Porter’s Five Forces Analysis for Coupang, Essay Example

Strengths

Coupang has a large customer base in the South Korean e-commerce industry. Rocket Fresh, which is its core business, is the largest in the South Korean market, while Coupang Eats is the largest online food delivery platform.

The company has a world-class logistics network leading to efficiency in the delivery of its products to the market.

Weaknesses

Coupang has weak management that has failed to turn around the company from loss-making to profit-making.

Poor innovative strategies

Opportunities

Coupang has the growth opportunity potentials; it is the largest ecommerce business in South Korea. It has heavily invested in logistics giving it a competitive edge over other online retailers.

The company can generate significant revenues from advertising since it is well known in South Korea and its environs. Sales revenues have boosted Amazon’s profitability (Valentin, 2001).

Threats

Alibaba, Pinduoduo, and JD.com have declared interests to expand across Southeast Asia and beyond. This may increase competition in the e-commerce retail business. South Korea is geographically small, and the company has to expand its operation to other countries to sustain it growth objectives.

The company is currently not making any profits; this threatens its future existence as well as its growth and expansion potentials.

PEST analysis

PEST is an acronym for Political, Environmental, Social, and Technology. PEST is factors in the external business environment that affects the operation of the business. CUOPANG, just like any, business is affected by these external forces.

Political

Coupang Operations are subject to the Korean laws. There are circumstances in which certain of their Korean affiliates’ executive officers may be held either directly or vicariously criminally liable for the actions of their Korean affiliates’ executives and employees. This may affect business operations both within and outside South Korea.  Coupang operations are subject to detailed and complex fair trade, labor, employment, and workplace safety laws and regulations that continue to evolve and have and will continue to affect its operations and financial performance and could also subject the company to costs and penalties affecting its operation and reputation in the industry.

Economic

Inflation in South Korea and other markets where Coupang operates leads to general increase prices of goods and services, impacting consumers’ purchasing power. The company records low sales revenues during the high inflation period. Inflation also leads to an increase in interest rates charged on loans; as a result, Coupang experience a high cost of doing business during the hyperinflation period.

Social

Social aspects focus on forces within the society. Social aspects impact Coupang in different ways; as younger generations prefer to use digital technology to shop online, older people are stuck in traditional methods. This reduces the company’s profitability and growth prospects. Attitudes toward customer service and product quality also affect Coupang’s profitability. Some customers believe that online shopping offers poor customer service due to a lack of face-to-face interaction. Others believe that the Coupang affiliates provide low-quality goods.

Technology

Coupang depends on apps, websites, and programs, including the Rocket WOW membership program to deliver goods and services to its customers. It must remain successful in implementing all the critical strategic initiatives, including technology, to maintain and improve a leading market and strengthen its competitive position.   The company utilizes the latest technology such as machine learning, artificial intelligence, cloud-based technologies, and other modern tools to power its differentiated and scalable offerings and services for customers and merchants. Its distribution network and last-mile delivery logistics are coordinated by technology that enables full supply chain visibility and control. In light of these developments, Coupang is technologically competitive.

Porter’s five forces

Supplier’s power

Supplier’s power is one of the Porter’s five forces. It assesses how easy it is for suppliers to drive up prices in the market and industry. This depends on the number of suppliers in the market, the uniqueness of the product, and the cost of switching off from one product to another. Coupang, as an online retail store, relies on different suppliers. Suppliers’ power is not strong in the online retail business because the company does not depend on one single supplier. Their products are also not easily differentiable, and there is ease in switching off from one product to another.

 Buyers’ power

Buyers’ power assesses how easy it is for buyers to drive prices down; this is driven by the number of buyers in the market, their importance to the organization, and the cost of switching from one supplier to another. Few buyers can easily dictate terms for the business. Coupang is the leading online business in South Korea. It has many buyers who rely on the platform for their online shopping. Although all buyers are essential to the business, the entry or exit of one single buyer does not significantly affect the business. Therefore buyers do not have strong power to control and dictate terms for the company.

Competitive rivalry

The main driver of competitive rivalry is the number and capability of competitors in the market. Many competitors offering undifferentiated products and services will reduce market attractiveness (Bruijl, 2018). In South Korea, Coupang is the leading e-commerce online platform. However, Alibaba and Amazon have shown interest in the Southeast Asia market. This is likely to drive competitive rivalry up though currently, the company is still dominating the South and North Korean market.

Threat of substitution

 The threat of substitution is where close substitute products exist in the market. Substitutes increase the possibility of customers switching to alternatives products in response to price changes, reducing the power of suppliers and the market attractiveness. Coupang offers a variety of products on its platform, both related and unrelated, this gives customers to compare and contrast product features and characteristics.  Consumers can, therefore, easily switch off from one product to another. This, however, does not affect the company’s profitability because both suppliers’ products are listed on the Coupang website. The threat of substitution only affects the company if the supplier of the preferred product is not one of the listed vendors.

Threat on new entrant in the industry

Highly profitable markets attract new entrants that lead to a decline in profit earnings unless the current industry players have a strong barrier to entry and exit, economies of scale, or there are government policies that deter new firms from entering the market (Dobbs, 2014). E-commerce is a perfectly competitive market where there is free entry and exit, the product prices are controlled by the forces of demand and supply. Coupang is the leading e-commerce business in the South Korean market. The company leverages its technology to enjoy attracting and retaining new customers. However, big players in the industry such as Amazon have declared interest in the market. Therefore, the profitability of the business is likely to decline in future once these companies enter the market.

References

Bruijl, G. H. T. (2018). The relevance of Porter’s five forces in today’s innovative and changing business environment. Available at SSRN 3192207.

Dobbs, M. E. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review.

Valentin, E.K. (2001). SWOT analysis from a resource-based view. Journal of marketing theory and practice, 9(2), pp.54-69.