There are a few companies in the heavy machinery/construction industry including Caterpillar, Komatsu and John Deere. Therefore competition in terms of the number of companies in the market is not a major issue to the company. Capability of these competing firms is the major factor since each of them has unique strength which makes it tick in the market. Caterpillar for instance, has a wider world market than any of the other companies. The availability of high quality products and services from several companies presents the company with little power over attracting customers with quality goods (Mind Tools, 2013). This means that buyers will choose to go to one of the other companies in case they don’t get the deal they want from us (Porter, 2006). This also implies that strategic management should always focus in retaining loyal clients and also have unique means of attracting new clients. The company may be having little power in terms of production of high quality goods over those of the competitors but it may have power over the kind of services that the customers get (Porter, 2006).
Competing firms may also present the company with difficult time if they decide to concentrate on pricing in order to win customers. The fact that there is little or no difference in quality of goods produced is the major reason the firms may decide to use pricing (Sadhuji, 2012). The company at some point may have little power to counteract the situation because profitability is an important factor in any business. Technological innovations on the other hand may affect the stability of environment in heavy machinery/construction industries (Sadhuji, 2012) and this is offering a new attack method by competitors especially in improving their production size.
Threat of Substitution
The threat of substitution is high up in heavy machinery/construction companies especially because of cheap products in the market. Some customers choose prices over quality and this has been taken as an advantage by some low quality producers (Riley, 2012). In fact some producers are going to the extent of producing imitations of other company but these are of low quality. This is meant to either confuse or convince the customers to go for the product at a cheaper price than what is offered. Eventually this hurts the market as it weakens the power to give quality products at higher prices than the imitators (Riley, 2012).
Threat of New Entry
New entry is not a major concern for the company since the heavy machinery field is not attractive to many investors. This is because the field requires huge capital, time, and advanced skills in order to proper in the market and few people are willing to offer these requirements. On the same note, even when there is a new entry, getting to the level of major competitors requires not only financial resources but it takes patience to convince customers that the newly introduced product can work at the same level as those of the well known firms (Riley, 2012). Entry barriers are also high in terms of finances and time and the position of the already existing company is unlikely to be affected. In addition, the lower unit costs involved in heavy machinery industries makes it difficult for any newcomer with intention of producing in small quantities to get into the market and compete effectively with the existing companies. However, any new entrant cannot just be ignored, production capacity of a new entrant is surveyed at far because if it is at the level of existing firms, it may have brand benefits attached to it and this may change customers’ mindset (Mind Tools, 2013).