Bradley, 2011). However, even for such large manufacturers, small companies at the regional level, such as Van Dorn Company and Heekin Can, can become competitors (Bradley, 2011). In general, competition is limited by the product’s price and quality, innovation, and diversity, so every company actively fights to maintain its role. Although Crown, Cork & Seal is one of the leaders in the market, after the change in management and with the development of the industry, competition from other businesses is rated as high.
Entry Barriers
On the one hand, the emergence of new organizations in producing metal containers does not pose a substantial threat. That is primarily because capital investments and the costs of running such a large business are very high. In addition, the production itself is also costly, which is a significant barrier to entry into the market. However, in 1989, the majority of the market belonged to the production of metal containers and accounted for 61%, which attracted new firms (Bradley, 2011). However, the emergence of such large competitors as the top five firms is unlikely.
Substitutes
Glass and plastic containers have become major commodities that can threaten substitution and increase competition within the industry. As noted earlier, the share of metal containers in the market is more than 60%. In comparison, glass and plastic containers diluted the container market with shares of 21% and 18%, respectively (Bradley, 2011).
While glass and plastic are used primarily for beverages and packaging, metal containers serve beverages, food, and packaging applications. Aluminum cans have many advantages that make them attractive, including low cost, lightweight, and long shelf life. Thus, the threat of substitutes is not a decisive factor, but their complete absence would mean the industry would have a 100% market share.
Supplier Power
The production of metal containers comes from aluminum, steel, and their combinations. The oligopoly is the dominant structure in the market; the leading suppliers are Alcoa, Alcan, and Reynolds Metals, which have large aluminum resources (Bradley, 2011). In addition, in the late 80s, aluminum producers faced the threat of steel dominance in the market, so they significantly reduced their prices to remain competitive (Bradley, 2011). Thus, Crown, Cork & Seal has several reliable suppliers and receives products at a favorable price.
Buyer Power
The primary consumers in the market for the production of metal containers are manufacturers of soft drinks, such as the Coca-Cola Company and Pepsico Inc. In 1989, there was a significant decline in the production and supply of Crown, Cork & Seal products, which was caused by the consolidation in the beverage industry (Bradley, 2011). In this regard, the companies offering metal containers were forced to listen to the customer and offer them competitive prices and good service. The power of the buyer is an essential factor influencing the success of Crown, Cork & Seal, and therefore has significant power.
Summary
Based on a general analysis of forces, the industry is highly competitive, maintaining its influence even in the face of possible substitutes, and represents a difficult area to enter. As for Crown, Cork & Seal, although the company experienced severe performance declines after the change in leadership and its market position was called into question, the company was able to identify and focus on its strengths. Crown, Cork & Seal decided to focus on developing flexibility that allowed them to respond quickly to changing customer needs (Bradley, 2011). Thus, thanks to its customer focus, the company could consolidate its advantage over other suppliers.
Reference
Bradley, S. P. (2011). Crown Cork & Seal in 1989. HBS No. 793-035. Web.