Porter's Five Forces Analysis of the Australian Textile Industry

This report provides a comprehensive analysis of the Australian textile industry using Michael Porter's Five Forces framework. It examines the internal rivalry within the industry, highlighting the fragmentation of the market and the impact of foreign competition, particularly from China and India, on the profitability of Australian manufacturers. The report assesses supplier power, noting the low bargaining power of suppliers due to the availability of substitutes and the relatively low cost of raw materials. Buyer power is also analyzed, with the report indicating high buyer power due to the fragmented market and the availability of numerous choices for consumers. The threat of substitution is considered, with the report concluding that there are limited substitutes for clothing products. Finally, the threat of new entry is evaluated, with the report suggesting that the threat is low due to the importance of brand recognition, distribution networks, and customer understanding. The analysis concludes that the industry's profitability is moderate to high, driven by factors such as non-price sensitivity among buyers and barriers to entry.

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Porter Five Forces Framework
The five forces model is a potent approach which can be used to analyse any given industry
or a firm and based on the existing environmental factors, it can be used to outline the
expected profitability of the underlying industry or firm. For the chosen industry, the five
forces model framework can be applied in the manner highlighted below.
Internal Rivalry
The internal rivalry indicates the level of competition that tends to exist in a given market. In
case of Australian textile industry, the internal rivalry is quite high which is primarily
attributed to the attributes of Australian economy. Owing to the underlying geography and
demographics, the market is quite fragmented with a plethora of smaller players which are
serving specific geographies and niche segments. While at the national level, couple of
players (David Jones & Myers) may dominate but simultaneously there exists a host of small
clothing manufacturers that are serving dedicated niche clientele (IBISWorld, 2017).
Further, a more intense rivalry is faced by the foreign firms especially based in countries in
China and India which tend to bring in cheaper fabric and textiles and thus pose a significant
challenge to the existing players. Owing to this cost pressure, the Australian textile and
clothing industry has progressively declined over the last two decades. This is because the
Australian textile or cloth manufacturers have a significantly higher labour costs as compared
to their Asian counterparts and hence it is not feasible to manufacture the textiles in Australia.
The big firms tend to import textiles from China only and focus at value addition activities in
the form of designing and branding only (Nimbalker, Mawson and Harris, 2015).
Thus, owing to the unique geography of Australia a host of players exist which tend to lead to
high amount of competition. This has adverse impact on profitability of the industry as the
requisite scale is not achieved and hence economies of scale are not reaped. In the absence of
economies of scale, the overall cost remains high and the same tends to reflect in the lower
profit margin considering the fragmented nature of the industry and low spending on clothes
by Australians (IBISWorld, 2017).
Supplier Power
The suppliers in case of clothing and textile business tend to have a low bargaining power.
This is on account of several reasons. The first reason contributing to the same is the

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existence of a number of suppliers resulting in high competition amongst the same. This has
worsened in the last two decades as the foreign suppliers have also penetrated the Australian
markets. These suppliers tend to deal with big wholesalers and national players and provide
them with supplies imported from China. Also, it is imperative to note that the underlying
raw material cost is not a very high or significant proportion of the overall selling price and
hence cost considerations are not very critical (IBISWorld, 2017). Additionally, for the input
supplies, there are wide range of substitutes available which further impacts their bargaining
power adversely. The distribution network also has become more diversified with the advent
of online shopping especially in urban centres. Hence, this further weakens the role of
suppliers. Besides, the switching costs for the manufacturers and retailers amongst the
suppliers tend to be low only which further erodes the supplier power (Nimbalker, Mawson
and Harris, 2015).
It is apparent from the above discussion that the power of the suppliers does not adversely
impact of profitability as they have low power owing to the high competition, presence of
easily available substitutes and the low input cost for the goods. Further, it is essential that the
core focus for the clothing is on branding and focusing on the niche segments which is
essentially not done by the suppliers but rather the retailer. Hence, the supplier has limited
power to pass on any price hikes to the various retailers or manufacturers (Nimbalker,
Mawson and Harris, 2016).
Buyer Power
The profitability of the industry is influenced by the power possessed by the buyers or
customers. The higher the power, the lower would be underlying profit margins (Modern,
2007). For the clothing industry, the power of the buyers is typically high which is apparent
from the trend of decreasing expenditure on cloth over the last two decades. The clothing
industry is highly fragmented with very few national players which ensure that buyers have
many options. Fragmentation is also observed at a number of levels since there are retail
clothing chains but also dedicated boutique shops which cater to the individual needs of the
customers based in specific geographies. Hence, it is apparent that the customers tend to have
a host of choices (IBISWorld, 2017).
In the clothing industry, the key differentiator is not price but rather the quality and brand.
This is because the customers are not price sensitive and hence are willing to pay the
premium in case their needs could be met. One of the reasons for the lesser price sensitivity

