I would like to use the Porter five forces to analysis the textbook industry.

Threat of new entrants (weak)

The threat of new firms is low, because the economies of scale and customer loyalty to

established brands create the barriers to entry the industry. Also it needs high capital

requirements the buildup the firm. As the most important in this industry is an economy of scale.

The profit of sell a book it low, firm gains profit by sell high volume with low profit margin. It

means that firms need to lower the per unit cost. The new firm is hard to gain economies of

scale. Therefore they would have the power to against the big firms.

Also, sell the textbook need good relationship with teacher, school, professors and bookshop.

Time is needed to build the relationship and trust for the quality of the book.

In the financial part, this industry needs lots of investment. The writing cost, product cost and

marking cost are big expenses which need a long time to get return. Firms need cash to continue

the operation.

Those are the barrier that makes new firms difficult to enter the market.

Bargaining Power of Suppliers (weak)

There are two major supplies of textbook industry, the author and the printing presses. They have

weak bargaining power. On the first hand, there are many printing presses in the world. There

were around 3000 painting presses in china. The globalization makes some process move to

other country. Mostly the production process would outsource to developing countries such as

China and India. We can see that there are many supplies; their bargaining power will be lower.

On the other hand, the sales are directly affected by the writer. The author's contribution is very

important. Publisher will earn profit by sold a large number of textbook; the author who can

make the sale increase is valuable to publisher. But in the case states that the writing cost is only

about 15 percentage of total cost. It shows that low bargaining power of textbook author.

Bargaining Power of Buyers (Moderate)

There are three types of buyer students, bookstores and professors. Students are the major user of

textbook, but their bargaining power is very low. They cannot choose what textbook they going

to use, they need to follow the teacher or school's decision. Most of the school will give their

student a list of textbook including the suggested selling price or even help them to order the

book. While students have no choice on choosing textbook, the professor's choice is the most

important of purchasing process. There are few factors for professors to design which textbook

will be used which are the price, but they also require more, such as topic coverage, writing

style, and the extra study materials. Those will increase the cost of textbook.

Bookstore purchase textbook and sold to students. As publishers wouldn't directly sell to student

and bookstores always make high margins on selling textbook. Bookstore had a high bargaining

power to both publishers and students. Although student had less choice on textbook, they can

buy used textbook. Publishers need to give bookstore an incentive on selling new book.

Therefore publishers will sell the textbook in a lower price to bookstores. In overall the

bargaining power of buyers is moderate.

Threat of Substitutes (strong)

The threat of substitutes is strong. In the textbook market there are many substitute products for

example used book, rental book and e-book. The threat of used textbook is the most significant.

Student prefers to buy a used textbook rather than a new book because the price is relatively low.

There is another benefit of using second hand book; the book may have more information about

the topic and the answers. For student it may increase the value of the book. Other substitute is

also cheaper than new book. In recent year, more and more people are going to use e-book. It just

needs a device to run the e-book program. It is convenient for student to bring a device more

than a new paper book. Although the price of substitute product is low, the content is almost

same. The product differentiation is low.

Threat of Rivalry (weak)

The threat of rivalry is weak. There are no price competitions between publishers because the

cost of producing textbook is high and it limited the textbook price in a range. Also, publishers

don’t need to do advertisement. Their competition most focuses on the quality of textbook, extra

exercise and support materials. Professors and schools design which textbook to use is based on

these factors. There is functional-based competition between the publishers to attract professors

and schools.

The weakest force is threat of new entrants. In the recent year, the market have not new strong

competitor enter the market. The requirement to enter the market is too high. Therefore the new

entrants cannot threat the industry.

The strongest force is the threat of substitutes, from the point of student the textbook is just

needed to use around one year, the time to use is short. They would prefer to use second hand

textbook, because the price is lower and the product is almost same. It will directly affect the

sales of new textbook.

Reference

Michael Porter, Nicholas Argyres, Anita M. McGahan, "An Interview with Michael Porter", The

Academy of Management Executive

Al-Rodhan, R.F. Nayef and Gérard Stoudmann. (2006). Definitions of Globalization: A

Comprehensive Overview and a Proposed Definition

Kevin P. Coyne and Somu Subramaniam, "Bringing discipline to strategy", The McKinsey

Quarterly, 1996

Arthur A. Thompson, Jr., John E.Gamble and A.J. Strickland III, 2014. Crafting and executing

strategy: Concepts and Cases, 19th ed., Global Edition, McGraw Hill.