This Five Forces analysis of General Electric Company (doing business as GE Aerospace) examines the external factors affecting the competitive environment in aerospace business. Michael E. Porter’s Five Forces analysis 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 are considered in the aerospace industry. The external factors in this business environment require GE’s strategic management to address competition and related variables. In this Five Forces analysis case, strategies maintain competitive advantages, such as brand strength and research and development, as shown in the SWOT analysis of General Electric Company. The business issues in this Five Forces analysis are challenges that shape General Electric’s long-term strategies and competitive advantages.
Strategy formulation based on this Five Forces analysis of General Electric Company accounts for relevant external issues facing the business. In this external analysis, such issues represent GE’s aerospace business environment. Trends in the aviation market are included in this Five Forces analysis. To satisfy the competitive goals of General Electric’s mission statement and vision statement, strategic management must align with the impacts 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 a high-intensity force, competition takes 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 bargaining power of suppliers affects GE’s strategy for supply chain management. 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, 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 competitors’ R&D investments for the competitive advantages of their products.
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 (CSR) and ESG strategy are essential in this regard. Refining General Electric’s marketing mix (4P) and related strategies can also help strengthen customer loyalty. These strategies can help 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. Such a program must account for possible changes in supply chain management and General Electric’s operations management.
Despite their low intensities determined in this Five Forces analysis, the threat of substitutes and the threat of new entry are also issues for GE’s corporate strategy and management. A recommendation is to strengthen the company’s economies of scale to mitigate the effects of these threats in the aerospace business. 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 industry.
Competitive Rivalry or Competition against GE (Strong Force)
Competition effecting General Electric Company is evaluated in this component of the Five Forces analysis. Strategic management at General Electric considers the following external factors responsible for the strong force of competitive rivalry:
- High aggressiveness of aerospace firms (strong force)
- Buyers’ moderate to high costs of switching from GE to competitors (moderate force)
- Low number of firms (moderate force)
The high aggressiveness of aerospace firms corresponds to a strong force on General Electric Company in this Five Forces analysis case. For example, Rolls-Royce and Pratt & Whitney are aggressive in competing, especially in innovating and marketing their products. This external analysis also considers moderate to high switching costs, which have a moderate contribution to competitive rivalry in General Electric’s industry environment. Such an external factor represents the moderate consequences of switching from GE products to competing products. For instance, airlines operators, like Southwest, experience moderate to high challenges when switching from General Electric’s turbojet engines to engines from other firms. On the other hand, the low number of firms has a moderate impact on the business. In this Five Forces analysis case, a larger population of firms would create stronger competition that 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 ability of buyers or customers to affect business performance is assessed in this component of the Five Forces analysis of GE. The following external factors are pertinent to the bargaining power of buyers in General Electric’s business:
- Moderate to high quality of information about GE and competing products (strong force)
- Buyers’ moderate to high costs of switching from GE to competitors (moderate force)
- Low to moderate price sensitivity (moderate force)
Customers have access to moderate-quality and high-quality information about the products available in General Electric’s industry. For example, information about avionics product features, functions, and known issues identified in use cases are available through industry reports. In this Five Forces analysis, such information is an external factor that 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 of General Electric also shows that the aerospace industry environment is subject to the moderate effect of switching costs. Customer can switch, but could face challenges regarding contracts, fleet compatibility, expertise, and other factors. This external factor represents the moderate likelihood of customers switching from General Electric’s products to competitors’ products.
The low to moderate price sensitivity of customers reflects the low to moderate probability of buyers shifting to competing aerospace firms when GE increases its prices. This condition is especially observable in the commercial aviation market, where operators aim to reduce their costs. In this Five Forces analysis case, such price sensitivity has a considerable contribution to the bargaining power of General Electric’s customers.
In considering the external factors in this component of the Five Forces analysis of General Electric Company, managers must include the moderate bargaining power of buyers in strategy development. This force impacts GE’s market share, revenues, and business performance.
Bargaining Power of GE’s Suppliers (Moderate Force)
The power of General Electric Company’s suppliers is determined in this component of the Five Forces analysis. General Electric’s management addresses the bargaining power of suppliers based on the following external factors:
- Moderate population of suppliers to GE (moderate force)
- Moderate overall supply (moderate force)
- Moderate size of individual suppliers (moderate force)
Suppliers have a moderate population in General Electric’s industry environment. For example, avionics development has a moderate and limited population of suppliers. Also, in this Five Forces analysis case, the bargaining power of suppliers affecting General Electric is significant but limited because of the moderate overall supply, such as input materials for aircraft engine manufacturing processes. The moderate size of individual suppliers is also considered in this external analysis. With its moderate size, the average supplier has a significant but limited bargaining power over General Electric. Overall, the moderate bargaining power of suppliers in this Five Forces analysis of GE is a significant force with limited impact on the company and its industry environment.
Threat of Substitutes or Substitution (Weak Force)
The impact of substitutes for GE products is evaluated in this component of the Five Forces analysis. General Electric Company is subject to the weak threat of substitution based on the following external factors:
- Customers’ high cost of switching from GE to substitutes (weak force)
- Low performance of substitutes (weak force)
- Low availability of substitutes for GE products (weak force)
Based on high switching costs, customers are unlikely to switch from General Electric’s products to substitutes. In the Five Forces analysis model, this external factor has a weak contribution to the threat of substitution facing GE’s business. Also, substitutes’ low performance represents their limited capabilities compared to GE products. For example, substitutes in the avionics market have lower performance compared to the expert systems available from General Electric Company. Furthermore, the low availability of substitutes is an external factor that makes a weak contribution to the force of substitution against GE. The external factors in this component of the Five Forces analysis of General Electric show that the 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)
The influence of new entrants on General Electric is assessed in this component of the Five Forces analysis. New entry can alter market dynamics and the corresponding strategies and management practices of the aerospace business. The following external factors lead to the weak threat of new entry against General Electric:
- 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 limits the influence of new entry on General Electric. In this external analysis case, new firms need to allocate a high percentage of their financial resources to strengthen their brands, relative to the GE brand. High economies of scale further weaken the threat of new entry. General Electric benefits from high economies of scale, which new firms likely lack. Overall, this Five Forces analysis presents the weak intensity of the threat of new entry. This force is a minor strategic management issue facing General Electric Company.
References
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- GE Aerospace – Aviation History.
- General Electric Company Form 10-K.
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