The next force of porter’s model is threat of substituted goods and services.
Substituted goods and service are those goods and services which are identical and almost satisfying customers.
In agricultural industry large number of substitute goods and services are available for customers, such as Sona Urea product of FFC and substitute good is Engro Urea product of Engro chemicals. They are identical in features and satisfying customers in same way but slightly differentiated in some manners e.g. packing etc.
Firms can avoid “profit cutting” produced by substitute goods. by adding some extra features in their products. Substitute goods are also available in case of agricultural equipments and in seed industry e.g. hybrid seed. Hybrid seed are little bit expensive but in productivity they are much more then as compare to common seed. Equipments manufacturers produce substitute machinery for customers.
High level threat of substitute goods and services are observed in agricultural industry.
Rivalry among competitors:
Rivalry among competitors exists in industry on following basis.
v Less numbers of firms and large number of customers, here competition will be bases upon “demand” if demand is high then high level of competition is expected and vice versa.
v Slow growth of marker results in competition to capture as much as share of market of survival of firm in the market.
v Competition also based upon profit margin. If profit margin is high, then competition will also high and vice versa.
v Competition will be high in industry where switching cost is low, to keep the customer loyal, firms will compete each other in prices, which will provide benefit to customer.
In Pakistan agricultural industry fertilizer share GDP 22% with agriculture. Competition main players are FFC, FFBL, Dawod Hercules chemicals, Engro Chemicals.
Low level of competitions is observed among these key players holding 80% of fertilizer market of Pakistan. Low level of competition because of easy availability of raw material such as natural gas etc. large number of customers and less number of suppliers also resulted in low level of competitions in fertilizer industry of Pakistan.
In seed sector of low level of competition is observed because of large number of firms are available, which provide quality seed to large number of customers. Competition is low because of that customers can have their own seed mean controlling of suppliers raw material by customers.