By applying the model, one can predict some constraints, competition, and potential barriers facing the company in question and likelihood of struggle for a new entrant into the market.
Let's look at Monsanto,
Type of industry: agricultural genetic modification/breakdown of operations equals providing seed and research/genomics
Number of competing firms-There are several large companies competing for providing seed to farmers worldwide. In the area of agricultural genomics however, there are only about 4 companies to note (Archer Daniels Midland, Dow Chemical, Evogene, and Syngenta)
Homegeneity of products- Products are complex and diverse. Seed type, variety of production results, and continuous changing demands and needs due to environmental and market issues lead to little homegeneity in this industry.
Cost of entry and exit- The cost of entry would be costly. Average cost to get a new GMO plant to market is about $126 million and takes approximately 13 years from start of research and development to launch!
Firm Conduct:
Price taking- Monsanto is often criticized for setting the price and basking in profit.
Product differentiation- While their GM seeds give farmers an advantage by innately warding off pests and producing more crop, they also often provide seeds that must be replenished annually versus seed that will reproduce. This is viewed by customers and the general public of course as market manipulation.
Tacit Collusion- In the past, Dow and Monsanto have worked to strategically cooperate on development of GM corn seeds. While care was taken to avoid explicit collusion (which is illegal), they also had to attempt to avoid tacit collusion as well, which is sometimes difficult in horizontal alliances.
Performance:
Firm level-Competitive disadvantages (Bad PR, often viewed in a negative light), Competitive advantages (longevity, money, variety of offerings on a global level)
Society- Productive and allocative efficiency (good, however, criticized for providing products without enough safety data), Level of employment (approximately 22,000 employees worldwide), Progress (strong for R/D and providing innovative solutions/attention needed to marketing and public relations)
The five forces model of environmental threats attempts to determine the amount of competitve power that exists in an industry. Expected level of performance can be predicted by measuring the barriers that a company faces.
Threat of entry: The threat of entry is relatively low because of the time and cost involved for genomics.
Threat of rivalry: As mentioned before, there are 4 major companies that compete as GM agricultural provider. Dow Chemical, an American company, in particular poses threat. Monsanto in the past has had a very poor image in the public eye which also puts them at a competitive disadvantage.
Threat of substitutes: This is lower than in many industries, due to the research and development and specialization required for this field.
Threat of powerful suppliers: This is low, because Monsanto needs little from outside vendors to aid in their production.
Threat of powerful buyers: This is high. While Monsanto does operate globally which would offset any localized issues they may have such as boycot or competitive disadvantage and their are many farmers worldwide, if the public or a regulating body deemed a product as potentially unsafe, it could have a serious effect on Monsanto's sales, especially if it is regarding one of their seeds that have a short shelf-life.
References:
http://www.investopedia.com/ask/answers/120314/who-are-monsantos-main-competitors.asp
http://gmoanswers.com/ask/how-much-time-does-it-take-and-how-much-does-it-cost-successfully-develop-hybrid-one-or-more
R.D. Ireland, R Hoskisson, M Hitt. Understanding Business Strategy: Concepts and Cases. Chapter 9. 2009.
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