Australian Print and Bookselling Industry Analysis
Porter’s five forces model comprises tools of that explore the five forces of the industry to understand the intensity of competition between the firms in the environment and the profitability level (Dobbs, 2014). M. Porter created five forces model back in 1979 with the objective of understanding the significant of the main competitive forces in the sector of a particular country an industry (Nikolopoulos, 2005). These forces play an essential role in shaping the sector structure and level of firm’s competitiveness. The Australian book publishing and selling industry has intense competition; there is low profit, law entry barriers. The rise of ebooks threatens the existence of physical books and collapse of major players in the market.
According to Nikolopoulos (2005), book printing and selling industry in Australia can be said to be monopolistic in nature. The following characteristics indicate the status. The sector has many book printers and sellers, which causes intense competition and no entry barriers. Concerning market strategies, the companies selling and printing books differentiate themselves based on the range of product provided, the quality of customer service offered, promotions and the delivery methods. Thus, these firms make independent decisions on issues of pricing. This is due to unique offering; market shared in the industry and the cost structure. However, Greco, (2013) argues that the consumers do not understand the distinction brought by non-prices between the competing booksellers. Further, the firms and consumers lack comprehensive information regarding market demand, supply, and pricing.
This section explores the cost-effectiveness of the industry and the factors, which affect the profitability of the sector. Printing and selling of books in traditional bricks-and-mortar stores have been on the decline since the beginning of the decade. Currently, purchase of ebook and other non-printed materials is in the growth phase (Greco, 2013). As such, selling of electronic book is likely to take the full profit soon due to the slow demise of printed books. The level of profitability is very low, and companies are closing because of low sustainability. For instance, the industry has witnessed the collapse of one of the biggest bookseller REDGroup Retail. The firm controlled other in the industry such as Robertson and Borders and Angus retail chains. Since the beginning of the decade, the print and bookselling industry has suffered massive losses from 2011.On top firms collapse, a multitude of bookstore has also closed such as Mary Martin Bookshop based in Adelaide’s back in 2014 and Adelaide University’s Unibooks in 2015 (Terry-Armstrong, 2016).
To Merga, (2014) the profitability of the industry has been significantly affected because the consumers are embracing online books. Therefore, the traditional printing and book selling industry is unable to withstand competition from online overseas companies. For example, large foreign companies in particular Amazon and its subsidiary The Book Depository have captured a significant market share from the sector and consumers prefer purchasing from them due to their convenience, competitive prices and range of book titles available in their online shopping platform. Terry-Armstrong, (2016) suggests that the emergence of substitute products in the industry has further eroded the market. For example, despite offering ebooks and audios, Amazon also has other competing products such as eReading devices such as the Kindle. These substitutes in the industry provide an alternative for sale and purchase of physical copies.
There are also local companies, which have proved to be a challenge to the players in the sector. For example, stores such as Target, Kmart, and Big W have also encroached on the market share of the bookselling market in the industry in the recent years. These firms utilize opportunities such as cheap new-release books in a bid to attract many consumers into their stores (Greco, 2013). Other booksellers have no capacity to compete because of the below-cost-price offered by competitors.
Porter’s Five Forces Analysis
Michael Porter emphasizes that defining and understanding the sector and the context in which the competition occurs is essential for the analysis. The aim of the report is to explore the Australian print bookselling industry using five-force analysis. The focus is on the products, customers, and geography dimensions. The geography dimension includes the consumption of goods within the country. Exploring the aspect is appropriate due to unique geographical market conditions in the industry under study. One has to examine the forces caused by parallel importation laws and levying of GST. However, the provision of printed copies of books to Australian customers from foreign companies like The Book Depository and Amazon is also included. This is because these enterprises compete directly for consumers with local firms in the industry. They also enjoy the advantaged position caused by exemption from business environment conditions in Australian market (Mason, 2014).
In the report, the product dimension includes the printed books. The analysis scope contains electronic books or famously known as eBooks, second-hand books, audio books, ancient books and other non-physical copies. The central emphasis of the report is to analyze company printing and selling books in the market and the disruption caused by ebooks. This is irrespective of whether they are e-commerce retailers or bricks-and-mortar retailers. The reason for including both is due to the product they provide and the target consumers are fundamentally similar (Willis, 2015). On the other hand, the customer's dimension in the Australian bookselling industry includes the buyers such as institutions, corporates.
As suggested by Porter, use of Five Forces Model is paramount and essential in the categorizing of the industry’s threats in Australia. The following categories will be analyzed: competitive rivalry, buyer’s power, suppliers' power, the threat of new entry, and the threat of substitution. There is intense competitive rivalry among the players in the industry. Because books are commodities, the firms use price to compete against others in the market. Besides, the locals also face competition from other online retail companies in UK and U.S. An example includes Amazon and The Book Depository (Lazeanu, 2014).
The companies are capable of competing because they have achieved the economies of scale and thus able offer the products at lower prices compared to the competitors' offering These sellers have the permission to supply books in the country for free and not subjected to parallel importation laws. These laws affect the local retailers because they cannot source product in other markets. Other than international online sellers, the domestic print and selling book companies face intense competition from local online booksellers namely Fishpond, Booktopia, Boomerang Books, A&R Bookworld, and The Nile and Dymocks (Zwar, 2016).
Threat of New Entry
Clark & Phillips (2014) enunciates that there are low barriers to entry in the Australian print bookselling industry. However, there are high barriers of entry booksellers who target the national and international market because of high commoditization of books. This is due to local and online a bookstore that uses the economies of scale and the massive uncertainty in the industry caused by the emergence of technology. Also, the sector has been performing dismally because the players have been making loss from the last decade, and such factors play a significant role in dissuading investors from investing in the market.
