Chapter 14: Problem 7

Under Armour, Inc., was founded in 1996 by Kevin Plank, a 23-year-old former University of Maryland football player. The company specializes in manufacturing and selling athletic and casual apparel made from synthetic material that repels moisture. The company does not have patents on the fabric it uses or on its manufacturing process. Use Michael Porter's five competitive forces model to analyze the competition Under Armour faces in the athletic and casual apparel industry.

Short Answer

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Under Armour faces significant competitive forces in the athletic and casual apparel industry. These include a high threat of new entrants due to the lack of patents over its materials and manufacturing process, intense rivalry among existing competitors, a high threat from substitute products, and considerable bargaining power from buyers who have numerous alternatives available. However, the bargaining power of suppliers may be limited due to the non-exclusive nature of Under Armour's materials and production methods.

Step by step solution

Identify the Threat of New Entrants

In assessing the threat of new entrants, consider how high or low the barriers to entry are in the apparel industry. This includes understanding the costs involved, regulatory issues, branding, and the need for know-how. In this case, while Under Armour has established its brand, the lack of patents on its materials or manufacturing process means it could face potential threats from new entrants who can duplicate these.

Assess the Bargaining Power of Buyers

Next, evaluate the consumers' power in the market. Buyers have high bargaining power when they make up a significant portion of sales or when they have many alternatives to choose from. In the athletic and casual clothing sector, buyers often have many options, which might increase their bargaining power.

Evaluate the Bargaining Power of Suppliers

Now consider how much influence suppliers have. If there are many suppliers or their products are undifferentiated, they may have less bargaining power. Under Armour's lack of exclusive patents means it likely has many potential fabric and manufacturing suppliers, possibly limiting their bargaining power.

Consider the Threat of Substitute Products or Services

This step requires considering another type of competition - substitute goods. Given the variety of clothing materials and designs available, there may be a high degree of threat from substitutes in the athletic and casual clothing industry.

Analyze the Rivalry Among Existing Competitors

Finally, assess the intensity of competition in the industry. Generally, sectors with many competitors who offer similar products have more intense competition. Based on this, Under Armour likely faces high levels of rivalry from existing competitors in the market.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Competitive Forces in Business

Understanding the competitive forces in business is crucial for any company looking to develop a foothold in their industry. In the case of Under Armour, such forces are analyzed using Porter's Five Forces model, which reveals the dynamics of competition surrounding the firm.

The threat of new entrants is significant in the athletic and casual apparel industry due to low barriers like the absence of patents on fabric or manufacturing processes. This scenario can lead to an influx of competitors who could offer similar products, diluting Under Armour's market share. To mitigate this, companies often innovate or strengthen their brand to create a buffer against newcomers.

The Bargaining Power of Buyers

Buyers can sway market trends based on their purchasing choices, especially in markets with abundant alternatives. In such cases, consumer loyalty is volatile, and businesses like Under Armour must continuously attract and retain customers through product differentiation, marketing, and competitive pricing.

The Bargaining Power of Suppliers

When a company can choose from numerous suppliers, it can negotiate lower prices and better terms. For Under Armour, a diverse supplier base might be integral in maintaining cost-effective operations and the flexibility to adapt to changing market demands.

Overall, an intimate understanding of these competitive forces aids businesses in strategizing effectively, anticipating market shifts, and sustaining competitive advantage.

Business Strategy

A robust business strategy equips companies to navigate the competitive forces they encounter. For Under Armour, the lack of patents necessitates strategies that strengthen its competitive edge. A focus on unique branding and marketing helps define the business apart from its competitors, cementing its presence in the consumer's mind.

Moreover, innovation is not just about products but also encompasses customer experience, market positioning, and even supply chain management. Under Armour, for example, might invest in research and development to produce superior fabrics or technologies that improve performance wear.

Strategies also encompass how a company responds to the threat of substitutes. Developing products with unique attributes or benefits that cannot be easily replicated encourages brand loyalty and reduces the appeal of alternatives.

Ultimately, a strategy should be a dynamic set of actions and guidelines that are responsive to the shifts in competitive forces, enabling a business to achieve its goals and secure a sustainable market position.

Supply Chain Management

Supply chain management (SCM) is a critical component of operating a successful business, especially for a clothing company like Under Armour where the timely procurement of materials directly impacts production.

Effective SCM ensures a smooth flow from suppliers to the end-user, which includes managing relationships with fabric and manufacturing suppliers. Companies must balance the cost, quality, and reliability of their suppliers to maintain a steady production line.

Integration and Optimization

Integrating supply chain operations can lead to greater efficiency. For instance, Under Armour could optimize its supply chain by employing just-in-time inventory systems or embracing lean manufacturing principles to reduce waste and increase responsiveness to market changes.

Technology in SCM

Adopting advanced technologies like predictive analytics, RFID tracking, or AI can also enhance supply chain transparency and forecasting. Such innovations can provide real-time data, enabling decisions that align inventory with demand patterns and improve overall supply chain resilience.

As businesses contend with global competition, those with a sophisticated approach to SCM can better manage costs, decrease turnaround times, and ultimately strengthen their competitive position in the market.