THE CARDBOARD PACKAGING INDUSTRY IN AUSTRALIA: PORTER'S ANALYSIS

Since it began, the cardboard packing sector has faced intense competition. Its market structure is oligopolistic by nature. Due to the development of new uses in other industries, like the automotive and healthcare sectors, the use of plastic materials has significantly increased in recent years. Over 35% of global consumption is contributed by the main industry, packaging. Polyolefin accounts for over 50% of total usage followed by PVC with 16%, PS-8%, PET-6%, Styrene copolymers -4% and specialty plastics-16%. A whopping 95% of Australian businesses are private limited corporations, partnerships, or proprietorships with significant tax advantages. This provides a significant power to big businesses that are averagely making losses. In such a case prominent firms in the industry should build their brand image to remain competitive in the small scale investment sector. Some of the key players in the Australian packaging industry are; Anchor packaging, Signet, Plasmo, and Abbe-corrugated Pty Ltd.

The other classification sees that the industry is split into four sub-segments namely the polymer, equipment, plastics, and recycling industries. The four sectors are further described according to their capital strength with polymer manufacturers having the highest capital strength. It has 20 essential players. The equipment manufacturers have medium capital intensive employees who are approximately 200. This sector is organized due to its large number of workers. The plastic and recycling sector falls under the unorganized group with labour-intensive groups of over 30000 players. It is therefore evident that the market is dominated by firms of different sizes and operations which is a necessity for an oligopoly market. The demand of the industry is derived demand.

Bargaining power of suppliers

Supplier power is measured using the concentration, volume importance, differentiation of inputs and switching of costs. There are some factors which increase the power of suppliers in the cardboard packaging industry such as the presence of few firms, large number of purchasers and high switching costs. When a supplier has control over the prices of the plastic products, their power is enhanced.

There are many small firms with different product distinctions. Due to the sizeable usable nature of plastics in various areas, there is a high demand for them as well. To sufficiently deal with these high requirements, some firms focus on producing one product that will be suitable for only one purpose. Other companies focus on creating a product that will be suitable in many areas. Also, some firms specialize in the production of many related products that are used as raw materials to manufacture an end product in other companies. The Australian plastic industry is very much a multi horse market. The equipment and polymer firms are the suppliers for the plastic processors. Because there are about 20 key players in the polymer production sector, their bargaining power is high (Lewis, 2005 p.89).

There is also a large number of equipment producers that are small firms. There being a high number of plastic processors, competition is high. Since companies are small in size and work is in low volumes, the number of orders is essential for maintaining the bottom lines. In consideration of switching costs, the numbers are significant for changing polymer producers due to their small number and high costs for the switching equipment. It is therefore evident that in the plastic industry, the large numbers of polymer producers have small a small say in the pricing of their commodities.

Bargaining power of Buyers

There are many uses of plastics in the economy. Buyers in the industry are large and vary in size. Plastic materials are used in the agricultural, infrastructural and automotive industry. The bargaining power of the buyers is determined by the size of their respective firms and scale of operation. Due to a large number of producers, the buyers have a higher bargaining power. Businesses are not tied to only one plastic processor as it makes exiting easy if a particular company fails to meet the expectations of the consumers.

Threat of substitutes

There has been an increase in awareness of the use of plastic bags. There is also a threat of close substitute from materials such as glass and PHB bio-composites. Some of the alternatives are environmentally friendly hence they receive support from the government in the form of incentives.

New Entrants

The number of entrants in the cardboard industry grows every day, therefore; demand is distributed among them resulting in low profits. The fragmented nature of the plastic industry poses problems to new entrants if they do not get a substantial market share. The unorganized nature of the industry encourages many entrants who desire to enjoy the economies of scope. Another challenge that new firms face is lack of experience which existing companies have an advantage over. Access to raw materials and critical inputs are difficult for new entrants as the industry is already having massive corporations and other small players in the competition (Myers and Tauber, 2011 p.567).

Internal factors

The balanced scorecard includes a set of measures which managers use in improving the performance of companies. The card links the vision of the company with customers, employees, the internal business and the financial perspective.