One of the essential providers in the Australian bookselling industry includes the publishers. However, there is uneasy relationship existing between the booksellers and publishers in the country. The country’s Copyright Act significantly bolsters the supply power of the publishers. The act does not allow the local bookstores to purchase book titles in the foreign market in cases where the local product is available in the domestic market (Clark & Phillips, 2014). The act thus obligates the sellers to buy the entire available product from Australian publishers and can only seek from the foreign market when the product is not available in the market. The purpose is to ostensibly protect the interests of local authors, which lead to uncompetitive practices. However, the consumers have permission to purchase titles from foreign-owned suppliers before the copies are released locally.
Zwar, (2016) suggest that the advent of internet and emergence of related technologies have the source of the ultimate strength of the consumer. In the industry, this is particularly when shopping for books. If the buyers are not satisfied with the quality and other feature, the customer can access the competitor’s website quickly with just a click on the internet. In most cases, when the consumer makes a decision to acquire a book from a firm, the motivating factor is the pricing of the product. Technology has also enabled the users to compare the online prices between companies. An example includes Booko.com.au that makes it faster and easy to compare a multitude of online booksellers.
Threat of Substitution
There are myriads of threat that substitute printed books in the industry. The replacements mean a product that can be able to perform a similar function as that of the published titles in the industry. The rise of technology has enabled the delivery of commodities using the electronic means. Therefore, the eBook acts as a substitute for printed books in the industry. One of the mainstream companies is Amazon and its Kindle eReader device is one the substitutes. The emergences of these gadgets have made physical books redundant because they are mobile and can carry many books electronically (Carter, 2016).
For instance, a single device can carry the whole library electronically, which is not possible physically. The devices are also convenient as one does not need to travel to the bookstore but can buy the product electronically. In the future, eReading technology is likely to improve and in time, and it will cannibalize and suffocate the market for printed titles (Baron, 2015). Therefore, the big winners in the industry are those capable of leveraging technology and establishing stable software ecosystems to minimize the threat of substitution. Currently, leading companies include Apple, Google, and Amazon.
The Macro Environment Analysis
Baron, (2015) argues that steady decline of printed titles has nothing to do with the macro-environment variable in which the Australian book printing and selling industry. To understand this, the report analyzes the variable in the environment in which the environment operates. These include the political, social, technological, and economic factors known as PEST. Booksellers in the industry have lobbied Federal Government of Australia on two issues affecting industry competitive ability with the foreign market. One of them is the imposition of GST on foreign purchases made by the consumer. These purchases attract Tax, and from this year, the government will collect the tax. Other include Parallel importation which allows the players in the industry to acquire bulk orders of books from rights holder and not purchase of cheap edition from foreign companies. This has affected the competitive ability of the domestic enterprises as compared to foreign-owned enterprises (Lazeanu, 2014).
The economic climate has not been conducive, and thus it has affected the local industry. This is coupled with the weaker global economy, instability, reduced discretionary spending, and a drop in consumer confidence. In such a scenario, purchase of the book is seen as luxury making the consumer divert to other industries and sourcing book from cheaper means. As a response, the firms in the environment have been forced to cut the prices resulting to poor performance and extinction of some players (Clark & Phillips, 2014).
Book reading is a social activity involving people who have shared interests. For example, the existence of reading groups in the society (Clark & Phillips, 2014). However, the culture of reading has been affected by the emergence of social media community where people build groups such as GoodReads. A close analysis of the Australian society reveals that there is an enormous aging population who are in the retirement age, and it is most likely they will consume printed books. On the other hand, technology and its growth have influenced the print bookselling industry (Willis, 2015). Technology has introduced and enabled the online sale of books, and further added electronic books that act as a substitute for the physical books. This threatens physical books as products are distributed in the electronic platform that is easy to access for the Australian population because of high-speed internet connections in their homes.
The Future of Print and Bookselling Industry
In the next decade, the Australian print and book selling industry will continue to change. Print book sales will decline steadily, but not to the level of print book extinction (Mune & Agee, 2015). Emerging technologies such as eReading and other will improve at a greater pace and consumers will be forced to adopt eBooks while reducing the use print book. Coupled with the globalization of industries new companies will emerge and this will lead to consolidation of national and international book retailing to a single sector. Eventually, companies specializing in eBooks will continue to phase out leading to domination by few companies like Amazon, Apple, and Google (Thomas, 2014). Concerning physical stores, only a few companies capable of surviving competition will sustain the pressure. Due to intense market competition, companies will require to differentiate themselves and provide services that correspond to the target audience needs and wants. As such, the future of Austrian print and bookselling industry and have no option rather than to embrace technology through multiple selling websites and mobile devices platforms (Carter, 2016).
In conclusion, the Australian bookselling industry has undergone significant changes over the last decades. The use of physical books has been rapidly declining, and the consumers of the commodities have embraced technology such as Kindle reader, ebooks, and audiobooks. Amazon and other foreign companies will continue to increase their shares in the Australian print book market. However, the imposition of GST by the federal government on imported products and the likelihood of waiver of parallel importation laws will level the playfield and thus offer relief for local sellers. As the sale of the print book continues to reduce considerably, local online booksellers have the opportunity to exploit market opportunities and hence have a slice from a consolidating industry. In the country, the growth of online firms in the next decade moving forward is a forgone conclusion and differentiation based on a range of titles, brand and reach, competitive pricing, user experience, the speed of delivery and reliability, and loyalty programs will continue to drive the market.
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