KAP Ltd, the competitor with the biggest market share is a 100% subsidiary of Koppers Incorporated of Pittsburgh, PA, USA. The company is involved in the manufacture and distribution of coal tar chemicals, carbon black, preserved timber and timber preservation chemicals globally. Apart from the unattractive situation posed by the reinforcement decision, the presence of KAP Ltd in
Australia also pose a viable threat to both existing wood pole companies and new entrants. Commanding 60% of the market share is a real competitive advantage, a confirmation of the effectiveness and superiority of the company in the sector.
The company uses sophisticated and well-planned logistics in its supply chain thereby creating a strong value network with other businesses. These value network is critical success factor considering the tradition customers of the wood pole business such as national, regional or district governments. Another advantage that KAP Ltd has apart from treating wood poles is the supply of treatment chemicals which inure to its benefit and gives the attestation to its high market share.
Furthermore, KAP Ltd is a patent holder of the CCA treatment process as well as a custodian of one of the standards requirement for wood poles in Australia. The Patent is another advantage that KAP Ltd possesses since the CC uses the same treatment process. What this means is that profitability of the CC could be limited as they may have to pay royalties to the patent owner. Specific identification of the said Patent and the duration of same is beyond the scope of this study.
However, Patent laws permit the patent holder exclusive rights for twenty years during which other users of the patent may have to seek permission from the proprietor. Granted the fact that the CC is a new entrant and is likely to use KAP Ltd patent, one can foresee a significant impediment in this area first in getting the right to use the patent, and secondly having to pay royalties.
5.4 Macro-environmental Factors
In totality, the sum of various macro-environmental factors do indeed support the general Australian business landscape as an attractive one for foreign companies. Considering the fact that the main buyers of poles in Australia are either local or national government buttresses the conduciveness of the business landscape, especially for transcations with governments. This comes from the fact that both Finland and Australia are member states of the World Trade Organization (hereinafter WTO). For that matter, the CC can expect to enjoy equal treatment as local businesses in dealings with the Australian government.
For example, the Australian government cannot charge different taxes or
customs duties just on the basis that the CC is not a local company. This is a trade regulation accorded to all member states of the WTO, therefore if the CC were to commence business in Australia and experiences any unfair treatment, the CC could resort to the WTO for remedy is discriminatory situations.
A downside of the macro-environmental factors related to the utility pole industry is the budgetary cuts which could signify the reluctance of the Australian government to invest heavily in the electricity sector. These cuts could also be a reason for opting to reinforce old poles rather than total replacement. If this deduction is true, then one can conclude that there exists a bleak future for the wood pole business in Australia. The reason for such a bleak future is that the business model of utility pole industry requires long-term investments from governments; however, when such investments are lacking, it should give a cause of concern to industry players.
6 CONCLUSION AND RECOMMENDATION
This last chapter draws conclusions from the the main findings of assessment.
The researcher expresses his view on the attractivess of the Australian utility pole market and gives recommendations to the case company. The main aim of the study was to provide knowledge about the Australian market to enable the case company make a decision of pursuing the market. To achieve this, the researcher focused on three main areas of assessment. The areas included market situation, competitive landscape and macro-environmental factors. Specific market assessment tools were used for each of these main areas of assessment.
With regards to market opportunities, the study confirms the Australian market for wood poles to be a matured one with high competition level. There exist potentials in photovoltaics that could impact on the utility pole market, albeit at a minimal level currently. The presence of Koppers Australia Pty Ltd which has the biggest market share presents a difficult impediment. In addition to the market share, Koppers Australia Pty Limited possesses Patent rights of which the case company might have to pay some royalties for the use of those patents. A situation that can impact negatively on profit margins of the CC.
The supply and demand situation dynamics does not support the general attractiveness of the utility pole market. Although the quantity of wood pole used is very high, all of which are at the end of the life cycle, a nationally accepted reinforcement decision means that the outright replacement of these old poles cannot happen soon. This decision, therefore, renders the sound macro-environmental factors in Australia irrelevant when assessing the holistic attractiveness of the market. Thus, current demand for wood poles is not attractive to warrant any serious profit making. The apparent lack in demand situation, coupled with the governments’ seeming lack of commitment to long-term investments contributes to making the market unattractive for new entrants.
Based on the factors explained above, the researcher concludes that the Australian utility pole is not attractive and recommends the following. First, the case company can explore the possibilities of starting a business relationship with
either Koppers Australia Pty Limited or another wod pole producer already on the market. The rationale here is to learn more about the utility pole market and to also create the business relation that will enable the case company supply wood poles when the current reinforced pole reach their usage time. This is because, unlike Australia which has wood pole supply crises, the case company has access to enough wood pole resources. Secondly, the case company can explore the market possibilities in the two other areas that it oprerates in i.e. electricity network services or supply of lumber and processed wood. Finally, the case company can decide to put on hold any further activities that will target the Australian market. Another attractiveness anylsis could however be conducted within five to ten years time by which time the reinforced poles will reach their usage time.
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APPENDICES
Appendix 1. Extent and ownership of electricity network in Australia Appendix 2. Distribution network
Appendix 3. Questionnaire Guide
Appendix 1. Extent and ownership of electricity network in Australia
Appendix 2. Distribution network
Appendix 3: Questionnaire Guide 7. Key success factors (KSF)
Competitive Landscape Buyer Power
1. main utility pole buyers/users in Australia 2. largest buyer and share
3. other alternatives to buying poles apart from local market supply Supplier Power
1. Suppliers for wood treatment on the market 2. Distinctive products of suppliers
3. Ease of switching suppliers Competitive rivalry
1. How many wood poles producers on the Australian market 2. Market share and strength
3. Competitive advantages of these existing companies Threat of new entrants
1. Barriers to entry – knowledge, technology, brand, distribution network 2. Cost of entering new market
3. time to recover Threat of substitutes
1. Substitute product and how effective
2. Ability to switch from wood poles to other substitutes
Macro-Environmental Factors (PESTEL ANALYSIS)
Political /How do you assess the political and economic stability of this country?
1. Are there any governmental policies that impact greatly on the wood pole industry?
2. Any existing trade agreements between Australia and EU
3. How easy is it to do business in this country? Tax, currency, money repatriations, interest rates, etc Economic
1. What is the expected growth rate of the target segment for the next five years?
2. State of electricity transmission and distribution Socio-cultural
1. How big are the cultural differences between the target country and the home country?
2. Demographics, changes and impacts on electricity usage Technological
1. Any new technologies impacting on the business 2. Any existing intellectual property
Environmental
1. Local environmental issues relating to wood poles Legal
1. Certifications and standards for wood treated poles, fabrications, etc