Contempory Business Environment

Porters Five Force Model On The Relaince Group

Submitted to:Dr.Paroma Mitra Mukherjee

Submitted by:Rohit Sharma 2K12MKT08

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Introduction
The model of the Five Competitive Forces was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors in 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes. Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.

The Five Competitive Forces

The Five Competitive Forces are typically described as follow

Implementation of 5 forces in reliance industries is follows:

Bargaining Power of Suppliers

Large number of substitute inputs When there are a large number of substitute inputs, suppliers have less bargaining leverage over producers. This is due to competition among substitutes. Greater competition positively affects Reliance Industries. High competition among suppliers High levels of competition among suppliers acts to reduce prices to producers. This is a positive for Reliance Industries. Low concentration of suppliers A low concentration of suppliers means there are many suppliers with limited bargaining power. Low concentration of suppliers positively affects Reliance Industries. Diverse distribution channel The more diverse distribution channels become the less bargaining power a single distributor will have. This positively affects Reliance Industries. Inputs have little impact on costs When inputs are not a big component of costs, suppliers of those inputs have less bargaining power. Low cost inputs positively affect Reliance Industries

Bargaining Power of Customers

Buyers require special customization When customers require special customizations, they are less likely to switch to producers who have difficulty meeting their demands. Buyer customization positively affects Reliance Industries. Low buyer price sensitivity When buyers are less sensitive to prices, prices can increase and buyers will still buy the product. Inelastic demand positively affects Reliance Industries. Limited buyer information availability When buyers have limited information, they are at a disadvantage in negotiations with sellers. Limited buyer information positively affects Reliance Industries. Low dependency on distributors When produces have low dependence, distributors have less bargaining power. Low dependency positively affects Reliance Industries Product is important to customer When customers cherish particular products they end up paying more for that one product. This positively affects Reliance Industries.

Intensity of Existing Rivalry

Low storage costs When storage costs are low, competitors have a lower risk of having to unload their inventory all at once. Low storage costs are a positive for Reliance Industries. Low storage costs (Reliance Industries)" has a significant impact, so an analyst should put more weight into it. "Low storage costs (Reliance Industries)" will have a long-term positive impact on the entity, which adds to its value. Government limits competition Government policies and regulations can dictate the level of competition within the industry. When they limit competition, this is a positive for Reliance Industries. Large industry size Large industries allow multiple firms and produces to prosper without having to steal market share from each other. Large industry size is a positive for Reliance Industries. Relatively few competitors Few competitors mean fewer firms are competing for the same customers and resources, which is a positive for Reliance Industries. Fast industry growth rate When industries are growing revenue quickly, they are less likely to compete, because the total industry size is also growing. The only way to grow in slow growth industries is to steal market-share from competitors. Fast industry growth positively affects Reliance Industries.

Threat of Substitutes
Substitute has lower performance A lower performance product means a customer is less likely to switch from Reliance Industries to another product or service. Substitute is lower quality A lower quality product means a customer is less likely to switch from Reliance Industries to another product or service. Substitute product is inferior An inferior product means a customer is less likely to switch from Reliance Industries to another product or service. Substantial product differentiation When products and services are very different, customers are less likely to find comparable product or services that meet their needs. This is a positive for Reliance Industries. Limited number of substitutes

A limited number of substitutes mean that customers cannot easily find other products or services that fulfill their needs. Limited substitutes are a positive for Reliance Industries.

Threat of New Competitors

High capital requirements High capital requirements mean a company must spend a lot of money in order to compete in the market. High capital requirements positively affect Reliance Industries. Strong distribution network required Weak distribution networks mean goods are more expensive to move around and some goods dont get to the end customer. The expense of building a strong distribution network positively affects Reliance Industries. High sunk costs limit competition High capital requirements mean a company must spend a lot of money in order to compete in the market. High capital requirements positively affect Reliance Industries. Strong brand names are important If strong brands are critical to compete, then new competitors will have to improve their brand value in order to effectively compete. Strong brands positively affect Reliance Industries. Industry requires economies of scale Economies of scale help producers to lower their cost by producing the next unit of output at lower costs. When new competitors enter the market, they will have a higher cost of production, because they have smaller economies of scale. Economies of scale positively affect Reliance Industries.