Customers

Packaging companies have a mission and vision which focuses on the customer. The concerns of the customers are classified according to time, quality and service and prices. Time measures the duration with which companies take to meet the needs of the client. Companies in the Australian packaging industry have a developed system for managing customers whose orders are enormous. Customer service and performance contribute to the process of value creation. Packaging companies use the balanced scorecard to articulate the goals of the organization.

Innovation and Learning

Intense competition in the packaging industry requires that companies continue improving their existing products. The firms work towards introducing new products to survive in such a competitive environment. The ability of the packaging company to innovate and enhance the current products would add value to the group. The goal of innovation in the packaging industry is to achieve stability in the process of manufacturing new products. Innovation and knowledge focus on three main factors which are; human capital, information and organizational capital.

The Financial perspective

The financial performance of a company measures its ability to use its strategy in contributing to the bottom line of the business. Most financial goals of companies in the packaging sector are to survive in the competitive environment and succeed. Survival is measured regarding cash flow, increase sales and growth in operating income.

Financial measures should not act as the primary tool for managers to use in making decisions. Some commercial tools are full of errors, and they look at the past which cannot predict the future cash flows.

The Internal Process

It focuses on the operations and objectives of the company. Most packaging companies work towards improving the quality of their products with the increased government intervention in the industry. Other procedures in such an environment are capacity and process improvement.



















Carroll's Pyramid

In the corporate world, industries have social responsibilities. The Australian Cardboard industry operates sustainably in the area of climate and resources use. Carroll's Pyramid measures the performance of businesses through how they impact the environment and its employees. Corporate social responsibility is divided into four main pillars. These are; the financial performance, effects to the environment, social responsibility and stewardship of the product.

The cardboard industry provides innovative packaging which aims at reducing food waste. The packaging materials they use conserve energy compared to how they use it. The industry also supports active recycling of materials which reduces pollution. The manufacture of PET trays also improves the quality of the PET.

The industry has developed targets aimed at improving its economic performance. The first strategy is the management of risks brought about by changes in the climate. Secondly, the cardboard industry aims at increasing the ratio of products with low carbon composition available. The low carbon materials will reduce the rate of emission of gases that cause pollution to the environment. The other strategy for measuring economic performance of the industry is to improve keys for monitoring climatic changes such as the hydrological and carbon cycle.

Recommendations

Following the government intervention in the Packaging industry to reduce non-biodegradable products, I would recommend the use of Decode recycling. Many packaging materials have proved to be dangerous to the environment as well as human beings. The triangle symbol is no longer safe when it comes to determination of whether a product is recyclable or not. Developing a decoding system for all of the packaging material will help in reduction of health as well as the environmental issue related to pollution. The code will help the customers to select and purchase equipment aimed at enhancing sustainability.

In the packaging industry, innovation is the order of the day. Companies are working towards the development of new packaging designs through the use of advanced technology. Companies should focus on sustainability which is the entire lifecycle. Healthy competition and innovation drive the producers towards displacement of environmental pollutants, reduction of product damage and improvement in resource efficiency. Virgin plastics should be replaced with sustainable products. As such, I would recommend that companies drive their innovations with sustainability (Porter, 2008 p.78)

In the choice of plastic material to manufacture, companies should develop a way of determining the PBA free products. Most packaging materials contain the BPA which is known for alteration of the function of the hormone estrogens. It is not only BPA that can cause health issues but other chemicals which the packaging industries should look for ways of measuring them. The sector should scrap away all the products with chemicals that might affect the health of human beings as well as animals upon their consumption. It is also comparative for these companies to not only test the products in an unstressed environment but also in a stressed environment since some of them might be harmless when tested in normal conditions.



















References

Porter, M.E., 2008. The five competitive forces that shape strategy. Harvard business review, 86(1), pp.25-40.



Carroll, A.B., 2016. Carroll’s pyramid of CSR: taking another look. International journal of corporate social responsibility, 1(1), p.3.



Lewis, H., 2005. Defining product stewardship and sustainability in the Australian packaging industry. Environmental Science & Policy, 8(1), pp.45-55.

Adams, C.A., 2002. Internal organisational factors influencing corporate social and ethical reporting: Beyond current theorising. Accounting, Auditing & Accountability Journal, 15(2), pp.223-250.



Myers, J.H. and Tauber, E., 2011. Market structure analysis. Marketing Classics Press.