Porter's 5 in Mining Industry

Tags: Profit (economics), Nuclear power, Electricity generation

1. Porters 5 forces Analysis:

1.1 Buyer power:

The buyers for mining industry usually have medium to high power. There are two elements that could affect the buyer’s power. One is buyer’s level of negotiation; the other is buyer’s price sensitivity. In our case, the two companies are producing coal and uranium. These two products are mainly used for producing electricity. Buyers for these natural resources must have large quantity of demand, and also they usually have government behind them for negotiation. Even through these natural resources are unrenewable and limited, there are other mining companies producing them and these resources are undifferentiated from other companies products. This makes the buyers have high level of negotiation. However, the switching cost for the buyer is extremely high once the two parties sign the contract. That could reduce the level of negotiation a little bit. On the other hand, the product the buyer purchases from the mining companies represents a large fraction of its cost structure. For example, the cost of purchasing coal is the main part for electricity companies. This makes the buyer price sensitivity. Overall, the buyer may have medium to high power to the mining industry.

1.2 Supplier power:

In the mining industry, the suppliers are usually mining equipment companies. They usually have high powers to the mining companies. Even though there are many mining equipment suppliers, and the concentration level of the suppliers is lower than the mining industry, the suppliers still have significant influence to the mining company. One of the reasons is that the switching cost is extremely high. While the price of mining equipment is high, the mining companies might also need the suppliers’ technical support in maintaining and upgrading the equipments after purchasing them. When the switching cost is high, the mining companies may find it hard to play suppliers off against one another. On the other...
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