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         Porter’s 5 Forces Analysis
                                            August 2020
           IBISWorld’s detailed, granular analysis provides all the information required to 
           effectively assess industries using the Porter’s 5 Forces Framework, allowing you 
           to improve strategic planning, mitigate risk and reduce costs.
           Porter’s  5  Forces,  a  framework  for  analysing  the  competitive intensity and attractiveness of an industry 
           competitive  environment  of  a  business,  was  first  in terms of its profitability.
           published  in  1979  in  the  Harvard  Business  Review.          IBISWorld  industry  research,  which  is  closely 
           Developed  by  Harvard  professor  Michael  E.  Porter,  aligned  with  the  Porter’s  5  Forces  model,  provides 
           the  framework  focuses  on  the  microenvironment  analysis and insight into the threats and opportunities 
           of  an  industry,  analysing  five  forces  that  influence    within an industry, helping you to develop more robust 
           a  company’s ability to serve its customers and turn  strategic plans, gain a competitive advantage, mitigate 
           a  profit.  The  framework  aims  to  determine  the  risks and reduce costs.
                                                                 Threat of
                                                              New Entrants
                               Supplier                        Competitive                             Buyer 
                                Power                              Rivalry                            Power
                                                                 Threat of
                                                               Substitution
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           Use IBISWorld Research for Porter’s 5 Forces Analysis
           The Breakdown
           IBISWorld reports were created with the Porter’s 5  Kingdom. With all 460 UK industry reports, and indeed 
           Forces framework in mind. As a result, dissecting a  all  industry  reports  across  IBISWorld’s  global 
           report into the framework may be done with relative  collection, following the same granular format, you 
           ease,  as  demonstrated  below  using  the  Aircraft,  can easily apply the same approach to any industry 
           Engine & Parts Manufacturing industry in the United  you require.
           1. Threat of New Entrants
           Profitable, easy-to-enter markets attract a larger number of competitors, which erodes profitability over the 
           long run. 
           Some questions this section aims to answer include: 
             •  How easy is it for prospective entrants to enter the market?
             •  How easily are new entrants able to become significant competitors within the market?
             •  What are the costs of entry? 
             •  How tightly is the industry regulated? 
           IBISWorld Chapter: Competitive Landscape
           This chapter analyses an industry’s external environment     The  Competitive  Landscape  chapter  is  essential 
           by discussing each major player’s level of dominance,  in  providing  a  complete  view  of  an  industry  within 
           the breakdown of cost structures, barriers that operators  the  Porter’s  5  Forces  framework.  As  a  result,  this 
           face upon entering the industry and what differentiates  chapter  and  the  subsections  within  it  are  referenced 
           one operator from another.                                 throughout the different components of the framework.
           Competitive Landscape subsections to consider
           Barriers to Entry - High & Increasing 
           ‘The industry is characterised by high barriers to entry due to the significant 
           amount of capital required to start operations, the need to secure skilled 
           labour and strict compliance requirements set out by governments.
           Depending on the size of operations, start-up capital can vary but is generally 
           high for large-scale production sites. Securing finance for a new business 
           with high start-up costs may be difficult and a new operator may be required 
           to invest significantly in research and development.
           Stringent regulations governing the licensing of manufacturers are an absolute 
           barrier to entering this industry. Licences to supply products to governments 
           are rarely issued to foreign firms and domestic companies must demonstrate 
           a high level of corporate governance. Furthermore, additional investment is 
           required to obtain security clearance for workers on certain programmes.’
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           Use IBISWorld Research for Porter’s 5 Forces Analysis
           Cost Structure Benchmarks
           ‘Purchases account for 59.6% of industry revenue, the largest share of the                      Our interactive Cost
           industry’s cost structure. Operators are exposed to fluctuations in commodity                    Structure Benchmarks
           prices, as the raw materials involved in production are internationally traded.              chart allows you to 
           Firms must also have processes in place to mitigate the effects of fluctuating    compare the industry against 
           exchange rates.                                                                   the sector average. You can 
                                                                                             also see how the industry’s 
           Wages are estimated to account for 14.1% of industry revenue in 2020-21.          costs have changed over the 
           Aircraft manufacturing requires a high level of skill in various departments      past decade and isolate each 
           including engineering, design, production and management. These duties            cost segment to allow for
           are difficult to automate, which is why wages are fairly high.’                   easy comparison.
