Understanding the competitive dynamics of an industry is a critical part of any growth strategy effort. The metalcasting industry can be analyzed from an overall strategic perspective using the well-known "Porter's 5 Forces" as a useful starting point.
Determining a company's business model, both the current model and the desired model, is also a key part of a growth strategy. Having a grasp of the foundry industry's competitive dynamics, as well as an understanding of business models, lays the foundation for building robust growth strategies capable of sustaining long-term growth.
Metalcasting industry analysis
Developed first by Michael E Porter in 1979 at Harvard University, "Porter's Five Forces" is now a bedrock tool used by business strategists. Especially useful for understanding the competitive intensity of an industry, Five Forces helps define the environment in which a company must find, grow, and protect its profits. Following is a summary of Porter's Five Forces applied to the metalcasting industry. This is a general overview that would be applied on a customized basis for a particular foundry.
Force 1: Customer Bargaining Power. A key question from a customer base perspective: How easy is it for customers to drive down prices? Pricing is driven by a number of factors, such as the number of buyers, the importance of any one customer to your business, the total cost of switching, the ability to switch to substitute products, and so on.
In the U.S. metalcasting industry, perennial overcapacity compared to demand has given casting buyers huge bargaining power. Also, fast-growing capabilities of overseas foundries coupled with lower costs in sourcing from Low Cost Countries have given significant advantages to casting buyers. Over the past decade, consolidation of casting-consuming OEMs, especially as they centralize and leverage increasingly sophisticated global supply chains, is perhaps the single biggest development giving the advantage to casting buyers. My company estimates that less than 200 companies consume more than 50% of all castings, by value, globally. It seems fair to say that customers of castings have very high bargaining power overall in the industry.