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Electrical Equipment & Appliance
April 12, 2020
Anthony Baez Cruz
In order for us to begin speaking about the Electrical Equipment Industry, first we have to
circle back and acknowledge the one natural force that allows all of these gadgets to function,
Electricity. Without electricity in our lives there would be no television, phones, air conditioner,
a computer to do this assignment, etc. In 1752, scientist Benjamin Franklin discovered electricity
by conducting his famous Kite Experiment. This discovery marked a turning point in history for
other scientists to begin studying electricity as well. Fast forward, “in 1879 Thomas Edison
patented the electric light bulb and our world has been brighter ever since” (Wonderopolis).
“The Electrical Equipment Industry consists of companies that make a range of products
for a diverse customer base. This sector is fragmented, but there are a few members that lay
claim to a sizable portion of sales. Products include electrical motors, commercial and industrial
lighting fixtures, heating, ventilation and air conditioning systems and components, and, among
others, electrical power equipment. Operating structures involve high fixed costs (Value Line). ”
This industry is very broad, anything that you can think of that is powered by electricity falls
under the category of Electrical Equipment. The Electronic Equipment, Appliance, and
Component Manufacturing subsector includes the following industries:
Electric Lighting Equipment Manufacturing
Household Appliance Manufacturing
Electrical Equipment Manufacturing
Other Electrical Equipment and Component Manufacturing
Most of the business for Equipment companies is generated from the mature markets of
North America and Europe, however, throughout the years they have been experiencing growth
and expansion opportunities in developing markets. Well trained and capable management is
vital to oversee these long distribution networks and operations around the world. “In recent
years, companies have established more overseas brick-and-mortar facilities, which has allowed
them to better serve local markets economically and limit the negative impact of foreign
currency exchange. Emerging nations have provided an impetus for growth and low-cost labor,
production and land” (Value Line). Progress in transportation through sea and air have allowed
for such growth to take place in these developing economies. Less than a decade ago it was very
complicated to get anything to ship overseas, nowadays, companies like Amazon will deliver
anywhere in the world within 7 days of purchase. This amazing improvement has allowed for
more goods and services to be available to other countries.
Individuals are known to be more willing to purchase equipment when they are
economically well-off and have a surplus of cash. During difficult and uncertain economic times,
heads of household will most likely hold off spending decisions on “luxury” equipement. For
example, if the economy is not looking bright due to a recent pandemic, individuals might hold
off on getting a new coffee maker if the one they have still works efficiently. When customers
seem to have an income surplus/shortage, it can directly affect company profits. To minimize
costs, “companies try to repair and replace equipment during regular, seasonal or cyclical slack
periods. Often, managers will attempt to extend the useful life of equipment as long as possible”
To obtain current industry statistics, data can usually be pulled from employer or
establishment surveys. In addition, unemployment data comes from a national survey of
households. The tables below present an overview of the industry including jobs, unemployment
rate, and data for occupations in the industry.
The goal here is to have a smart appliance market, and to achieve this you must have a
growing segment within the household. Research shows the smart appliance market in the U.S.
brought in an estimated 7.5 billion U.S. dollars in 2018. This is a significant increase from the
2011 figure when this market was valued at just 266 million U.S. dollars.
According to our research, the five years to 2019, the Electrical Equipment Manufacturing
industry has declined due to rising import competition and adverse operating conditions.
“Substantial growth in the value of the US dollar during the five-year period has increased the
international buying power of downstream markets. In turn, imports' share of domestic demand
has steadily increased to account for more than half of the industry's domestic demand.
Additionally, in 2015, a series of notable economic events, including the Federal Reserve's move
to raise interest rates, China's slowing GDP growth and the subsequent crash in commodity
prices, have all adversely affected the Manufacturing sector (IBISWorld report 31-33) as a
Many believe the declines have stemmed from concerns about the environment, rises in
fossil fuel and electricity prices, and aging electrical infrastructure. This has challenged the
industry innovators to seek solutions that provide secure and energy-efficient electrical
equipment. However, IBISWorld forecast that the industry revenue will begin to increase over
the next five years. With these predictions still comes challenges and potential risks. Some of the
major players have been shifting production capacity to emerging countries. In these developing
countries sales growth is stronger and the cost of production can be much lower. Imports into the
United States will also put pressure on unit selling prices in the market.
