High Quality Ceramics Worldwide Economics Essay

The ceramic industry is known to be a labour intensive industry, leaving developed countries at a disadvantage when it comes to labour costs that are on the rise. Furthermore, it seems that the global financial crisis has worsened this situation. Therefore countries with abundant raw materials and lower labour costs are strategically positioned in the ceramic industry as their economy provides for the rising demand and supply of ceramic goods.

Over the years, RAK ceramics has rapidly grown in the ceramic industry and has been recognised worldwide due to the quality of their ceramics. The quality of RAK ceramics allowed the company to position itself as a niche in the global marketplace by diversifying their products into international standards.

ANALYSING PORTER’S FIVE COMPETITIVE FORCES WITHIN THE CERAMIC INDUSTRY

The features that define an industry’s economic dominance include factors such as the number of rivals that exist and the scope of their competition, market size and its growth, number of buyers, demand and supply, economies of scale, technological change, the degree of product differentiation and innovation.

The structure of the ceramic industry experiences growth in terms of economical, efficient and technical characteristics which determines the strength of each of Porter’s five competitive forces. In this section, the ceramic industry will be analysed in terms of Porter’s five forces in order to understand the scope of growth and competition that exists within the industry and its attractiveness. The five forces are:

• Rivalry Among Existing Firms

• Threat of New Entrants

• Threat of Substitute Products

• Bargaining Power of Buyers

• Bargaining Power of Suppliers

Rivalry Among Existing Firms

Rivalry within the industry is relatively low due to the industry being Oligopolistic in nature. With that said, there are only a handful of competitors within the ceramics industry. RAK ceramics virtually faces no completion in the local market and some competition from countries such as China, Bangladesh, Thailand, and Sri Lanka due cheaper sources of labour, raw materials and imports, sacrificing high quality.

Furthermore, RAK ceramics is known for having strong strategies to remain competitive such as setting international competitive standards and joint ventures with other companies in order to utilise technological advances to create better line of ceramic goods.

Threat of New Entrants

RAK ceramics has the advantage of not having local competitors, but the ceramic industry has large amounts of fixed costs involved; therefore the industry is capital intensive, making it an entry barrier that limits potential threats of new entrants. In addition, the need of automation and large investment in technological advances pose as further entry barriers.

There has been significant growth in the demand for ceramic products over the years and countries such as Bangladesh that enjoy cheap labour, ease of access to raw materials needed coupled with duty free exports to countries in Europe due to lack of quota restriction from a generalised system of preference, increasing the gap between demand and supply, it poses a threat of entry to the international ceramic market.

Imports of ceramic products coming from countries such as China also pose a threat of new entry due to low import costs as they have manufacturing plants of their own that produce large quantities of ceramic goods, sacrificing quality.

Threat of Substitute Products

There ceramic industry faces intense competition with low priced goods such as tiles, sanitary and table ware that are majorly produced and imported from China due to lower costs. In addition, the industry faces completion from substitute products offered by companies in other industries.

Like RAK ceramics, other companies within the ceramic industry are facing competition from manufacturers of substitute products, thereby decreasing annual profits. Consumers often purchase substitutes of ceramic products due to the convenience in terms of availability and the attractiveness of lower prices. These substitutes include several variations of tiles, crockery and wares such as melamine, steel, glass, aluminium, stones such as marble, wood, and most commonly, plastic wares.

Furthermore, imports of such substitutes have rapidly increased in the past decade to a soaring fourfold. Manufacturers of these goods have expanded their operations and capacities due to this to keep up with fierce competition and exportation, thereby introducing more product lines to attract a broader range of consumers.  

Bargaining Power of Buyers

The buyers of ceramic products, both local and foreign buyers within this industry, have considerable bargaining power in terms of price negotiation with the seller. This is because buyer’s switching cost is low, therefore, it is quiet easy for a buyer to switch to other lower priced ceramic goods or substitutes imported from other countries mentioned earlier. Keep in mind that although RAK ceramics, with virtually no local competition due to lack of ceramic companies in the U.A.E still faces intense competition with Chinese substitute products, thereby entailing buyers within the U.A.E with considerable bargaining power.

Bargaining Power of Suppliers

As with other high quality ceramic competitors, RAK ceramics imports high quality raw materials such as potash feldspar, soda feldspar and clay from countries such as Thailand, Malaysia, Indonesia and India, glazes and fritz from European countries such as Spain. Furthermore, other imported high quality materials include vitrified high alumina porcelain from mines of Germany and UK which are of the highest quality. Therefore the raw materials alone account for most of the total production, apart from manufacture and technology. With that said, it is evident that the base of suppliers within the ceramic industry is big enough to weaken the bargaining power of suppliers.