First of all it is considered as crucial to find out in which environment the company CHR exists, therefore I decided to use Porter`s five forces model and Pest analysis. 1. 1 Porter`s five forces model
This model was articulated for the first time by Michael Porter in 1979 in his successful record-breaker book named “How competitive forces shape strategy” (Porter, p.78). Five forces are illustrated in following picture.
Source: Porter, p. 78
Before this analysis will begin, it is vital to stress that this model is well-known as an effective instrument. An advantage of this model is that it captures the immediate environment in which the company competes. It allows to clearly understand the forces which operate in the company`s environment and helps to identify those which affect the company in the nearest future. It is considered to be a powerful tool in determining the strategy. However everything has its deficiencies and this model is not the exception. In my point of view it is needed to combine this model with some of the others, because there are few issues which are not considered in it. To be specific, this model does not count with nonmarket changes such as interference of the government and political changes, fluctuation of the economy and the changes in behaviour of the competition. Porter´s model is criticized for the fact that it neglects analysis of regulations of the government and antitrust violations. Therefore, in this analysis it is needed to use PEST analysis to offer more accurate viewing to company`s environment to help to make and recommend better and more efficient strategy. (ref. č. 1)
The threat of new entrants
Construction or building industry includes standards and regulations, which are not homogeneous around the world. Therefore, in this field of business it might not be easily possible for new companies to settle down and succeed on the market. In fact, there are relatively high barriers for newly born enterprises to become a global leader on the market. On the other hand these enterprises have comfortable access to diverse technologies and patents. According to Moroney (2010) the potential threat consists in developing huge number of small and medium sized companies, for instance family owned businesses. This might be the consequence of the situation in which the price of the transporting raw materials and final products is high as well as there are mentioned diverse standards and regulations. These small and medium sized companies often focus on the range of customers in the radius 150 kilometres or less. It is therefore considered that the barriers for new businesses that try to entry this market are low, but only if it is a business which is relatively small and focused on customers in its very neighbourhood market. It can be concluded that the expectation of the sudden emergence of a new competitor which would have the proportion of CRH is very low. (CRH should keep maintaining the low price of its products and thus reduce the possibility of formatting new companies in the market.)
The threat of substitute products or services
As mentioned above, standards and regulations in the building industry are not homogeneous around the world, but can be said that the materials used in this production sector are relatively similar and alike. It follows that, although building materials are sold for instance in various sizes, they are mostly made out of homogenous material. The only possible potential threat can be seen in the situation, that the company CRH would literally fall asleep the times and would not invest into new technologies, would not fit its production to the new trends in the market and thus would make room for an arrival of competing differentiated products, which could ultimately completely replace the pallet of the products of the company. Therefore it can be assumed that the threat of substitutes is low. (zdroj č. 2)