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may be on account of the lesser expenditure of cloth due to which the customers would not
paying a premium for exclusive designs or premium quality. This presents ample opportunity
for the clothing industry to earn a higher profit by ensuring that the products are catered to
the target customers. The critical element is to keep up with the changing preferences which
are typically less dynamic than Europe and hence not difficult for the sellers (Nimbalker,
Mawson and Harris, 2016).
Threat of Substitution
Typically for an industry that offers products that can be easily substituted, the profit margins
tend to be low as higher prices would push the consumers into evaluating the available
alternatives. On the other hand, for an industry which offers products or services that cannot
be easily substituted, the demand would be inelastic and hence profitability would be
potentially higher (Modern, 2007). It is apparent that there are not many substitutes for the
clothing industry and eventually the customers have to buy from the various options in terms
of players or sellers. There are a plethora of complements available in the form of fashion
industry and other services such as stylists which also tend to play a critical role in informing
the customers about the ongoing trends especially in Europe (IBISWorld, 2017).
This is imperative for the clothing industry as this tends to enhance the awareness of the
consumers towards the value added aspect of clothing in the form of design, style, fabric
quality along with exclusivity. Further, substitute is available in the form of channels since
online shopping is becoming more prevalent but in terms of clothing as a product, there is not
much availability of substitutes. As a result, the presence of complements along with absence
of substitutes tend to contribute towards the enhanced profitability for the industry.
Threat of New Entry
Typically for industries where the threat of new entrants is higher, the profit margins tend to
be lower. This is because as the profit margins of the industry remain high, more players
would enter the market and increase both supply and competition, thus leading to lower profit
margins. On the other hand, for industries where the threat of new entrants is low, the profit
margins tend to be higher (Modern, 2007).
Considering the dynamics of the given industry, it is apparent that the threat of new entrants
is low. One of the key reasons responsible for the same is that the Australian clothing
industry is not very price sensitive and hence superior customer understanding, established

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brand and distribution network so as to reach the customer is imperative. While it may be
easier for a player to import clothes from China, it would be a time and resource consuming
to establish a distribution network along with a brand. Further, considering the geographical
distribution of customers, it would require significant upfront investment to cover a large
geography. A new entrant would need to decide whether it wants to focus on a particular
geography or have a wider reach. The presence of these factors ensures that there is limited
entry of new players in this market. Also, considering the empirical evidence over the past
two decades, it is apparent that consolidation is taking place in the industry especially
amongst the larger players as scale leads to lower costs. However, there is ample space for
boutique players to exist provided they can cater to the needs of the consumers (IBISWorld,
2017).
Conclusion
On the basis of the above discussion involving the five forces, it is apparent that the
profitability of the industry tends to be moderate to high. One of the reasons is the non-price
sensitive nature of the buyers which ensures that a suitable premium would be paid for any
product which meets the preferences of the customers. This ensures that the players do not
have to compete on price and therefore could potentially have higher profitability margins.
Aid in this regards is also provided by the limited power of suppliers and also higher entry
barriers considering the focus on brand building and understanding of the preferences of the
consumers.

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References
IBISWorld (2017), Clothing Industry in Australia, [online] Available at
https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/other-
store-based-retailing/clothing-retailing.html [Accessed October 1, 2017]
Modern, T. (2007), Principles of Strategic Management(3rd ed.), NY: Ashgate Publishing
Nimbalker, G., Mawson, J. and Harris, C. (2015), 2015 Australian Fashion Report, [online]
Available at http://www.abc.net.au/cm/lb/6398294/data/fashion-report-data.pdf [Accessed
October 1, 2017]
Nimbalker, G., Mawson, J. and Harris, C. (2016), 2016 Australian Fashion Report, [online]
Available at https://baptistworldaid.org.au/wp-content/uploads/2016/05/2016-Australian-
Fashion-Report.pdf [Accessed October 1, 2017]