GB528 Unit 2 Industry Analysis Example

Five Forces in Two Countries: A Unit 2 Industry Analysis of Architectural Paint in the United States and Indonesia

[Student Name]

Purdue University Global

GB528: Global Strategy

Unit 2 Industry Analysis

[Instructor Name]

[Date]

The paint maker is composite; the industry descriptions draw on public reporting, and the ratings are the writer's analysis.

Defining the Industry

The industry here is decorative or architectural paint: interior and exterior coatings for houses and buildings, sold to homeowners, painters and contractors. Automotive, marine and industrial coatings are excluded, because they have different buyers, technologies and competitors. Evidence comes from company filings, trade association data and business press in both markets. Porter (2008) emphasizes that defining the industry correctly is the first step in a five forces analysis, since a definition that is too broad blends different competitive structures.

Exhibit 1: Ratings Side by Side

Buyer power: United States high; Indonesia low.

Rivalry among existing firms: United States moderate; Indonesia high.

Threat of new entrants: United States low; Indonesia moderate to high.

Supplier power: United States moderate; Indonesia moderate to high.

Threat of substitutes: United States low; Indonesia moderate.

Ranked from strongest to weakest, the US order is buyers, suppliers and rivalry, then entry and substitutes. The Indonesian order is rivalry, suppliers and entry, then substitutes and buyers. Buyer power moves from first to last.

In the United States the paint maker's main problem is a few powerful retailers; in Indonesia it is many competitors fighting for thousands of small shops that no one controls.

Buyer Power

American homeowners buy much of their paint through a few national home improvement chains and the major paint makers' own store networks. A retailer that controls shelf space across thousands of stores can press suppliers hard on price, promotion and exclusivity. For Ohio Valley Coatings, which sells mostly through those chains, buyer power is the strongest force.

In Indonesia, decorative paint is sold mainly through tens of thousands of independent building-materials shops, the toko bangunan, many of them family businesses. No single buyer accounts for a meaningful share of a paint maker's sales. Painters and homeowners choose among brands at the counter, but individually they have little bargaining power. Buyer power is low, though large distributors that serve many shops on an island can bargain harder than any single shop, and they are the buyers Ohio Valley would meet first.

Rivalry

The US market is concentrated, with a few large firms holding most of it and competing on brand, store networks and service to contractors. Rivalry is real but disciplined.

The Indonesian market is fragmented. Several international brands, including Japanese and European companies, compete with large domestic producers such as Avian Brands and many smaller local ones. Brands compete for space in shops, for painters' loyalty and on price at the low end. Rivalry is high.

Threat of New Entrants

Entering the US market at scale requires a national retail partnership or a store network, both expensive and hard to obtain. The threat is low.

In Indonesia, a new brand can start regionally, selling through shops on one island, and grow. Capital needs for a basic paint plant are modest. The real barrier is distribution: reaching thousands of shops across many islands takes trucks, ships and sales staff. For local producers that already have distribution in building materials, entry is easy. The threat is moderate to high.

Supplier Power

Titanium dioxide, the main white pigment, is supplied by a small number of large producers worldwide, and acrylic resins come from a few chemical companies. In the United States, large paint makers buy in volumes that give them some bargaining strength. Supplier power is moderate.

In Indonesia, much of the pigment and resin is imported, and smaller paint makers buy in small volumes. Currency changes pass through to their costs. Supplier power is moderate to high, and it would affect a new entrant without regional purchasing scale most.

Threat of Substitutes

In the United States, there are few close substitutes for paint on interior walls, though wallcoverings and prefinished panels exist. The threat is low.

In Indonesia, cheaper alternatives such as low-grade whitewash and lime-based finishes compete at the bottom of the market, and some buildings are left unpainted or repainted less often when budgets are tight. The threat is moderate, mainly at low price points.

What the Reversal Means

Ohio Valley's US strategy is built to manage powerful retailers: national promotions, logistics into big-box distribution centers and products designed for do-it-yourself buyers. In Indonesia, those skills matter less. Success would depend on reaching fragmented shops, winning painters' loyalty and competing on price and product in a crowded field. Porter (1980) argues that a firm should position itself where the forces are weakest or shape them in its favor. In Indonesia, the weak force is buyer power, which means that a firm with distribution reach and painter relationships can set terms with shops, but only after it builds that reach.

Why the Same Firm Faces Different Forces

Ghemawat (2001) argues that differences between countries in economic structure, such as how retail is organized and what customers can pay, often matter more to a firm than cultural differences. The paint case fits. The product is chemically similar in both countries, but the structure around it, who sells it, who applies it and who supplies the inputs, differs enough to reverse the order of the forces. An analysis of the US industry alone would have pointed Ohio Valley toward the wrong problem.

Implications for Entry

Three implications follow for the units ahead. First, distribution is the decisive asset, which favors entry modes that bring it, such as a partnership with a firm already selling building materials to shops. Second, purchasing scale for pigment and resin matters, which favors a regional supply arrangement rather than a stand-alone Indonesian plant buying in small lots. Third, products must suit painters and tropical conditions as much as homeowners.

Limits

Five forces ratings are judgments, and the evidence for Indonesia, where many firms are private, is thinner than for the United States. The analysis also treats each country as one market, though Indonesia's islands and income levels differ widely. A regional analysis for Java and for the outer islands would refine the picture. Java's cities may look more like a concentrated market as modern home improvement chains grow there, while the outer islands remain dominated by small shops and local brands. The ratings should be revisited as the entry plan develops and as better data on the private Indonesian producers become available.

References

Ghemawat, P. (2001). Distance still matters: The hard reality of global expansion. Harvard Business Review, 79(8), 137-147.

Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. Free Press.

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93.