MM5012

Case:
Monsanto and The Global Water
Treatment Industry

Sydicate 2:
Abiyan Satrio/ 29118155
Andrew C. Putra/ 29118014
Clarashinta / 29118126
Fela Putri / 29118090
Case Overview

Monsanto, a biotechnology giant highly

committed to sustainable development efforts,
needs to assess the attractiveness of the
drinking water treatment industry before
deciding its entry to it. Four dimensions of the
global water treatment industry are described:
(1) types of products and services;
(2) applications;
(3) end-users; and
(4) geographical markets.

The drinking water treatment segment, which is classified into municipal drinking water
treatment and residential drinking water treatment, is examined in depth. Players in these two
categories produce the chemicals and equipment necessary to purify tap water supplied to
consumers and residential water purification devices. The bottled water industry is considered
a substitute of the drinking water treatment segment.

The primary objective of the case is to answer the

question ''Is the industry attractive?’’
Case Overview

''Is the industry

attractive?’’

To answer this question, External

Analysis is used. Porter’s five force
analysis will help to show the situation
of external environment.
Even one of the force is high, the
industry may be not attractive to enter
Rivalry among Competing Sellers

1. The Industry is growing rapidly

– Water demand growing to 70 percent by the year 2025. By that time, about one-third of the people
on earth would face moderate to severe water shortage.
2. There are few power of competitors
– The water treatment market chemicals, service and equipment has a thousand players worldwide.
But only the bigger firms will dominated the competition.
3. The fixed Cost are low
– Capital investments to enter the industry were important, especially for manufacturers competing in
the municipal and industrial markets.
4. It would not be hard to get out of this business
– This business require big investments such as R&D and Education for customer. It will be hard to get
out of this business.
5. Your Products is Complex required detail understanding for customer
– Although consumer awareness was growing, many still didn’t understand water technologies.
Investments in education necessary before water appliances would be accepted.
6. Your Competitors are all approximately the same size as yours
– Smaller regional company were swallowed up by bigger firms, and a number of high profile
transactions dominated the competition.
Rivalry among Competing Sellers

7. There are significant product differences among competitors

– The industry mostly has the same product water purification equipment.
8. The competitors are diversified rather that specialized
– The market for residential devices expanded rapidly, and the means of marketing and distributing
the products diversified.
9. Your customer would incur significant costs in switching to a competitor
– Because the competitor in the industry has the same technology and equipment. So, there is no
significant costs in switching to a competitor
Rivalry among Competing Sellers

Yes No

1. The industry is growing rapidly. X

2. There are few power of competitors. X
3 .The fixed costs of the business are relatively low portion of total costs. X
4. There are significant product differences and brand identities among competitors. X
5. The competitors are diversified rather that specialized. X
6. It would not be hard to get out of this business because there are no specialized skills X
and facilities or long-term contract commitments.
7. Your customer would incur significant costs in switching to a competitor. X
8. Your product is complex and requires a detail understanding on the part of your X
customer.
9. Your competitors’ firms are all approximately the same size as yours. X

Power:

HIGH
Suppliers

1. Raw Material
– Chemical Companies
– Easily supply to competitor since the raw material is commodity product, but the
industry also have tendency for backward integration to decrease their cost
2. Component Suppliers
– The component are usually customized product.
Suppliers

Yes No

1. Your inputs (materials, labor, supplies, services, etc.) are standard rather that unique or X
differentiated.
2. You can switch between suppliers quickly and cheaply. X

3. Your suppliers would find it difficult to enter your business. X

4. You can substitute inputs readily. X

5. You have many potential suppliers. X

6. Your business is important to your suppliers. X

7. Your cost of purchase does not have a significant influence on your overall costs. X

Overall input of water treatment industry is easily substitute. Even though some components are customized,
Water treatment company doesn’t rely on single supplier. For the raw material supplier, it has tendency to
backward integration to decrease cost.

Power:

LOW
Buyers

1. Municipal
– Often face funding and regulatory problem
2. Residential
– Losing confidence in municipal water treatment facilities triggered growth in water
purification equipment market
3. Distributor
– Dealer characteristic are diverse and not easily controlled
– Some dealers also produced and distributed bottled water
– Have chance of backward integration
4. Used Equipment Market
Buyers

Yes No

1. Is there a large number of buyers relative to the number of firms in the business? X

2. Do you have a large number of customers, each with relatively small purchases? X

3. Does the customer face any significant costs in switching suppliers? X

4. Does the buyer need a lot of important information? X
5. Is the buyer aware of the need for additional information? X
6. Is there anything that prevents your customer from taking your function in-house? X

7. Your customers are not highly sensitive to price. X

8. Your product is unique to some degree and has accepted branding. X
9. Your customers’ business are profitable X

Water treatment industry is easily substitute and switch in some levels. For the municipal levels, water treatment
industry rely on their fund and regulatory. Customer also spend relatively small purchase.

Power:

Moderate
Potential New Entrants

The leading firms compete in developing new biotechnology-based

products, as well as their speed to market, both of which make the
industry highly dependent on significant levels of R&D investment.
Companies like Monsanto also compete on a global level and gain
substantial competitive advantages through broad international reach and
a deep knowledge of the various regulatory and political environments.
Industry entrants will not be able to gain these capabilities without
extensive industry experience and capital investment.
Potential New Entrants

Yes No
The largest segment in environmental industry is water treatment X
The grow of water treatment is really fast X
Water treatment segment have only a few of competitor (rubbermaid, sunbeam and brita) X

Every competitor have their own special brand and special features X
The customer usually switch into other competitor because of the cost X
The competitor have their own characteristic X
Water treatment is the segment that is not easy to produce X

Even though this segment can grow easily and attract many company dive in this segment, but this segment
need more knowlegde to run that can become obstacle for the competitor.

Power:

HIGH
Firms in Other Industries offering Subtitutes

1. Substitutes have performance limitations, which do not completely offset their

lower price, or their performance advantage is not justified by their higher price.
– The industry of water mostly has variance of product and price to substitute.
2. Mosnsanto’s customer will incur costs in switching to a substitute.
– There is no cost incurrance for customer in switching to a substitute. They can switch
as they like.
3. Monsanto’s customer is not likely to substitute
– The customer mostly subscribe water product according the their environment. If
the substitute environment is more capable, then the customer prefer to subscribe
it.
Firms in Other Industries offering Subtitutes

Yes No

Substitutes have performance limitations, which do not completely offset their

lower price, or their performance advantage is not justified by their higher price. X

Mosnsanto’s customer will incur costs in switching to a substitute.

X

Monsanto’s customer is not likely to substitute

X

The bottled water industry was considered a substitute to a tap water and to residential drinking water
purification equipment. The bottled water’s price is affordable to customer and convenient to carry. Also it is
very easy to find in stores. And that’s resulted the bottled water product sales growth 41% in 4 years and
distributed world wide. Because of that, the customer potentially not subscribing drinking water from water
treatment companies.

Power:

HIGH
Recommendation

Is it worth to enter the

industry?
Subtitute
HIGH
According to the Porter Five Forces
analysis the industry is not attractive.
o As a drinking water treatment industry,
low power of the supplier create the
Supplier Rivalry Buyer industry easily to enter resulted in high
rivalry.
LOW HIGH MOD
o With the similar input, the substitute
and new entrant can threatening the
profitability of the industry. E.g. water
bottled, used equipment market
New Entrant o In some level, buyer don’t spend so
much and can switch easily
HIGH
o It will be very hard to dominate the
market share.
Thank you