BUSINESS ENVIRONMENT FOR RELIANCE INDUSTRIES LIMITED.

Business environment is the constraints and opportunities that surround our businesses. This is about exploring the nature of the business in which it is being carried out. The analysis in this essay will be on business environment in which Reliance Industries Limited operates. Reliance Industries Limited or RIL is commonly known as Reliance. The company was founded by Shri. Dhirubhai H. Ambani in 1977 the company was initially started as a textile company and led its evolution as a world leader in materials and the energy value chain The Company's operations can be classified into four segments namely: Petroleum Refining and Marketing business Petrochemicals business Oil and Gas Exploration & Production business Others

There are two types of business environment INTERNAL and EXTERNAL environment Before coming on to the external forces, the internal forces should be made clear. The internal forces are those forces which are controlled by the organization itself such as the resources knowledge and decision making. Reliance in the above context has a wide variety of resources such as well qualified employees and infrastructure. As far as knowledge and decision making is concerned Because Reliance recruits very well qualified persons thereby it reflects when it comes to the decision making process of the company External business environment comprises of Political, Economic, Social and Technological factors. These factors can have appositive as well as a negative impact on the company. There are two types of external business environment i.e. micro and macro. External micro factors are companys suppliers, transporters, agents, distributers, and wholesalers.

External macro factors comprises of Political, Economic, Social and Technological factors. The external micro factors can be influenced by the organization whereas macro factors cannot be influenced by the organization

Polypropylene market in India

Over the past forty years polypropylene growth has exceeded that of other major plastics and has become the largest volume commodity resin. Throughout the history of PP through research efforts of various companies, PP has continued to rapidly evolve with new generation of catalyst and post reactor technology. Because of the improvements made to process and application technology, this polymer has developed into one of the cost-effective bulk thermoplastic. Polypropylene is the worlds fastest growing polymer with an average growth rate of about 7-8%. It is very important for a company to understand and try to manage the external micro factors i.e. PEST forces as discussed above

POLITICAL FACTORS
Political factors include government policies relating to the industry, tax policies, laws and regulations, trade restrictions and tariffs etc. As in any part of the world, political influence is highly essential to start a business in India. Especially if you are planning to start a multi-billion business, some sort of political patronage is an absolute necessity. Not only for safeguarding the interest of the company but even to begin the process of getting the required sanctions, one requires hold in the high echelons of politics and administrative circles. Reliance industries also hold a high echelon of political and administrative circles so as to safeguard the interest of a company and for getting the required sanctions.

ECONOMICAL FACTORS
The economic factors relate to changes in the wider economy such as economic growth, interest rates, exchange rates and inflation rate, etc. These factors comprise of Government intervention in the free market, infrastructure quality, economic growth rate, availability of labor, wage rate of labor.

SOCIAL FACTORS
Social factors often look at the cultural aspects and include health consciousness, population growth rate, age distribution, changes in tastes and buying patterns, etc. Safety of a person overrides all the production targets' is the Health, Safety and Environment Policy of Reliance. 7