           IBISWorld Chapter: Operating Conditions
           Providing deeper insight into the external environment  overview of the regulatory environment and information 
           of an industry, the Operating Conditions chapter provides  on industry assistance. This provides insight into the 
           analysis  on  capital  ratios,  required  technology,  an  strategies companies must adopt to achieve success.
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       Use IBISWorld Research for Porter’s 5 Forces Analysis
       Operating Conditions subsections to consider
       Regulation & Policy – Medium & Increasing
       ‘The industry is currently subject to a range of international and domestic regulation. Regulations and quality 
       standards are enforced globally by the International Aerospace Quality Group (IAQG) and the International Civil 
       Aviation Organization (ICAO). Commercial aircraft manufacturers are required to comply with certification targets 
       set out by the European Aviation Safety Agency and the Civil Aviation Authority (CAA). These regulations cover 
       aircraft noise and engine emissions and have tightened in recent years, which has driven the development of 
       quieter and cleaner aircraft.
       In the military segment, operators must adhere to the standards set by industry bodies like the Military Aviation 
       Authority (MAA) and European organisations that promote policies like Continuing Airworthiness Management 
       Organisation (CAMO) scheme, which determines rules for military aircraft types. Exports of military aircraft 
       components and engines to any destination, including the European Union, require an export licence issued by the 
       Department for International Trade (DIT).’
       Industry Assistance – Medium & Increasing
       ‘The industry benefits from a moderate level of assistance. Government funding is provided to commercial aircraft 
       and military aircraft manufacturers. Financial aid can come in the form of research and innovation funding, 
       particularly with regard to environmentally friendly developments. This includes the £4 million in government 
       funding awarded to Rolls Royce to develop a composite electrical harness for aero-engines in 2016. In the same 
       year, £365 million in government funding was provided for new aerospace technologies to benefit aircraft 
       manufacturing and performance. 
       Demand and investment in UK aircraft by the United States and European Union members has driven industry 
       growth in recent years. Partnerships like the F-35B Lightning II programme, where the United States is the main 
       contractor and BAE System’s involvement is only making up a proportion of the total project, have illustrated the 
       opportunities industry operators can benefit from when maintaining links with international partners. This trend 
       could be threatened depending on Britain’s future trading relationship with the European Union. However, UK 
       defence spending is expected to increase in the coming years, sustaining demand from the UK military.’
       Technology & Systems – High
       ‘The industry has a high level of technological change. The stringent safety and environmental requirements 
       placed on aircraft engines and parts has necessitated substantial investment in research and technology. 
       Manufacturers have also invested in automation of the production process, such as guided vehicles, robotics, 
       computer simulations and other systems, in order to reduce costs while improving quality and productivity. Some 
       operators have begun to incorporate blockchain technology, which improves data sharing and enhances product 
       design and manufacturing.
       The use of composite materials that help to reduce the weight and improve the environmental efficiency of 
       aircraft components has been a significant development in recent years. Innovation is expected to continue 
       in this area, with smart composites that can embed heating technologies to protect aircraft wings against ice 
       build-up being developed. Similar advancements have been made in terms of fuel efficiency. The development 
       of the Rolls-Royce Trent XWB engine for the A350 family in 2017 was 15% more fuel efficient than the engines 
       it replaced. As a result of its fuel consumption advantage and cost savings, the company was able to generate 
       over 1,600 orders worldwide in 2017.
       Industry operators have begun investing in the development of electric aircraft that could be delivered within the 
       next decade. Rolls Royce plc has partnered with Siemens with the aim of developing hybrid electric aircraft.’
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