In this post, we will conduct a Porter’s five forces analysis of John Deere, a leading US based manufacturer of agricultural, forestry, and construction equipment. This analysis will help us understand how these five important forces affect the competitive position of the brand and how it is positioned to deal with competition and other factors that affect its market position and competitiveness.
John Deere is a market leading, US based manufacturer of tractors and other agricultural equipment. Founded in 1837 by John Deere, the company is a leading manufacturer and innovator offering a large array of products catering to the varying needs of industrial and individual buyers in the agriculture, construction and forestry sector. The company sells its products across more than 100 markets and has a strong sales and distribution network. The John Deere family includes more than 25 brands and apart from equipment, it also offers software and other technological tools to help its customers be more productive sustainably.
John Deere has enjoyed strong financial performance in 2021 driven by its continuous focus on sustainability and innovation. While the pandemic brought a new set of challenges before equipment makers like John Deere, the company grew its reliance on digital technology for sales, manufacturing and distribution to maintain its market position amidst a challenging market environment.
The Porter’s five forces analysis is a strategic tool created by Michael E Porter and used to analyze the competitive position of a business with respect to various forces that can affect its competitiveness. These five forces are a part of every industry and market.
PORTER’S FIVE FORCES ANALYSIS OF JOHN DEERE:
BARGAINING POWER OF SUPPLIERS:
Suppliers are a critical link in the successful operation of any market leading business. It is why all the leading companies strive to maintain strong relationships with their suppliers to ensure a continuous and uninterrupted supply of raw materials for production.
The bargaining power of suppliers becomes higher in the case when the number of suppliers is limited and their size is large. However, when the number of suppliers is high and their size is smaller compared to the buyer firm, their bargaining power remains lower. Apart from it, when the threat of forward integration from suppliers is low, the bargaining power of the buying firm is higher.
John Deere is a market leading manufacturer of agricultural, construction and forestry equipment. The company sources raw materials from a vast number of suppliers located in the Americas and various other parts of the world. The raw materials and components sourced by the company include steel and iron products, electronics, plastics and similar more products.
The focus of the company remains on sourcing high quality raw materials and therefore, it selects only the suppliers that can guarantee the availability of good quality raw materials. The bargaining power of its suppliers remains low to moderate. Some of the main factors that moderate the bargaining power of suppliers include the large size and market leading position of the company, its financial strength and the smaller size of its suppliers.
BARGAINING POWER OF BUYERS:
The bargaining power of buyers in the case of John Deere is moderate. The customers of John Deere products include small and large businesses as well as buyers from the public sector and individual buyers. The bargaining power of different buyer groups can vary based on various factors. Some buyer groups can be more influential compared to other buyers because of their financial strength. For example, the large firms that regularly buy from the brand enjoy higher bargaining power as they buy a larger number of equipment and other products from the firm.
The bargaining power of individual buyers or small businesses can be lower since they make smaller purchases. There are several factors that have grown the bargaining strength of customers including the availability of substitutes, higher competition, and availability of information among other factors.
However, there are several factors that drive the bargaining power of John Deere higher. For example, innovation, product quality and innovation are among the leading factors that drive the bargaining power of the brand higher. The company has achieved strong differentiation through innovation, which is also a critical factor driving the competitive strength of the brand. Its brand recognition is also a critical factor driving the success of the brand and its strong bargaining power in various markets across the globe. The vast array of products that the brand sells also offers it extra bargaining power since a large number of buyers can find the products related to their various needs under one umbrella.
THREAT OF SUBSTITUTES:
The threat of substitutes for John Deere mainly arises from the several competing firms making and selling similar products. John Deere deals in large range of products made for the agriculture, construction and forestry industries. In the agriculture industry, the company is competing againt several international players including AGCO Corporation, CLAAS KGaA mbH, CNH Industrial N.V., Kubota Tractor Corporation, Mahindra, and The Toro Company.
In the construction and forestry segment also there are several large and small firms offering substitute products for John Deere offerings. They include Caterpillar Inc., CNH Industrial N.V., Doosan Infracore Co., Ltd. and its subsidiary Doosan Bobcat Inc., Fayat Group, Komatsu Ltd., Kubota Tractor Corporation, Ponsse Plc, SANY Group Co., Ltd., Terex, Tigercat Industries Inc., Volvo Construction Equipment (part of Volvo Group AB), and XCMG.
The threat of substitute products for John Deere is moderately high. It is because of the large number of players across the globe dealing in similar offerings and several of them offering vast arrays of products and enjoying market leading positions in local and international markets. For example, Caterpillar is a market leader in the construction industry dealing in a vast array of products for construction industry.
To mitigate the threat arising from substitute products the company invests heavily in product quality and innovation. Increasing competition has brought the focus sharply on innovation and product quality. John Deere’s strong brand image also mitigates the threat from substitutes to some extent but the company is operating in a highly competitive environment and therefore continuous innovation is a primary factor that can help it deal with the growing number of substitutes in the international market.
THREAT OF NEW ENTRANTS:
The threat of new entrants for John Deere is low mainly because of the high entry barriers in this industry sector. There are financial barriers to entry that prevent new players from entering the large equipment industry. Other barriers include knowhow and legal barriers.
Any new player trying to enter the large equipment industry will have to invest a heavy sum in creating the infrastructure and establishing the large sales and distribution network. Even if any established player in the automobile industry tries to enter this sector, it will face similar barriers.
John Deere is an established player with more than 100 years of proven record. To establish oneself as a credible player, any new company will need to have a highly differentiated and innovative portfolio. The big-ticket size of each purchase makes any buyer, whether it is a small or large firm or a public sector buyer consider several factors before buying from a brand. Due to the risks involved companies would buy equipment from established players only that can guarantee quality and safety.
Overall, the barriers to entry in the heavy equipment sector are quite high and therefore the threat from new players is minimal. The level of competition in the industry sector also prevents new players from entering. The incumbent players are aggressive about protecting their market share and invest heavily in product quality, research and development and other things like marketing to improve their competitiveness. New players therefore find it difficult to achieve fast growth.
INTENSITY OF COMPETITIVE RIVALRY IN THE INDUSTRY:
The intensity of competitive rivalry in the industry has grown high. John Deere is operating in an intensely competitive environment and there are several leading global and local players with strong market positions and brand awareness in this sector.
Caterpillar is a leading rival of John Deere in the construction and forestry segment. Komatsu is another leading player in this industry with strong position and enjoying strong brand awareness. However, apart from these two leading players, there are several more that make tractors and other agricultural equipment or construction equipment and have cemented their positions in the industry over time.
The leading players maintain a heavy focus on innovation and product quality to strengthen their market position. While the level of competition in the heavy equipment industry is high, there are factors that help mitigate the competitive threat including brand awareness, product quality, innovation and marketing. John Deere is a leader in all these areas including supply chain management which has helped it cement its market position relative to the other players in the industry and global market.
A Few Last Words:
The Porter’s five forces analysis shows that John Deere enjoys a strong competitive position in the industry as a market leading brand of heavy equipment Its competitive position against its suppliers and competitors is strong and the company has also achieved strong brand awareness which offers it a solid advantage against new players and also mitigates the threat from substitutes.
The company has continued to strengthen its competitive advantage through a continuous focus on innovation and quality. It has also intensified its focus on sustainability to improve its social image and market position. The company has differentiated its portfolio and brand from others to achieve a unique position.
The above analysis shows that while there are barriers to faster growth before John Deere, the company can exploit its unique position and competitive advantages to build stronger growth momentum and expand its market share in future.