COMPETITORS ANALYSIS

Competitor analysis is an assessment and examination of the firm’s internal analysis of current and
potential competitors (Whittington, 2001). This analysis provides both an offensive and
defensive strategic context through which to identify opportunities and threats. Competitor
profiling coalesces all the relevant sources of competitor analysis in the support of
efficient and effective strategy formulation, implementation and adjustment (Ehlers and
Lanzenby, 2010). The strategic rationale of competitor analysis is powerfully simple.
Superior knowledge of rivals offers a legitimate source of competitive advantage
(Wootton and Horne, 2010). The raw material of competitive advantage consists of
offering superior customer value in the firms, chosen market.

Pannash Air-conditioner is in the air-conditioning distribution market. As a relatively new

company in the market it faces lots of challenges and this section critically examine these
challenges particularly those pose by competing in the air-conditioning distribution market.
Michael Porter designed a framework for analysing the competitors of the firm. He defined
five forces to analyse potential entry of new competitors, potential development of substitute
products, rivalry among competing firms, bargaining power of suppliers and bargaining
power of buyers. (David, 1999)

Pannash Air-conditioners is a distribution agent for multi-billion company Reutech solutions.

Reutech is the only company in South Africa with the rights to bring in Panasonic and
Nashua air conditioning units in the country. Pannash only distribute or sell to business only
in KwaZulu Natal. The following list, list all Air-conditioners distribution companies in
KwaZulu Natal:

• Samsung air (Only distributors of Samsung air conditioning units in the province).
Samsung air is based in Durban.
• Daikin- is the distribution company only distributing daikin air conditioning units.
• Haier air conditioners- distributors of Haier units.
• Gree Air Conditioning- distributors of air-conditioning units.
• Capital Air Conditioning-distributors of aux air conditioning units.
• LG Electronics- distributors of LG air-conditioning units
• Defy- based in Durban manufacture and supply Defy branded air-conditioning units.
Application of Michael Porter 5 forces

 Barriers to entry threat of new entrants

New entrants are the potential threat to the market share of existing companies by bringing
additional different branded air-conditioning units into the market. Hence profit of the
existing companies gets reduced. Pannash air-conditioning is the only agent in KwaZulu
Natal distributing Panasonic and Nashua brands; this has enabled and capacitated Pannash to
differentiate themselves on the bases of brands they supply to the Natal market. Panasonic
has reputation for quality and performance. New entrants coming in the market with less
familiar Chinese brands e.g. Aux units have come in to the market at cheaper prices, and this
will result in lower profit margin or even loss for Capital Air Conditioner.

Pannash is a relatively new business that started in 2010. To compete in a new industry
Pannash requires huge considerable resources. Capital to buy more vans, air-conditioning
units and capital to carry out marketing activities absorbs all the start up cost. Pannash has
limited capital with only 4 shareholders and limited funding. Pannash has few vans and for
large order they outsource. Despite its recent entrance into the market, the company has
managed to secure a huge ware house in Mkondeni, Pietermaritzburg to store air condition
units. Securing the warehouse has resulted in the company achieve economies of scale by
having large number of units in their premises. This has enhance the organisation’s flexibility
to take huge customer orders and keep prices constant by spreading costs over large number
of units ordered.

Switching costs are a once-off cost that customers incur when they switch from one
supplier’s product or services (Ehlers and Lanzenby, 2010). Switching costs are low since
companies like Haier air conditioners and Capital Air Conditioning lower their prices to
attract more customers because most customers are not familiar with their brands.

 Bargaining power of buyers

Buyers are customers who buy the products or services (Ehlers and Lanzenby, 2010).
Pannash Air-conditioning only sells to businesses and not to the public. Buying power of
buyers is directly related to inflation rates, interest rates, demographic trends. Organisations
want to maximise their sales and profit, whereas buyers want to spend less on the services
and products in the market, therefore buyers bargain for higher quality, lower prices and
better services to reduce their cost (Ehlers and Lanzenby, 2010). Air-conditioning dealers in
Pietermaritzburg, i.e. Ben Booysen, Duzi Air-conditioning, Coolrite and Fine air all favour
Panasonic brand for their upmarket customers and Nashua for their low end market. As a
result they purchase significant proportion from Pannash than any other company distributing
in KwaZulu Natal. This does not make Pannash Air-conditioning immune to the competition.
These companies or buyers can posse a credible backward integration, can negotiate with
Reutech to buy from them directly, thus taking competition edge of Pannash.

Within all the companies supplied by Pannash Air-conditioning not one has any particular
influence on the number of orders or sells. They are all fragmented, and therefore there are
weak buyers to exert some bargaining power. The air conditioning industry is not standard,
different air-conditioning units are produced which caters for different customers. This make
it feasible for Ben Booysen, Duzi air-conditioning and other companies to switch to different
brands and with Pannash Air-conditioning supplying only two types of brands make it easier
for customers to exert some bargaining power.

 Threats of substitute products

Substitute products are products or services from other industry which can be used to perform
similar functions to the products or services in the industry (Ehlers and Lanzenby, 2010).
Pannash is supplying air controlling units or air-conditioner, substitute to its products are
different types of fans to cool air, different types of blankets and heater to warm people. Most
of these substitute products are cheap and large proportion of the population buy them
because of their affordability and low switching cost.

 Rivalry among competing organisations

This is the strongest of all forces. Competitors are organisations that produce goods and
services similar to a particular organisation’s goods and services and compete for patronage
of the same customers. It is one of the most important and potentially most threatening forces
that an organisation can confront in its industry environment. (Ehlers and Lanzenby, 2010)
Pannash Air-conditioning competes amongst a high number of competitors in KwaZulu;
there is increased rivalry because all competitors fight for the same amount of customers and
market share. Rivalry is intense; there are price wars and each competitor trying to outdo the
other. There are low switching costs, which also increases rivalry as customers don’t have to
stay with Pannash Air-conditioning. Pannash Air-conditioning has an advantage as they the
only company that keeps Panasonic and Nashua air-conditioning. There is an influx of cheap
Chinese air-conditioning and this adds to the competitive environment as customers can
switch to using these cheap Chinese brands.

Strategic stakes are high, when a firm is losing market power or has potential for great gains,
they intensify rivalry. (Quickmba, n.d.)

Air-conditioning sales are not high during the winter months, therefore competitors increase
rivalry during the other months, there has to be enough stock during those months because
when shortages are experienced customers switch to suppliers who have stock.

 Bargaining power of suppliers

Pannash Air-conditioning has a signed three year contract with Reutech Solutions who are
the sole suppliers of the Panasonic and Nashua Aircon. This makes switching costs high and
implement large legal costs, also switching suppliers will be time consuming. Pannash Air-
conditioning has to deal with Reutech Solutions no matter how bad the service is or how high
their prices are. Therefore the bargaining power of the supplier is high, on the other hand
Pannash Air-conditioning negotiates prices with Reutech Solutions based on the quantity, so
the bulk purchases are an attractive sale to the suppliers and they negotiate comparatively.