MICHAEL PORTERS’ FIVE FORCES MODEL OF FERTILIZER INDUSTRY
Submitted by: Charushila Satish Bankar
Roll no.: 0125
INTRODUCTION TO FERTILIZER INDUSTRY:
Today, Indian Fertilizer Industry is developing in terms of technology. Indian manufacturers are adopting advanced manufacturing processes to prepare innovative new products for Indian agriculture. India has entitled as the third largest producer and exporter of nitrogenous fertilizer. The tremendous demand of fertilizers has led the country to invest huge in the public, co-operative and in private sectors. At present, India has more than 63 large sized plants of fertilizers, manufacturing wide assortment of fertilizers including nitrogenous, phosphatic, Ammonium Sulphate (AS), Calcium Ammonium Nitrate (CAN) urea, DAP and complex fertilizers. Apart from it, there are other 64 small and medium scale Indian manufacturers producing fertilizers. MICHAIL PORTES FIVE FORCES MODEL :
Mchail Porter has putforth the model to analyse the industry on the basis of five factors which are common to all industries. The analysis of fertilizer industry on the basis of this model is explained further. THREAT OF NEW ENTRANTS:- LOW
Entry barriers are high.
1. Supply side economies of scale- Present fertilizer industries both public and private sector enjoy the benefit of scale economies of scale. The cost per unit is low. 2. Demand side benefits of scale-the buyers i.e. farmers are having faith on the fertilizers they are using. They communicate to each other the results of fertilizers. Hence always has tendancy to buy what others are buying. Hence for new entrant it is difficult to break this attachment. 3. Customer switching costs- It is high. When farmers are using any fertilizer,they are well known about the results, also for that fertilizers they have tie up with the o-operative societies, they can get it on credit basis also. Hence the cost of switching to other brand is high. 4. Capital requirement- Fertilizer industry is high energy consuming industry, thus it requires huge capital investment. 5. Incumbency advantages independent of size-The existent players have good distributional channels, experience over the years, faith of farmers in their fertilizers which is incumbency advantage over the new player. 6. Restrictive Government Policy- for a new entrant in fertilizer industry it is very difficult to get a land as there are many restrictions from Ministry of Environment. 7. Social issues- people living near the fertilizer production plant may oppose it because of health related matters.
Bargaining power of supplires: High
Fertilizer industry is energy intensive industry.
The selection of the basic techniques is based on several factors – Target product range (N/P/K ratio)
– Raw material basis
– Quality parameters
– Flexibility of process
– Size of production plant
– Integration with other processes
The other inputs required are chemicals, heavy machinery, labour,etc. For the suppliers of energy fertilizer is not the only option. This is not the only source of revenue for them. Hence their bargaining power is high. The switching cost of fertilizer producer for the technology part of it is high. Also the fertilizer producer has to depend upon the suppliers of chemicals, these are many but the quality raw material is the key in production. The other strong point on the part of suppliers is that they can get into forward integration. Thus bargaining power of suppliers is high.
THE BARGAINNG POWER OF BUYERS: HIGH
The buyers here are the farmers, distributers like Krishi Seva Kendra, co-operative societies thus the customer size is very high. 1. Agriculture is the backbone of Indian economy and fertilizers use the key operation in agriculture. 2. Also government has to keep control on the prices of...
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