timer Asked: Apr 18th, 2020

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Great job on the report. The pictures and graphs make it easy to understand the topic you are describing. For example the employment data set was useful because the reader can see the the employment for each of the occupations and also the future projection of employment for the occupations. The sources that were used are reliable and make the project stronger. A notable economic event such as the Federal Reserve increasing interest rates has impacted the last five years of the industry. It will be interesting to see the change of the industry's growth in the next following years because of the 0-0.25% interest rate now. For the threat of substitute you have products similar to LG and Whirpool that perform the same way. It is also important to understand that threat of substitute can be overcome through product innovation. The paper stated that "without innovation companies are bound to go out of business" and that is important because if your company is not creating new products they are not growing as a company and the consumer would just simply go to a different brand. The goal of the company is to make it complicated for the consumer to change their mind and go over to the next brand. Also, the company has to focus on the future because they always need to be prepared for the changes in the consumers wants and needs. For the power of customer, price is an important factor because the consumer wants to save the most money possible. Well-known brands tend to price their products at premium because of their reputation and innovative products. Although price plays a big role, I would say that the consumer also wants to buy quality.

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Electrical Equipment & Appliance Industry Analysis ECON 563-02 April 12, 2020 Anthony Baez Cruz Danieli Hernandez Alaya Robinson History Overview 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” (Value Line). 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 whole.” 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 competitive forces. INDUSTRY ANALYSIS (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 impact. 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 currently. ● Making it more complicated/costly for customers to switch brands. Works Cited A Five Forces Example: Consumer Products, “About the Electrical Equipment, Appliance, and Component Manufacturing Subsector.” U.S. Bureau of Labor Statistics, U.S. Bureau of Labor Statistics, “Career Training for Electrical Equipment, Appliances & Components.”, “Industry Analysis: Porter's Five Forces: Competition.” MaRS Startup Toolkit, “Industry Market Research, Reports, and Statistics.” IBISWorld, NAICS 335 - Electrical Equipment, Appliance, and Component Manufacturing, Gordon, Kyle. “Topic: Home Appliance Industry in the US.”, Kissinger, Daniel. “General Electric Company (GE) Five Forces Analysis (Porter's) & Recommendations.” Panmore Institute, 20 Oct. 2017, “NAICS Code Description.” NAICS Association, 0/1584968660321/USEER+2020+0323.pdf. Wilkinson, Jim. “Supplier Power Analysis: Porter's 5 Forces • The Strategic CFO.” The Strategic CFO, 18 Feb. 2019, “Who Discovered Electricity?” Wonderopolis, ...
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