Porter’s five forces analysis is an important tool for evaluating the strategic position of a company operating in a competitive environment. Michael Porter (2008), a Harvard University Scholar, posited that new entrants, product substitutes, established competitors, customer bargaining power and supplier bargaining power, are the five forces that determine the competitiveness of a company. This paper analyzes the competitiveness of multinational company, Digicel, using the five forces model.
The Threat of New Entrants
New entrants into a given industry are attracted by the profitability they see in that business domain (Porter, 2008). The rapid growth of Digicel has proved quite attractive to emerging competitors such as FLOW and Tigo, who have since joined into the fray. For a firm that was established in 2001, Digicel grew quicly, with extensive holdings and millions of customers across Oceania and South America. By 2018, the company had invested over $ 5 billion in its business (Digicel, 2018). Digicel has so far managed the emerging competitive threat well, using economies of scale to manage pricing and diversification of services into areas such as mobile money transfer. These are effective methods of controlling emerging competition (Porter, 2008). However, it will still face this threat in future.
Threat of Product Substitutes
This is the threat of other products which can be used instead of the company’s offering (Porter, 2008). This is not much of a threat to Digicel, since there is little else that competes mobile telephony these days. Landlines were outpaced long time ago.
Digicel faces many established competitors in its area of operations. A prominent one is Mexican company America Movil, which has extensive investments in El Salvador and Honduras. The way Digicel has managed this threat is by selling its interests in these two countries to America Movil. The latter in return sold its interests in Jamaica to Digicel (Digicel, 2018). This acquisition method has worked for both companies, but there are still other competitors to think about.
Customer Bargaining Power
Customers leverage on such things as competition to put pressure on companies to lower prices. This tends to eat into the profitability of a company (Porter, 2008). This problem has affected Digicel in certain countries. It is one of the reasons that led to it selling out of Honduras and El Salvador, while maintaining its country of birth, Jamaica, where it has a stronger market position.
Suppliers tend to push up costs, even as customers push the sales price down. This is because they always want to maximize the profits they make from their products (Porter, 2008). Digicel has faced this problem in almost all its markets. However, it has maintained supplier loyalty, through regular payments that makes it a reliable partner. This trust has helped to keep supply costs down.
Digicel has maintained a strong competitive position by using economies of scale to keep down prices. It has also diversified its services to ensure profitability in the face of competition. Moreover, it has used acquisition of America Movil interests in Jamaica, while selling off its own interests in Honduras and El Salvador to the same company.
Digicel. (2018). “About Us”. Retrieved 12/16/2019 from: <https://www.digicelgroup.com/en/about/history.html>
Porter, M.E. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review, 88 (1): 78-93.