In accordance with Porter, an industry analysis enables a company to develop a
competitive strategy that best defends against the competitive forces or influences them in its
favour. The key to developing a competitive strategy is to understand the sources of the
(a) Competition in the industry: x
(b) Potential of new entrants into the industry: x
(c) Power of suppliers: LOW
(d) Power of customers: MODERATE FORCE
(e) Threat of substitute products: HIGH
(c) Power of suppliers: LOW
While analyzing the electrical equipment and appliance industry, we found the bargaining
power of suppliers is low. Power of suppliers is low because appliance companies generally
dictate the terms. Research shows this industry using JIT concepts as a blueprint. Supplier power
is also low due to exclusive contracts manufacturers have with suppliers. Suppliers bargaining
power can be weak for additional reasons as well. “When switching costs of buyers are low or
the threat of forward integration is low, suppliers power is also low.” This means when there are
more of suppliers than buyers it is harder for suppliers to be competitive with their prizing. This
also occurs, when there is a high cost to switch suppliers. In addition, when substitutes are easily
available suppliers’ power can be very weak. Almost all the companies in the Appliances
industry buy their raw material from numerous suppliers. High prioritized suppliers can decrease
the margins, which in turn, decrease the profit companies can earn in the market. In the
Consumer Goods sector, suppliers can use their negotiating power to extract higher prices from
the firms in the Appliances field. In conclusion, the effects of higher supplier bargaining power
is it can lower the profitability of Appliances.
(d) Power of customers: MODERATE FORCE
According to Kissinger, the bargaining power of customers refers to the influence that
customers have on the industry environments. This component of the Porter’s Five Forces
analysis assesses the ability of buyers or customers to affect prices and business performance.
The Electrical Equipment and Appliances Industry environment is constantly susceptible
to the effect of switching costs. The low price sensitivity plays a big role in the chances of buyers
shifting to other brands when prices increase and that is what characterizes it as moderate force
In agreement with Porter, below we observe the concepts that build the buyer’s price
sensitivity and the relative bargaining power.
Buyer’s price sensitivity:
• Cost of purchases as % of buyer’s total costs.
• How differentiated is the purchased item?
• How intense is competition between buyers?
• How important is the item to the quality of the buyers’ own output?
Relative bargaining power:
• Size and concentration of buyers relative to Sellers.
• Buyer’s information .
• Ability to backward integrate.
(e) Threat of substitute products:
The threat of substitutes for the Electrical Appliances is very low. Most industries don’t have the
resources or production skills to compete. However, even though there is little competition from
outside of the industry, within the industry threat of substitutes is very high. Product innovations
have made this industry very competitive, without innovation companies are bound to go out of
business. It is very common to find a substitute for a product from a different brand that does
exactly the same job, however, it has one extra functionality that differentiates the product. Flat
irons are a great example: you can buy a regular clothes iron for $20, but on the next aisle you
found another clothes iron for $30 but this one can create steam to iron your clothes. That small
difference can make a drastic change in the consumer's mind.
“Within the consumer-products industry, brands succeed in helping to build a competitive
advantage, but even the pricing power of brands can be eroded with substitutes such as storebranded private-label offerings. In fact, some of these same store-brand private-label products
are manufactured by the large consumer-products firms. The firms believe that if they can
manufacture and package a lower-price alternative themselves, they would rather accept the
marginal revenue from their lower-priced items than risk completely losing the sale to a privatelabel competitor (MorningStar).”
How to prevent Threat of Substitute Products:
● Providing excellent customer service, not just great products.
● By understanding what the customer will need next, not just what is being purchased
● Making it more complicated/costly for customers to switch brands.
A Five Forces Example: Consumer Products,
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