Porter's five forces analysis: Yangzijiang and UobKayhian

After posting a guest blog at ASSI, "musicwhiz" commented about 5 forces analysis. I was intrigued after I find out what it meant. I decided to do some practices on Yangzijiang and UOBkayhian and see if I do understand these 2 counters and identify the gaps, if any.

Supplier bargaining power.

I have no idea what are the main costs to YZJ and its suppliers (To find out), I know they need a lot of steel. Its time to fill the knowledge gap.

UOBkayhian, think the supplier bargining power is low to medium, they just need to get their IT system up and going. If you consider sales representatives as supply, I do not think they have high bargaining power, but the top productive sale people can easily go to other brokerages, or even turn to the private sector and become their own bosses. 

Customers bargaining power

The shipbuilding sector is in doldrums, and shipbuilding prices are low, customers do have bargaining power. The bargaining power should be medium to high. Yangzijiang has grow and  have widen their customers base, but most of the major customers have more than 1 supplier, e.g. Seaspan contracted HHI for their 14000 TEUs shipbuilding.

For UOBkayhian, it is worse, traders can open multiple online trading accounts, and they cannot charge higher brokerage fees without losing customers, I doubt platforms and research quality are that important to traders. Also, according to a ranking of brokerage companies in Asiamoney,  KayHIan is only ranked 5th. 

Substitution 

There is no substitution in shipbuilding, ships are still the most used mean of transport for trade. There are however, many different type of ships, Yangzijiang can build a bulk carriers and containers ships of a variety of sizes, and have built tankers before. If there are new orders win in the area of tankers and LPG carriers, they would have strengthen themselves further. Substitution power is low.

For kayHian, substitution is also low, the trading of securities are still done through official exchange as a clearing house with licensed brokerages as distributors. I doubt there is other models.

Barrier of entry 

Barrier of entry in China is very high, China has effectively stop the issue of licenses for new yards, and the construction of new capacity by existing yards. But at a global stage, Yangzijiang still need to compete against Korean and Japanese Yards. Yangzijiang still has some cost advantage in operating in CHina. Low to Medium power of competition.

Not sure how easy or difficult does MAS issue new licenses to brokerage firms (To find out)

Competition

Within China, Yangzijiang need to compete against the biggest private yards, but the main competitors are SOE shipyards. Yangzijiang is competing fine in terms of financial strength, it has also received government support in terms of linking up of ship financing with financial institutions in China. Within CHina, the order win in 2013 are highly concentraded in the top few yards, which is also in line with the PRC plan to consolidate the sector for top 10 yard to account for 70% of the contracts. The economic of scale is working in Yangzijiang's favour. The bigger competition are from korean yards like HHI and Samsung, and perhaps also Japanese yards. Medium power of competition

There are 4-5 local brokerages and several foreign brokerages, competition is still. From preliminary calculation, kayhian has an 10% market share in Singapore, hardly a leadership position. High power of competition.

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After reading up on the 5 forces, I think it is just 1 part of the analysis, It is important to see how the management is addressing the weakest links, what business plan do they have to bring the company forward.

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Kayhian has been acquitting a number of brokerages in Asia and particularly Malaysia in recent years, and the numbers seem to be moving in the right direction. The contribution from the "others" segment is still small, it is a number to watch for to reduce customers bargaining power.  In terms of niche products that no competitors can replicate, I doubt they are there yet, there is not enough reach to different markets, I do not seem to hear any particular good review on that research or platforms.

Yangzijiang has been building up its capability to build bigger and eco ships, but this is a capability not lacking in SOE yards in china and the korean yards. Korean yards have the ability to attract orders to build large ships. But Yangzijiang has recently able to win orders for VLCC, so its positive. They have been trying to diversify their business, the most successful and controversial being their HTM investments. But only time will tell its foray into O&G and shipbreaking, and even property development business will bear fruits.   

In conclusion, Yangzijiang seems to be a better investment option, with the weakest link being in the power of customers to go to their competitors. Besides, better products, I need to analyse their cost structure and suppliers deeper. Will update again.