Cemex Porter's Five Forces

Porter’s Five Forces

Akin to the PESTEL analysis, the Porter’s Five Forces enables an organization “to understand and cope with the competition (Porter, 2008).” The framework requires the organization to analyze the threat of new entrants, the power of buyers and suppliers, the threat of substitutes, and rivalry among existing competitors.

The threat of new entrants in an industry brings new capacity, the desire to gain market share, and most often substantial resources (Harvard, 2018). A low threat of new entrants makes an industry more attractive and increases profit potential for the existing companies competing within the industry. Alternatively, a high threat of new entrants make an industry less attractive and decreases profit

This reduces the buyer power, as there are many sales opportunities in construction supplies. In addition, construction materials are largely undifferentiated as buyers can switch to a cheaper product. For instance, cement usually contributes to a large percentage of the cost of a project so securing the best deal on cement can greatly affect the final price. Some companies provide ready-mix products, including CEMEX, directly to builders. Such products and services help differentiate CEMEX in this competitive market. When these factors are considered, buyer power in the United States construction material market is

A low intensity of rivalry makes an industry more attractive and increases profit potential for the existing firms within the industry, while high intensity of rivalry makes an industry less attractive and decreases profit potential for the firms competing within that industry. Kluyver & Pearce (2012) indicated that several factors cause intense rivalry including multiple competitors, slow industry growth, competition focused on acquiring existing customers rather than new ones, high exit barriers, high fixed costs, and large leaps in capacity.

In this market, the large material manufacturers tend to benefit from economies of scale. In fact, competition is likely to be fierce among the powerful players that form cartels and fix prices. In addition, there is insufficient diversity between players that offer similar products, so buyers can switch at a low cost, which increases the rivalry between players. The high exiting costs due to the capital needed to establish such a business and cost of storage also adds to the rivalry (MarketLine, 2017). Considering these factors, the degree of rivalry in the United States construction materials is