The threat of new
entrants was a dominating issue for Ice-Fili due to weak barriers of entry.
Weak barriers to
entry made it difficult for Ice-Fili to remain one of the top ice cream
producer in Russia. In 1991, Russia decided to institute an open market economy.
This policy allowed industries to access any market freely. Industries such as Ben &
Jerry’s and Baskin & Robbins took advantage of this open market policy in
order to increase capitalization. In turn, this created higher
competition with local industries such as Ice-Fili who experienced a heavy drop
in ice cream sales and production. Overall, the threat of new entrants would be
considered low due to its weak barriers to entry.
The threat of
product substitutes becomes high when outside industries create products at a
lower cost with similar benefits. This threat increases the amount of
competition from industry to industry. Product substitutes that have been
competing with the ice cream industry include items such as sodas, yogurts, chocolates and other confectionary
candies. These substitutes may serve the same purpose to the consumer
which is the indulgence and intake of a sugary substance. In 2000, the production of ice
cream declined 3.5% from the year before compared to the 23-25% increase in competing
products. Overall the threat of product substitutes is considered to be moderately
high in regard to the ice cream industry. The ability to purchase items at a
lower price that essentially provide the same amount of benefits is the reason
for higher competition.
The power of suppliers
in the ice cream industry can be considered high or low depending on perspective.
The supplier power is low when referring to ingredients that compose the ice
cream itself. These ingredients (milk, butter, sugar) can be purchased for a
lower price through different suppliers at any time. However, equipment used to
create these products is considered to have high supplier power. At the time
Russia lacked firms that manufactured up to date and high-quality equipment. About 90% of the equipment used
by ice cream manufactures were imported from other countries such as The United
States and Germany. Since there are many buyers but only few suppliers,
ice cream manufactures relied on purchasing these pieces of equipment from
specific suppliers. Overall, this issue may be considered moderately high
because firms don’t have a big selection of firms to choose from and bargain rates