This Five Forces analysis of General Electric Company (GE) examines the external factors affecting the company’s competitive environment. Michael Porter’s Five Forces analysis model is an external analysis tool for understanding external conditions of businesses. This Five Forces analysis evaluates external factors and the intensity of their influence on GE. General Electric’s operations in the aerospace/aviation industry are considered. The external factors in this business environment require GE’s strategic management to address competition. In this Five Forces analysis case, as General Electric grows its current operating segments, appropriate strategies are needed to maintain competitive advantages, such as brand strength and research and development, as shown in the SWOT analysis of General Electric Company. With global operations, the aerospace company maintains competitive advantages through strategic management to address business issues noted in this Five Forces analysis.
Strategy formulation based on the results of this Five Forces analysis of General Electric Company ensures that managers account for relevant external issues facing the business. In this external analysis, such issues represent GE’s business environment of diverse markets. Issues reflecting the trends in the aviation industry environment are included in this Five Forces analysis. To ensure the satisfaction of the competitive goals of General Electric’s mission statement and vision statement, strategic management must align with the impacts and intensities of external factors outlined in this Five Forces analysis.
Summary & Recommendations: Five Forces Analysis of General Electric Company
Summary. The results of this Five Forces analysis reveal the importance of competitive rivalry in influencing General Electric and its industry environment. As the force with the highest intensity, competition should take priority in GE’s strategic management decisions. Based on this Five Forces analysis, the other forces are also significant to General Electric’s business despite their relatively low intensities. For example, the moderate intensity of the bargaining power of suppliers requires that GE consider this force in strategy formulation for supply chain management. In summary, this Five Forces analysis of General Electric Company shows that external factors create the following forces and their intensities:
- Competitive rivalry or competition: Strong force
- Bargaining power of buyers or customers: Moderate force
- Bargaining power of suppliers: Moderate force
- Threat of substitutes or substitution: Weak force
- Threat of new entrants or new entry: Weak force
Recommendations. Considering the significance of competitive rivalry determined in this Five Forces analysis of General Electric’s industry, the main recommendation is to enhance the competitive advantages of the business with specificity to the capabilities of competitors. For example, improving the GE brand image can add to competitiveness. Also, enhancing General Electric’s research and development capabilities should correlate with higher competitive advantage. In considering the other external factors in this Five Forces analysis, another recommendation is to implement strategies for increasing customer loyalty. Public relations approaches in General Electric’s corporate social responsibility strategy are essential in this regard. Such strategies address the bargaining power of customers. To address the bargaining power of suppliers, GE can implement a supplier diversity program that minimizes overdependence on one or a few suppliers in the global market. Such a program must account for possible changes in supply chain management and General Electric’s operations management approaches. Despite their low intensities determined in this Five Forces analysis, the threat of substitutes and the threat of new entry are also issues for managerial consideration in GE’s strategy formulation. All these strategies must align with General Electric’s generic competitive strategy and intensive growth strategies, while remaining pertinent to the dynamics and characteristics of the aerospace/aviation industry.
Competitive Rivalry or Competition against GE (Strong Force)
Competition reflects the degree of competitive interaction among firms, including General Electric Company. This component of the Five Forces analysis model evaluates the external factors responsible for competition that affects GE’s business. Strategic management at General Electric must consider the following external factors responsible for the strong force of competitive rivalry:
- High aggressiveness of firms (strong force)
- Moderate switching costs (moderate force)
- Moderate number of firms (moderate force)
The high aggressiveness of firms corresponds to a strong force on General Electric Company in this Five Forces analysis case. For example, Siemens and 3M are typically aggressive in competing, especially in innovating and marketing their products. This external analysis also considers moderate switching costs, which have a moderate contribution to competitive rivalry in General Electric’s industry environments. In this Five Forces analysis case, such an external factor represents the moderate consequences of switching from GE products to other firms’ products, such as the moderate challenges customers experience when switching from General Electric’s engines to other engines available in the transportation sector. On the other hand, the moderate number of firms has a moderate impact on the business. A larger population of firms would create stronger competition and requires higher prioritization in General Electric’s strategic management. Overall, the external factors in this component of the Five Forces analysis maintain the strong intensity of competition that General Electric experiences.
