Canadian Aerospace Industry — Porter’s Five Forces Strategy Analysis

May 4, 2018 June 5th, 2018 Human Resources

Canadian Aerospace Industry — Porter’s Five Forces Strategy Analysis Bargain Power of Buyers: In the aerospace industry, the buyers are having strong bargaining power. Although the buyers have low price sensitivities in the aerospace industry, their purchasing power is limited by their financial capacity.

Hence, there is limited number of companies and governments have the ability to purchase aerospace products and services. Additionally, this small sized customer has the freedom to purchase from different companies since many products are tailored to fit the needs of the customers and there are no fundamental distinctions between commercial aircraft products from different company.

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Bargain Power of Suppliers: The suppliers are having different level of bargain power in the aerospace industry. The raw materials and semi-finished products suppliers are lacking of bargaining power due to the increasing numbers of suppliers globally.

However, the human resources are having high barging power since the workforce is usually unionized that which could potentially affect the profitability of Aircraft Companies. Large companies are transferring their productions of parts into low costs countries, such as China and India, which result in a weak bargain position for Canadian suppliers.

Competitive Rivalry in the industry: According to Porter, the rivalry between established competitors depending on several factors, including the number and size distribution of firms, the products and services offered, the balance between demand and capacity, and the cost conditions1.

Although there are limited numbers of competitors in the aerospace industry, the competition is very intense due to all the reasons mentioned above. Aerospace companies are highly competitive in the market to gain large contract with buyers to offset the high fixed cost and large R&D investment.

Threat of New Entrants: The aerospace manufacturing industry is very well established. There are only a handful of big players in the industry. The threat of new entrants to the aerospace industry can vary depending on what products and services are officered. For example, compare to the aircraft manufacturing company, the treat of new entry would be much lower for an aircraft repair and maintenance company.

Overall, threat of entry to aerospace industry is relatively low due to high capital, technology and human resources requirements. In addition, the aerospace industry is dominant by few well-established and reputable players with deep-rooted business networks. Hence, it would be difficult for newcomers to gain business given the high entry barriers created by the big aerospace companies.

Threat of Substitutes: The level of threat of substitutes is varying in different sectors of the aerospace industry. The aerospace service contractors, for example, are facing a very high threat of substitutes due to globalization. The suppliers of raw materials and parts are facing a moderate lever of threat since the development of technology might completely change the use of material and the need for different parts.

However, the large manufacturers of aircraft and its important parts, such as engines, face almost no threats of substitute for their products since it is currently the only effective method for air transport. Noteworthy, the development of ground transport, such as fast trains, might become a substitute for air-travel in short distance.


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