PORTER’S MODEL FOR JUTE INDUSTRY

BY- ROHIL BANSALROLL NO. 1068

OBJECTIVE

The objective of the presentation is to analyse the applicability of Porter’s

model in Jute Industry and how it impacts its profitability. This presentation

analyses the status of jute industry in India, its recent risk, challenges and

development. Also the role government has been playing in order to revive

the industry has been discussed in the end.

PORTERS FIVE FORCES

• Porter five forces analysis is a

framework to analyse level of

competition within an industry and

business strategy development.

• They are results of empirical studies

conducted on real industries

operating in real markets.

PORTERS FIVE

FORCES

Barriers to Entry

Supplier Power

Threat of substitutes

Buyer Power

Degree of Rivalry

JUTE INDUSTRY

• Jute, the golden fibre, meets all standards for “safe” packaging in view of

being a natural, renewable, biodegradable and eco- friendly product.

• the jute industry provides direct employment to 0.37 million workers in

organised mills and diversified units including tertiary sector and allied

activities and supports the livelihood of around 4.0 million farm families.

• Currently, the overall capacity of the jute industry is about 100,000

tonnes per day.

• The annual turnover is Rs 4,000 crores and

there are altogether 73 integrated jute mills,

of which 59 are in West Bengal.

• Fresh capacity to the tune of 25,000 tonnes

per day is being currently implemented,

creating job opportunities for more than 25,

000 people, both skilled and unskilled.

JUTE INDUSTRY

AND

FIVE COMPETETIVE FORCES

SUPPLIER POWER

• Primarily the suppliers of raw jute to end consumers are farmers in small

villages. They yield comparatively less supplier power because their scale

of operation is low and they have an incentive to switch to growing rice on

the same fields. This might altogether stop production of jute and create a

havoc for mill workers and dependants.

• Supplier power in case of middleman is reasonably from medium to high.

They perform the essential functions like assembling and storing the crop,

transporting it to the secondary market and financing various transactions

related to it.

• In cases of paucity of raw jute for mills they draw a hard bargain in their

favour.

BUYER POWER

• The buyers’ power is collectively significant as to mostly the price of jute

is set depending on the demand

• Of thirty major primary commodities traded internationally, only about six

have as much price and supply instability as jute.

• Jute has lost a major part of its market share to synthetics and therefore

demand is very sensitive to price increases, but not nearly as sensitive to

price decreases.

• Due to relatively high packaging cost of jute as compared to its substitute

products buyers are buying jute more as a lifestyle product and not as a

necessity.

ENTRY BARRIER

• Low profitability due to declining market. Not much research and development has

gone into this sector and therefore advanced technical know-how is missing.

• Government has been taking active steps to revive the industry by introducing

regulatory measures and prescribing reservation of commodities to be packed in

Jute. The Government attempts to provide as much reservation as possible to

utilize the jute crop that is produced in the country, without creating the bottle-

neck in the supply-distribution chain of the commodities. (Jute Packaging Material

Act 1987).

• JCI (Jute Corporation of India) was set up in 1971 as an official agency by the

Government of India with the aim to provide minimum support price to jute

cultivators and also work as a helping hand in raw jute sector.

SUBSTITUTES

• The threat of substitutes is very large because jute is mainly used as a fibre in the

production of the end product and there are a number of manmade ad-natural fibres

that can act as very close substitutes.

• Jute is a flexible packaging material. It faces being substituted by other flexible

packaging materials like plastic; nylon and other manmade fibres and also forms

non-flexible packaging materials – boxes, cartons, and aluminium.

• latest innovations like modified atmosphere packaging cans, which seal in the air

to retain freshness, or smart materials that can “breathe” selective gases and keep

food unspoilt are being introduced which pose a big threat to using jute as agro

product packaging.

• Considering that currently all over the world, there is an over capacity of

cotton production and falling demand, downward trend of cotton prices

will tend to lower demand for jute textiles as it is the closest substitute

having the same natural appeal.

• Plastic – either very low cost or comes free with purchases since it is more

economical for companies to use plastic bags for promotional purposes.

COMPETETION

• Low market share causes firm to fight for market share; with synthetic fibre

eating up the major chunk of the market share competition has intensified

amongst the rivals within the industry.

• Low switching costs increase rivalry. When a customer can easily switch from

one product to the other there is a struggle to capture customers; with

alternatives to fibre products that are available at cheaper rates, switching cost

for customers is significantly low and hence, existing industries have to fight for

the market share.

• The eco-friendly wave engulfing the public and government supporting

use of jute products investment in this field has become significantly

profitable. This has attracted the attention of new players who are willing

to invest in this industry and thus increase the competition for existing

manufacturers.

GOVERNMENT POLICIES

• The Jute Corporation of India Limited: (estd. In 1971)

The Government of India fixes the Minimum Support Price (MSP) for the

JCI from time to time and the Price Support Operation is being set up to

procure raw jute from farmers which is based on MSP fixed by the

Government. JCI is obliged to buy whatever quantity of jute is offered at

support rates by the growers without any quantitative limit.

• National Jute Policy 2005 :

The main objective of the policy is to facilitate the jute sector in India to

attain and sustain a pre-eminent global standing in the manufacture and

export of jute products by enabling the jute industry to build world-class

state-of-the art manufacturing capabilities in conformity with

environmental standards. The policy seeks to strengthen R&D activities in

agricultural practices with public-private partnership with a vision to

ensure remunerative prices to millions of jute farmers by enabling them to

produce better quality jute fibre for value added diversified jute products

and enhance per hectare yield of raw jute.