A good understanding of a company’s competitive strengths and weaknesses is important for an investor to grasp, keeping in mind that a business that has lots of strengths may just turn out to be a good investing opportunity. To assess a company’s competitive strengths and weaknesses, we can turn to Porter’s Five Forces, a framework created by Harvard professor Michael E. Porter that is also widely used by management to assess the risks their businesses are facing. Porter’s Five Forces looks at five different aspects of a business: Level of competition in the industry Threat of new entrants into the…
A good understanding of a company’s competitive strengths and weaknesses is important for an investor to grasp, keeping in mind that a business that has lots of strengths may just turn out to be a good investing opportunity.
To assess a company’s competitive strengths and weaknesses, we can turn to Porter’s Five Forces, a framework created by Harvard professor Michael E. Porter that is also widely used by management to assess the risks their businesses are facing.
Porter’s Five Forces looks at five different aspects of a business:
- Level of competition in the industry
- Threat of new entrants into the industry
- Power of suppliers
- Power of customers
- Threat of substitute products
So with these in mind, let’s run through the framework with Genting Singapore PLC (SGX: G13).
As a brief introduction before I start, Genting Singapore owns and runs Resorts World Sentosa, an integrated resort based here that has a casino, theme park, hotels, retail stores, F&B (food & beverage) outlets, and other attractions.
In 2014, Genting Singapore’s casino business accounted for 77% of the company’s overall revenue, so gaming is clearly a very important piece of the pie.
Level of competition in the industry
There might only be two casinos in Singapore (the other located at Marina Bay Sands), but Genting Singapore’s competitors actually include every single casino and integrated resort in the world. That’s because the company’s target customers are tourists.
Given this dynamic, the level of competition is strong in the gaming industry.
Threat of new entrants into the industry
The development of integrated resorts is extremely capital intensive (Genting Singapore is currently in the midst of developing a resort in South Korea that will cost more than US$2 billion), thus most of the new developments are generally being made by existing players in the industry.
In this sense, the threat of new entrants is quite low. But that said, the company would not be able to prevent the threat of new resorts coming into the market. To that point, while there won’t be any new casinos being developed in Singapore in the near future, the development of more gaming resorts around the region is still going strong.
Power of suppliers
The suppliers of Genting Singapore can be considered as the governments which grant them the permission to build and operate a gaming resort. In this context, the power of Genting Singapore’s suppliers is very strong as they can dictate the terms and conditions they want before they allow the firm to build any gaming facilities.
Power of customers
Genting Singapore’s customers are mainly individuals who have little power over how the firm should manage its business. Generally, no one customer is large enough to influence how the firm conducts its business.
Threat of substitute products
As Genting Singapore is targeting tourists (both local and foreign ones), any other tourist attraction can be considered a viable substitute product to the firm’s attractions.
As a tourist has limited time to spend on his or her holiday, Genting Singapore would have to fight with other attractions for the attention of the tourist.
In a summary of my analysis of Genting Singapore’s competitive strengths and weaknesses, the firm operates in a tough and competitive market with many alternative products available to its customers. Moreover, it has little bargaining power with its suppliers.
But that said, so long as Genting Singapore can get its customers into its doors, it will have a captive market which can be highly profitable for the firm.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Genting Singapore PLC.