Occupational Health Centers (OHCs) have been established to provide education on health and awareness issues, diagnostic camps and health exhibitions are also arranged. RIL also offers periodic medical examination of all the employees (including Contractors' employees) along with their family members. In case of any hospitalization RIL employees are supported by consistent co-operation and cashless hospitalization amenities from one corner of a country to another. The company also provides fully equipped hospitals in all its major townships. The company also helps conduct Periodic potable water sampling analysis and health audits for the canteens and guest houses. A new initiative was launched by RIL called (Cashes) program me i.e. Change Agents for Safety, Health & workplace Environment. This initiative was launched to promote healthy workplaces and reduce health and safety risks. It has also facilitated the Syndicate to advance its enactment on the occupational health and safety front. The companys long term objective is to address all environmental initiatives as they want to become more positive about water conservation, carbon neutral and conduct the maximum possible recycling and reuse of wastes. The company has further been reinforced in context of companys management framework with roles responsibilities, group standards and defined structures. RILs Patlganga plant has changed over to use of a cleaner fuel. This resulted in substantial reduction of suspended particulate substance and sulphur dioxide releases in the air. RIL has indoctrinated a practice to be in coordination with nature and in this circumstance, a forestation, upkeep of green belts and promoting lush green surroundings as they have decided to planted around 1,00,000 plants at the OT, gardens, vermin-compost of waste and its use as manure, they also reuse treated water for horticulture activities as a routine.

TECHNOLOGICAL FACTORS
The technological factors relate to the application of new inventions and ideas such as R&D activity, automation, technology incentives and the rate of technological change. RIL has always laid emphasis on R&D, technology development and innovation. The reliance Group (RTG) undergoes various research and technology functions which help them produce improved value supply by leveraging all the abilities, and creating new prospects at the interfaces. At the time of recession also RIL did not even step back their zeal to innovate helped them convert the adversity into an opportunity. The company launched a groundbreaking initiative called mission kurukshetra which was aimed at emerging the organization to rise to the occasion and also help the company to emerge stronger.

This initiative not only helped in combating the challenges with a win but also identified serial ideates; the enterprise facilitated them by rewarding them for their leadership. The Leading Expert Access Program me (LEAP). The people at RIL are inspired by leaders and also provide them access to global thought. The RIL draws an agenda on innovation with the help of The Reliance Innovation Leadership Centre (RILC) which helps the company to stay amongst one of the most innovative companies in the world. RIL continues its journey to make improvement a way of life and want to confirm that the growth of the next generation are led by innovation. Advantages of PEST analysis: PEST analysis is an effective and efficient tool, which provides a framework to an organization for effective decision making. By making effective use of PEST analysis, one can ensure affirmative orientation of the business organization. PEST analysis also helps an organization in avoiding decisions which should not be taken. PEST analysis helps in making lawful decisions for the companies which are willing to enter into a new market. Disadvantages of PEST analysis: PEST analysis considers only the external business factors, but in reality all the factors should be considered in order to make effective decisions for an organization. Most of the data gathered through this analysis is based on assumptions, which sometimes may not prove to be fruitful for an organization. The rapid changes in the world economy can also make it difficult in analyzing PEST factors for an organization. Another factor which comes under consideration is the SWOT analysis of the company SWOT stands for strengths weakness opportunities and threats. RILs SWOT analysis is as follows:

STRENGHTS
Consolidations: There are only two main players of in petrochemicals and a solid consolidation has been seen in last few years as 85% of polymer capacity is with these companies namely reliance and haldia.

WEAKNESS Low bargaining power from the suppliers:

The input prices form nearly 50-60% of the raw material costs. Reliance being a petrochemical player does not have much of a negotiating power counter to the suppliers. Therefore they always remain unprotected to the prices of the raw material.

Low bargaining to from the customers:

As there is an increase in the input cost therefore the companies are not able to offer any price reductions or bargains to the customers.

OPPERTUNITIES
Low per capita income: Currently, domestic per person polymer consumption is nearly 4 kgs while if we see the global average it is nearly 20 kgs. This tells the fact that there is huge scope of volume expansion in INDIA as the market to be selected is very massive. therefore there is a massive scope of product development. Also, currently, India has a chemicals trade deficit of about US$ 1.5 bn a year, which leaves enough investment opportunities in the industry.

Threats
Customs duties: The polymer industry has a protection from overseas competition by leveraging high import duties imposed by the government. However, of late, Import duty on polymers has been steadily reduced and is currently at 20%. As part of its commitment to various multilateral and bilateral trade agreements, the government is likely to reduce duties.

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