Crown Cork& Seal Five Forces Analysis

Topics: Barriers to entry, Barriers to exit, Switching barriers Pages: 4 (677 words) Published: February 27, 2011
Five forces Analysis of Crown Cork& Seal in 1989

Part1. Competition analysis of metal container industry

Bargaining power of suppliers

1. There are only three major aluminum suppliers, Alcan Aluminum, Alcoa, Reynolds Metal. They have obtained strong power by dominating and controlling the primary aluminum and aluminum production market. They are more concentrated than metal container industry.

2. These aluminum producers control huge aluminum resource so that the can manufacturer cannot put threat of backward integration. In contract, the aluminum producers are able to put threats of forward integration, just as Reynolds Metal integrated into aluminum cans.

Conclusion: aluminum producers can exert a good deal of bargaining power over metal can manufacturers.

Bargaining power of customers:

1. The products are indifferent, so buyers face no switching cost.

2. Buyer are very large and become more and more concentrated through consolidation

3. Buyers buy in large quantities and keep relationship with more than one can suppliers.

4. Buyer can post the threat of backward integration. But metal producers are unlikely to put the threats of forward integration

5. Metal can manufacturers usually located close to customers to minimize the transportation costs. If the customer post the treats of not renewing the contracts, the can manufacture may suffer big lose.

Conclusion: customers can exert a considerable amount of power over metal can manufacturers.

Barriers to entry

1. The capital investment is low. A typical two-pieces can line cost between $20 and $25 million, and a three-pieces can line cost approximately $1.5-$2 million. So the capital is not the barrier to entry.

2. The efficient scale is not more than 15 lines, so the economy of scale is low and can put barrier to entry

3. There are no switching barriers because the products are indifferent and buyers don’t have any brand loyalty....
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