Bargaining Power of General Electric’s Customers/Buyers (Moderate Force)
The bargaining power of customers refers to the influence that customers have on General Electric Company. This component of the Five Forces analysis of GE assesses the ability of buyers or customers to affect prices and business performance. The following external factors and their intensities are pertinent strategic considerations in General Electric’s management of the bargaining power of buyers:
- High quality of information (strong force)
- Moderate buyer switching costs (moderate force)
- Low price sensitivity (weak force)
Customers have access to high-quality information about the products available in General Electric’s industries of operations. For example, information about avionics product features, functions, and known issues identified in use cases are available through industry reports. In the Five Forces analysis model, this external factor empowers GE’s buyers in making purchase decisions. Thus, high quality of information increases the strategic significance of the bargaining power of customers in General Electric’s business. This Five Forces analysis also shows that the aerospace industry environment is subject to the moderate effect of switching costs. For instance, the intensity of this external factor corresponds with the moderate likelihood of customers switching from General Electric’s products to competitors’ products. In relation, the low price sensitivity of customers reflects the low probability of buyers shifting to other brands when GE increases its prices. This condition is especially observable in the aviation industry. In considering the external factors identified in this component of the Five Forces analysis of General Electric Company, managers must include the moderate bargaining power of buyers in strategy development.
Bargaining Power of GE’s Suppliers (Moderate Force)
The bargaining power of suppliers is a significant force in this external analysis of General Electric Company. This component of the Five Forces analysis model determines the strategic impact of suppliers on GE’s performance. It is essential that General Electric’s management address the moderate bargaining power of suppliers, based on the following external factors and their intensities:
- Moderate population of suppliers (moderate force)
- High overall supply (weak force)
- Moderate size of individual suppliers (moderate force)
Suppliers have a moderate population in most of the industries where General Electric conducts business. For example, the aviation industry has only a moderate population of suppliers. Nonetheless, in this Five Forces analysis case, the intensity of the bargaining power of suppliers on General Electric is weakened because of the high overall supply, such as input materials for manufacturing processes. In this external analysis, the moderate size of individual suppliers is also considered. Larger suppliers have higher bargaining power over GE. Thus, this external factor imposes a moderate force on General Electric. In this component of the Five Forces analysis, the external factors create the moderate bargaining power of suppliers. General Electric’s management must include this force as one of the major strategic concerns affecting the business and its industry environment.
Threat of Substitutes or Substitution (Weak Force)
Substitutes threaten General Electric by competing for customers who might prefer to use substitutes available in the market. This component of the Five Forces analysis model evaluates the impact of substitutes on GE and its industry environment. Thus, substitutes are among the factors that shape strategic management in businesses. General Electric Company’s managerial decisions are subject to the weak threat of substitution, based on the following external factors and their intensities:
- Moderate switching costs (moderate force)
- Low performance of substitutes (weak force)
- Low availability of substitutes (weak force)
Based on the moderate switching costs, customers are only moderately likely to switch from General Electric’s products to substitutes. In the Five Forces analysis model, this external factor has a moderate contribution to the threat of substitution facing the business. On the other hand, low performance represents the limited capabilities of substitutes compared to GE products. For example, substitutes in the digital industrial services market have lower performance compared to the expert products/services available from General Electric Company. This external analysis also points out the low availability of substitutes in many of the industries where GE operates. This external factor makes a weak contribution to the force of substitution. The external factors in this component of the Five Forces analysis of General Electric show that the weak intensity of the threat of substitutes is a minor issue in the company’s strategic management.
Threat of New Entrants or New Entry (Weak Force)
New entry is a threat in the industry environment because of potential increases in competition with established firms, like General Electric Company. This component of the Five Forces analysis of GE assesses the degree of influence of new entrants on the firm and its industries of operations. New entry can alter market dynamics and the corresponding strategies and management practices of businesses involved. The following external factors and their intensities are the basis of the weak threat of new entry in General Electric’s industry:
- High cost of entry (weak force)
- High cost of brand development (weak force)
- High economies of scale (weak force)
The force of new entrants against General Electric is weak partly because of the high cost of entry. In this Five Forces analysis case, such an external factor requires that new firms have high business capitalization and financial resources to establish operations that can effectively compete with GE. Also, the high cost of brand development is included in this external analysis because it limits the influence of new entry on General Electric. For example, new firms need to allocate a high percentage of their financial resources to strengthen their brands, relative to established brands, such as the GE brand. The high economies of scale further weaken the threat of new entry. General Electric benefits from high economies of scale, which new firms likely lack. This component of the Five Forces analysis presents the weak intensity of the threat of new entry. Thus, this force is a minor strategic management issue facing General Electric Company.
References
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- General Electric Company – Form 10-K.
- General Electric Company – Our Priorities.
- Kostetska, N. (2022). M. Porter’s Five Forces model as a tool for industrial markets analysis. Innovative Economy, (4), 131-135.
- U.S. Department of Commerce – International Trade Administration – Aerospace Industry.