Porter five force analysis help understand the various power factors that influence the business operations and decision making. These five factors for SmartMart to produce bio-fuels partnering are as follows (Porter, 2008): Supplier Power: The two key producers controls the complete supply chain and can significantly influence the cost, revenue and holds all key controls for managing supply to the customers. The supplier power is key threat since any time they can breach the alliance and can further stop the supply impacting business drastically. Buyer Power: Buyers are mostly the end user individual and cannot influence price. These buyers buy in low quantity and therefore company controls the pricing and flow of supply which cannot be influenced by buyers. Buyers have very limited power to influence the price, supply or impact the business strategy. Competitive Rivalry: There will be low competitive rivalry since alliance is already done with two largest bio-fuel producers and able to manage the major production.
There will be competition with only small scale producer and cannot significantly influence the supply and price of the bio-fuels. The competitive rivalry is highly controlled due to weak or small other competitors. Threat of Substitution: There has been high technology evolution going in developing solar cars, electricity driven cars and can add as substitute to the bio-fuel driven vehicle. The other substitute could be in form of other developed kind of fuel source which can also threat as substitute over period of time. Threat of new entry: The establishment and set up cost is huge therefore there is limited threat of new entrant. The entrant is required to high investment and not possible for all companies to enter unless they have huge set up. The time to market is longest in this business therefore facing new entrant is not immediate threat.
Arguments of alternative strategic choices
SmartMart strategic goal to enter bio-fuel market through alliance will significantly help company to establish in the market with quick turnaround and with low establishment cost. The tie up with two large producers will help company to manage the business competitiveness and will help manage the market demand (Grant, 2013). SmartMart can gradually also look into option of developing its own production over a period of time so that the dependency on alliance goes down and they will be in position to control market and the price. The bio-fuel business requires huge investment and price control will also be not in company hand therefore company has to strategically manage the business.
Porter M (2008) the five competitive forces that shape strategy, retrieved on 13th Jan’14 from, http://www.exed.hbs.edu/assets/documents/hbr-shape-strategy.pdf Grant, R. M. (2013). Contemporary Strategy Analysis (Combined Text and Cases) (8th). New York, NY, USA: John Wiley & Sons. ISBN: 9781119941897 Hill , W.L.C., Jones, R.G., (2008) Strategic Management, An Integrated Approach‟, 8th edition, Houghton Mifflin Scenario 3