Bauhinia Q1) Discuss the competitive forces in the dairy processing industry. Identify the other industry that Bauhinia has entered and highlight the key differences in the competitive forces between the two industries. Comment on their comparative attractiveness in Hong Kong.
Five forces model a)Potential new entrants high barriers: laws on food safety customer loyalty to established brands of leading market players dairy products are mostly perishable, which requires high turnover,reliable supply chain and distribution channels. Economics scale is achievable by building new capacities in jumps in the dairy industry. It cohere mainly with specialized equipment, which is used for production of milk and milk product.
b)Rivalry among existing firms Oligopoly-three dominant firms: Nestle, Kowloon dairy, Trappist dairy
Stages of the industry life cycle: Maturity Stage the dairy product has been standardized: liquid and powdered milk yogurt cheese dairy desserts widely available on the market: Supermarket Convenience store Distribution is well established: storage the dairy product below 4 degrees Celsius refrigeration equipment ,distributing to various selling point by truck
Price war: Milk and milk products cannot be stored for a long time; a great emphasis is put on their freshness. It is necessary to sell these products soon, and therefore businesses pursue to promote sales also with the help of temporary reduction of prices.
Exit barriers are high Exit barriers in the dairy industry are mostly based on the specialized equipment, which cannot be used for anything else. Relatively high capital demands strengthen exit barriers too. This fact forces businesses to stay in the industry at all costs and to continue in competition fight.
c) Bargaining power of buyers No switching cost: Product differentiation is low and different according to the type of product in the industry. In specific products there appears loyalty of consumers to brand name for example in yoghurts or some kinds of cheeses.It is promoted by missive advertising campagins.But only big firms can afford these campagins.In other kinds of products,consumers follow mainly the price, for example in butter or milk .
d) Threat of substitute products It is possible for consumers to replace conventional milk products with vegetable alternatives, such as soya milk, almond milk, rice milk, oat milk, coconut milk. The vegetable alternatives are often available as powdered milk drinks. Cow’s milk can be also replaced by goat milk, sheep milk or buffalo milk. Butter can be substituted either by other animal fats or by vegetable edible fats and oils.
e)Bargaining power of suppliers The dairy processors are dependent on one major raw material – milk. There are no basic substitute inputs for the dairy processors. It means that the dairy industry must face bargaining position of dairy farms.
Bauhinia has also entered the specialty food industry. The key differences in the competitive forces between dairy and food industry:
a)Potential new entrants Concerning capital requirements, the dairy industry does require relatively large amounts of capital, compared to specialty food industry, because of strict regulations for hygienic milk processing and packaging.
b)Rivalry among existing firms Compare to dairy industry, the market in specialty food industry is more fragmented and there are many rivals with no dominant firm, in contrast, there are only three dominate company in dairy industry.
c) Bargaining power of buyers Bargaining power of buyers is relatively low in specialty food industry compare to dairy industry, as the switching costs of specialty food is very high as the specialty food is scarcity and difficult to find substitute.
d) Threat of substitute products Threat of substitute products is low in specialty food industry, but in dairy industry is very high.
Comparative attractiveness in Hong Kong For food industry: Today Hong Kong consumers put more emphasis on health, and gourmet. The frozen meats, including antelope, ostrich and kangaroo, sourcing from countries such as Australia and South Africa, contain high nutrition value that can attract middle class consumer.
For dairy industry: Lack of confident in foreign brand: New Zealand "Fonterra" raw milk contamination by Clostridium botulinum. Local people eager to development in the local historical brand: Vita soy and Apollo