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Westlake Chemical Corporation Porter Five Forces Analysis
Strategic Management Essays, Term Papers & Presentations
Porter Five Forces Analysis is a strategic management tool to analyze industry and understand underlying levers of profitability in a given industry. Westlake Chemical Corporation managers can use Porter Five Forces to understand how the five competitive forces influence profitability and develop a strategy for enhancing Westlake Chemical Corporation competitive advantage and long term profitability in Specialty Chemicals industry.
Brief overview of Westlake Chemical Corporation
Westlake Chemical Corporation is one of the leading firms in the Specialty Chemicals. Over the years Westlake Chemical Corporation has redefined the ways of doing business in Basic Materials. Westlake Chemical Corporation is listed at New York Stock Exchange (NYSE) and have a market cap 8.18B USD.
What are Porter Five (5) Forces
- Threat of New Entrants
- Bargaining Power of Suppliers
- Bargaining Power of Buyers
- Threat from Substitute Products
- Rivalry among the existing players.
Porter Five Forces is a holistic strategy framework that took strategic decision away from just analyzing the present competition. Porter Five Forces focuses on - how Westlake Chemical Corporation can build a sustainable competitive advantage in Specialty Chemicals industry. Managers at Westlake Chemical Corporation can not only use Porter Five Forces to develop a strategic position with in Specialty Chemicals industry but also can explore profitable opportunities in whole Basic Materials sector.
Westlake Chemical Corporation Porter Five (5) Forces Analysis for Basic Materials Industry
Threats of New Entrants
New entrants in Specialty Chemicals brings innovation, new ways of doing things and put pressure on Westlake Chemical Corporation through lower pricing strategy, reducing costs, and providing new value propositions to the customers. Westlake Chemical Corporation has to manage all these challenges and build effective barriers to safeguard its competitive edge.
How Westlake Chemical Corporation can tackle the Threats of New Entrants
- By innovating new products and services. New products not only brings new customers to the fold but also give old customer a reason to buy Westlake Chemical Corporation ‘s products.
- By building economies of scale so that it can lower the fixed cost per unit.
- Building capacities and spending money on research and development. New entrants are less likely to enter a dynamic industry where the established players such as Westlake Chemical Corporation keep defining the standards regularly. It significantly reduces the window of extraordinary profits for the new firms thus discourage new players in the industry.
Bargaining Power of Suppliers
All most all the companies in the Specialty Chemicals industry buy their raw material from numerous suppliers. Suppliers in dominant position can decrease the margins Westlake Chemical Corporation can earn in the market. Powerful suppliers in Basic Materials sector use their negotiating power to extract higher prices from the firms in Specialty Chemicals field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Specialty Chemicals.
How Westlake Chemical Corporation can tackle Bargaining Power of the Suppliers
- By building efficient supply chain with multiple suppliers.
- Developing dedicated suppliers whose business depends upon the firm. One of the lessons Westlake Chemical Corporation can learn from Wal-Mart and Nike is how these companies developed third party manufacturers whose business solely depends on them thus creating a scenario where these third party manufacturers have significantly less bargaining power compare to Wal-Mart and Nike.
Bargaining Power of Buyers
Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum price as possible. This put pressure on Westlake Chemical Corporation profitability in the long run. The smaller and more powerful the customer base is of Westlake Chemical Corporation the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.
How Westlake Chemical Corporation can tackle the Bargaining Power of Buyers
- By rapidly innovating new products. Customers often seek discounts and offerings on established products so if Westlake Chemical Corporation keep on coming up with new products then it can limit the bargaining power of buyers.
- New products will also reduce the defection of existing customers of Westlake Chemical Corporation to its competitors.
Threats of Substitute Products or Services
How Westlake Chemical Corporation can tackle the Treat of Substitute Products / Services
- By being service oriented rather than just product oriented.
- By understanding the core need of the customer rather than what the customer is buying.
- By increasing the switching cost for the customers.
Rivalry among the Existing Competitors
If the rivalry among the existing players in an industry is intense then it will drive down prices and decrease the overall profitability of the industry. Westlake Chemical Corporation operates in a very competitive Specialty Chemicals industry. This competition does take toll on the overall long term profitability of the organization.
How Westlake Chemical Corporation can tackle Intense Rivalry among the Existing Competitors in Specialty Chemicals industry
- By building a sustainable differentiation
- By building scale so that it can compete better
Implications of Porter Five Forces on Westlake Chemical Corporation
By analyzing all the five competitive forces Westlake Chemical Corporation strategists can gain a complete picture of what impacts the profitability of the organization in Specialty Chemicals industry. They can identify game changing trends early on and can swiftly respond to exploit the emerging opportunity. By understanding the Porter Five Forces in great detail Westlake Chemical Corporation 's managers can shape those forces in their favor.
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