Five-Forces Lighting Industry Analysis I. Factors Affecting Rivalry Among Existing Competitors (A-1) • Oligopolistic Market • Major Producers • • • • • • Acuity Brands and Hubbell OSRAM Sylvania Philips Lighting TCP International Zumtobel General Electric The Big Three • OSRAM Sylvania • Philips Lighting • General Electric Industry Shifting • Industry Trend • Incandescent bulbs → CFLs → LED bulbs • Market will consist of estimated 61% of LED bulbs by 2020 (A-1) LED Competitors (A-2) • Samsung • LG • Sharp • Cree • Veeco • Why? Industry Growth • Overall from 2012 to 2017 projected to be 4.8% on average (A-1) Race for Patents (A-4) • 2000 to 2003 Company # of Patents Philips 69 OSRAM Sylvania 41 GE 27 Trend Setters (A-4) • Color-changing bulbs • Motion-sensing bulbs • Brightest energy-saving bulbs II. Factors Affecting the Threat of Entry • LED lighting industry on path to securing up to 80% of market share for lighting by 2020 (A-5) • Steady cost reductions and improved technology performance make new companies want to enter LED lighting industry New Threat example • Founded by former Philips Lighting CEO Ludo Carnotensis • Now has 10% market penetration • Able to beat out Philips for shelf space OSRAM’s Advantages • Benefits greatly from Economies of Scale • Newly released 100 W-equivalent LED bulb • Better quality • Lower price • Vertically integrated with solid positioning from upstream chips to downstream lighting fixtures and applications III. Factors Affecting or Reflecting Pressure from Substitute Products and Support from Complements • Substitutes for light from conventional light bulbs • Natural, ambient light • Candles • Lack of true substitutes in market is beneficial for lighting industry Brand Substitutes • “Substitutes erode profits in the same way as entrants by stealing business and intensifying internal rivalry” (A-9) Viability of Substitutes • Availability • Very accessible • Price-value characteristics • “The tremendous volume of products sold through these channels creates highly competitive pricing” (A-1) • Similarly priced, similar value • Ability to gouge is diminished Viability of Substitutes continued • Generally in lighting industry, demand is price inelastic • “When the industry-level price is large, rising industry prices tend to drive consumers to purchase substitutes’ products” (A-9) • Among brands, demand is elastic • Competition Complements • “Complements boost the demand for the product in question, thereby enhancing profit opportunities for the industry” (A-9) • Shift toward light fixtures and corresponding light bulbs • Light fixtures • 80% of industry revenue (A-1) IV. Factors Affecting or Reflecting Power of Input Suppliers • “Sales margins for lighting equipment manufacturers have been hurt by increased cost of raw materials” (A-1) • Suppliers of raw materials have power • Price control Danger of Price Increase • More initiative on developing cheaper light bulbs • Less expensive or fewer raw materials used • Shift focus from producing energy-saving bulbs • Suppliers have overall stability • Steady industry means constant production V. Factors Affecting or Reflecting Power of Buyers • Two main consumers • Businesses • Homeowners • Businesses larger demand for lighting solutions • Retail accenting • Office work space Pressure from Buyers • Because lack of pursued substitutes, buyers constant demand • Steady consumer purchases of light bulbs • Constant pressure on manufacturers to produce • “Nationwide home improvement centers, lighting distributors, and general contractors assert significant price pressure on manufacturers” (A-1) Business Challenges • Constant demand causes challenge for manufacturers • Good for productivity in business • Future goals and projects Conclusion FIVE FORCES ANALYSIS FORCE THREAT TO PROFITS Internal Rivalry High Entry Medium Buyer Power Medium Supplier Power High Substitutes Real: low, Brand: high Complements High References • A-1: "Lighting Equipment Manufacturing." First Research. L.E.A.R.N., 12 Aug 2013. Web. 13 Sep 2013. <http://mergent.firstresearch-learn.com.ezproxy.uky.edu/industry_full.aspx?pid=248>. • A-2: "Estimated LED penetration of the Global Lighting Market from 2010 to 2020." Statista. Goldman Sachs, 01 Jan 2010. Web. 13 Sep 2013. http://www.statista.com/statistics/246030/ • estimated-led-penetration-of-the-global-lighting-market. • A-3: "Lighting Industry: Structure and Technology in the Transition to Solid State." Industry Studies 2008. National Academics, 08 Apr 2008. Web. 13 Sep 2013. • A-4: "Lighting Controls Market in North America." Verify Markets. N.p., 01 Sept 2009. Web. 13 Sep 2013. • A-5: “The Path to 80 Percent Market Share for LED Lights.” Greentechmedia. Stephen Lacey. 30 April 2013. • A-6: “OSRAM SYLVANIA wins race to offer 100W-euivalent LED A-lamp.” Industry News. Maury Wright. 13 Nov 2012. • A-7: “OSRAM SYLVANIA’s 100W-equivalent LED bulb may be pick of the bunch.” Gizmag. James Holloway. 11 May 2012 • A-8: “Lighting Applications – The Final Battleground.” CommonWealth Magazine. Fuyuan Hsiao. 04 Jun 2009. • A-9: Besanko, Dranove, Shanley, and Schaefer, Economics of Strategy (4th edition), John Wiley & Sons, Inc., 2007. • A-10: Lowe’s, CFL Bulbs, http://www.lowes.com/Lighting-Ceiling-Fans/Light-Bulbs/CFL-Bulbs/_/N-1z10htl/pl?cm_sp=Lighting-_LightingFans%7CPopularCat-_-Merch%7CCFL_Bulbs&cm_cr=Light+Bulbs-_-Web+Activity-_-Light+Bulbs+Top+Flex+Activity-_SC_Light+Bulbs_TopFlexible_Area-_-10377560_1_#!. • A-11: GE Commercial Lighting Products, Where to Buy, http://www.gelighting.com/na/business_lighting/where_to_buy/.