Competitive Rivalry
The current competitive rivalry in the industry is intense due to different approaches and strategies that major companies apply to survive and grow. As one of the largest can manufacturers, American National Can took the merging approach and became part of Pechiney International Group. That enabled more resources and funds to develop, along with business diversification.
However, it also possessed some threats in the total dissolution of American National Can into National Can (Bradley, 14) due to prolonged and troubling merging. Other competitors in the can manufacturing industry are also focused on diversification of their businesses, where Ball Corporation gained 180 million dollars in profit by becoming a high-technology firm (Bradley, 8). At the same time, Crown Cork & Seal is focused on can manufacturing, remaining one of the last major companies to focus on specialized manufacturing.
Threat of New Entrants
The current threat of new entrants is low due to the decreasing market for can manufacturing. There is less incentive to enter the market, along with lower revenue. Companies would prefer to enter more profitable and growing markets while leaving the can manufacturing due to the complexity of growing for a new firm. This is also due to major can manufacturers holding the most supplies and buyers, where over a hundred firms have complete control of the market (Bradley, 2). Thus, there is a low threat of new entrants in the near future.
Bargaining Power of Buyers
One of the threats coming from buyers stands in the growing trend of in-house manufacturing. Production of cans for the company’s use accounted for 25% in 1989, which poses a threat to market growth (Bradley, 4). In this sense, it is impossible to predict market prices due to falling demand for can manufacturers. However, companies’ main buyers – soft drink bottlers- still rely on the can manufacturer due to their inability to meet cost efficiency with in-house manufacture. This enables stable revenue from soft drinks to can manufacturers, specifically Crown Cork & Seal.
Bargaining Power of Suppliers
Considering the suppliers, the primary threat is the increased aluminum prices that metal industries artificially control. Because Crown Cork & Seal only produces aluminum cans, it cannot find substitutes for the metal and thus relies on industry prices. Alcoa’s control of the price increase also threatens the company’s manufacturing costs due to total reliance on market trends in the metal industry (Bradley, 4). Due to those changes, Crown Cork & Seal can find new materials for can production and further diversification, as reflected by plastic and glass bottles.
Threat of Substitutes
In this sense of diversification, it is worth looking at the threat that substitutes can provide. First, it accounts for 61% of all packaged products in the US, while glass and plastic took 21% and 18%, respectively (Bradley, 1). However, the growing trend of using plastic bottles for soft drinks threatens the production of cans. Manufacture and buyer demand are decreasing steadily, while plastic experienced rapid growth through the eighties. With the changing consumer behavior in the world, it is possible that in future decades, plastic will account for a larger share of packaged products, replacing cans and other metal products. Thus, it is worth considering diversification and implementing new Crown Cork & Seal technologies.
Competitive Advantage
Crown Cork & Seal has a competitive advantage in a few industries. The emphasis on tin-plated cans and crowns still benefits the company in upholding its specialization. In addition, as Crown is not built to provide products for a single customer, its multi-faceted approach helps attract more buyers and, thus, secure revenue for each factory. In this sense, it is competitive because most companies still rely on a single large customer, like Coca-Cola.
For example, Anheuser-Busch accounts for 14% of Ball Corporation’s revenue, which implies heavy reliance on its beverage trends and production behavior (Bradley, 7). If Anheuser-Busch fully replaces cans with glass or plastic bottles, Ball’s revenue will be directly impacted. On the other hand, Crown’s diversified supply enables it to avoid losing one customer through reliance on many.
Furthermore, the Crown’s cornerstone principles lie in low reliance on development research and new industries. Although new investments are made into high-end manufacturing technologies, Crown will not become the pioneer of development; instead, it will be a company that adapts its strategies according to the current state. In this sense, the Crown’s caution enables it to possess lower revenue but a secure position in the industry.
In addition, the two most important trends that are taking over an industry are diversification and consolidation. Although diversification is necessary for the Crown to develop in the future, consolidation is not the most beneficial option. As the Crown was never pioneering in new trends, the experience of failed mergers of American Can and National Can represents the adverse effect of new strategies (Bradley, 14). Thus, it will be best for Crown Cork & Seal to observe the market and implement the most suitable approach to diversifying production, either by changing the final product or the material used.
Work Cited
Bradley, Stephen P. “Crown Cork & Seal in 1989.” Harvard Business School, Web.