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MIACHAEL PORTER’S FIVE

FORCES MODEL
Porter’s 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. Porter’s 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.

INDUSTRY ANALYSIS OF INDIAN DAIRIES.

RIVALRY AMONG EXISTING COMPETITORS- The packaged milk segment is dominated


by the dairy cooperatives. Gujarat Co-operative Milk Marketing Federation (GCMMF) is the
largest player. All other local dairy cooperatives have their local brands (For e.g. Gokul, Warana
in Maharashtra, Saras in Rajasthan, Verka in Punjab, Vijaya in Andhra Pradesh, Aavin in Tamil
Nadu, etc). Other private players include J K Dairy, Heritage Foods, Indiana Dairy, Dairy
Specialties, etc. Amrut Industries, once a leading player in the sector has turned bankrupt and is
facing liquidation. So the industry doesn’t has a cut throat competition because there is only one
major player named as “amul” and other players have state level appearances which makes the
industry less competitive.
BARGAINING POWER OF SUPPLIERS: The prices of milk are set by the state-level
dairies, all the co-operative and private dairies and Some 60 major dairy owners from various
parts of the state that negotiate on the prices and fix it up. They decided to form a syndicate to
prevent cut-throat competition among the dairies which has prompted some gangs to supply
adulterated milk to the dairies putting the life of the common man in danger. The common sales
rate will also help in maintaining a certain profit level required to run the business. At the same
time, the stiff competition among dairies to procure milk is weakening the industry. To maintain
co-ordination among co-operative and private dairies it was proposed to form the Maharashtra
Milk Marketing Board which will have the authority to fix state-level prices for all the dairies.
Hence the buyers do not have the bargaining power to the extent of the prices of the milk. They
can either buy it or leave it. There are few suppliers of the branded dairies in one state and the
buyers have high switching cost if they wish to change from one brand to the other due to non-
accessibility. This is because in one state only one or two brands of milk or milk products are
available. But if the buyers are not satisfied with the product and the price, they can easily switch
over to the local sellers of the milk. And it does not involve any switching costs too.
BARGAINING POWER OF THE BUYER: Milk has been an integral part of Indian food for
centuries. The per capita availability of milk in India has grown from 241 gm per person per day
in 2004-2005 to 250 gm in 2009-2010. India's milk production is estimated to increase to 227
million tonnes by 2011-2012.It is estimated that around 20% of the total milk produced in the
country is consumed at producer-household level and remaining is marketed through various
cooperatives, private dairies and vendors. While for cooperatives of the total milk procured 60%
is consumed in fluid form and rest is used for manufacturing processed value added dairy
products; for private dairies only 45% is marketed in fluid form and rest is processed into value
added dairy products like ghee, makhan etc. Hence, buyer’s power in the dairy industry is limited
as milk and milk products is an essential part of their life which is not only used for eating but
also for worshiping. They incur a high switching cost from one brand to the other due to less
availability of two milk brands in one state. They have the choice of shifting to local vendors
nearby but these vendors add water and caustic soda, which makes the milk unhygienic.
THREAT OF SUBSTITUTE PRODUCTS: Indian dairy industry does not suffer from the
threat of substitute products because; there is no substitute for milk and milk products. And since
the local vendors add water and soda in the milk which are unhygienic, consumers have started
showing an aversion towards it.
THREAT OF NEW ENTRANTS: Indian dairy industry has a free entry and exit which makes
it easy to enter the industry. But it won’t affect the competition much because to cut down the
competition of procurement of the milk, syndication was adopted which compels the dairies to
sell at uniform prices and maintain the profit levels. This also lowers the weakening of the dairy
industry and maintaining a healthy relationship between the producers and the procurers.

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