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.
Porter?s Five Forces, which is widely taught in business schools and used by management to assess the risks their businesses are facing, looks at five different aspects of a business:
Level of competition in the industry
Threat of new entrants into…
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.
Porter’s Five Forces, which is widely taught in business schools and used by management to assess the risks their businesses are facing, 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 Thai Beverage Company Limited (SGX: Y92).
As a quick introduction, Thai Beverage is one of the largest consumer products companies in Thailand. As the largest beverage outfit in the same country, Thai Beverage produces both alcoholic and non-alcoholic beverages. The company also distributes its own products, as well those from third-parties, all over the nation.
Besides its dominance in Thailand, the company is also working on improving its export business. Thai Beverage has a goal of increasing its revenue from outside Thailand to 50% of its total sales. For some perspective, that percentage was only 5% in 2014.
Level of competition in the industry
Although there are domestic and foreign players in the alcoholic-beverages industry in Thailand, the scene is still dominated by Thai Beverage and Boon Rawd Brewery (Thai Beverage’s key competitor).
Due to the two companies’ strong local branding and extensive distribution network, the alcoholic beverages market in Thailand can be said to have a sustainable duopoly dynamic.
An analogous example for the duopoly enjoyed by Thai Beverage and Boon Rawd Brewery can be found in how Coca Cola Co. and Pepsi Co. dominate the soft drinks market in many parts of the world.
Threat of new entrants
The threat of new brands of alcoholic beverages entering Thailand is quite small. With the huge distribution network and strong branding that Thai Beverage has created over the past few decades, it would be extremely difficult for any newcomer to overthrow the company’s market-leading position.
Power of suppliers
Suppliers of Thai Beverage include manufacturers of the cans and bottles for its drinks as well as third-party drinks producers. Most of Thai Beverage’s suppliers might not have much bargaining power over the company.
This is because – as mentioned earlier – there are only two beverage companies in Thailand which have an extensive distribution network and Thai Beverage is one of them.
Therefore, for third-party drinks producers to achieve the volume of sales they want in the Thai market, they’d have to depend on Thai Beverage’s distribution network. This will increase Thai Beverage’s bargaining power over its suppliers.
Power of customers
While Thai Beverage’s end-users are really the individual consumers who consume the company’s beverages, the firm’s real customers are the outfits which sells drinks (of both the alcoholic and non-alcoholic variety).
The balance of power between Thai Beverage and its customers will depend on each customer’s distribution network.
Major retail chains that have a huge distribution network in Thailand might have stronger pricing power over Thai Beverage while smaller chains, night clubs, restaurants, and mom-and-pop convenience stores might have little bargaining power over the beverage behemoth.
Threat of substitute products
Almost all types of beverages can be considered as substitute products for Thai Beverage’s offerings. For the alcoholic beverage segment, Thai Beverage only serves the beer and spirit markets; other alcoholic drinks like wines and cocktails, (maybe even coffee liquor) can all be substitutes for Thai Beverage’s alcohol-products.
Substitutes for Thai Beverage’s non-alcoholic beverages and food segments would be even larger. Pulling it all together, the threat of substitute products is huge for the company.
The key takeaway of my short look at Thai Beverage’s competitive strengths and weaknesses is that the company has a very strong market position in its home market and thus will have a very stable revenue stream from Thailand.
However, as the company expands its footprint outside of Thailand (and the firm has every intention to do so as I mentioned earlier), it will lose that advantage and might be facing a much more competitive landscape in the global market.
For more investing analyses and important updates about the financial and stock markets, sign up for The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.
Like us on Facebook to follow our latest hot articles.
The Motley Fool's purpose is to help the world invest, better.
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 does not own shares in any company mentioned.