Negotiations with suppliers of Siemens’ products require a keen exploration of the options suppliers have in gaining power and reducing the risks the current negotiations. According to Spangler (2012), negotiators may spend much time in gaining more power at the bargaining table. In most cases, bargainers would spend more time in strengthening their best alternative to a negotiated agreement (BATNA) or a fallback alternative where it fails to acquire the negotiated agreement. Siemens has invested in outside alternatives as an essential way of enhancing its power and could best use Extreme demands followed up by small, slow concessions. The company has invested in outside alternatives that enhance its leverage in any negotiation with suppliers. This study focuses on the influences that could make Siemens feel entitled at the negotiation table with its suppliers.
Background to Siemens
Siemens forms part of the largest engineering conglomerate in Berlin, Munich, and Germany (Borsch, 2007). The company is a diversified group with that engages in information and communications, automation and control, transportation and medical as well as lighting investments. The company has developed a strong leadership foundation in the electronics and engineering business with its recent restructuring, especially in divestments, acquisitions and reorganization of the division. The company’s major business sectors of energy, industry, and healthcare account for over 15 of its total divisions.
Strategic Profile of Siemens
Siemens may choose to use extreme demands followed up by small, slow concessions as its negotiation strategy or a strong best alternative to a negotiated agreement (BATNA) of take-it-or-leave-it offer given its feeling of entitlement (Borsch, 2007). The company has high aspirations of its current relationship that could fuel its strong hand at the negotiation table. The company’s BATNA is built on sustainability, promotion of diversity, and innovations. Siemens views sustainability as essential to its success. Sustainability is a key pillar of the company’s corporate strategy that allows the company to set mega trends in globalization. With its broad spectrum of products, the company’s sustainability is closely linked to its values. Next, Siemens views the promotion of diversity as essential to its management systems (Luger, 2003). The company’s diversity strategy has been embedded in its corporate level strategy. The culture of Siemens views diversity as a prerequisite for long-term success, particularly as the industrialized work grows tight. Last, the company focuses on breakthrough innovations as part of its business strategy. The innovations have helped the company in cutting costs, increasing sales and achieving higher earnings. The company pioneers innovations and remains ahead of its competitors despite being a centralized company (Borsch, 2007). An analysis of the operating environment may help determine the alternative which Siemens may accept of its suppliers.
Strategic Analysis of Germany
Siemens is a game change in the electrical equipment industry, and its influence can only be understood using a strategic analysis of its strengths. Porter’s five forces is a valuable tool in identifying the bargaining power of the company in the environment of Germany.
Porter’s five forces
The Degree of rivalry
Siemens competes in a highly competitive environment with fierce rivals in the electrical equipment such as General Electric (GE). The degree of competition is high as many big players dominate the market.
Bargaining power of customers
The bargaining power of customers remains limited in Germany. Siemens realizes that it requires highly specialized products as buyers are governments and large enterprises.
Bargaining power of suppliers
The suppliers of raw materials or parts in Germany have little bargaining power
Threat of new entrants
Siemens views its market as highly technology oriented (Luger, 2003). The entrant barrier is high across all stages of the industry as Siemens dominates the industry for decades
Threats of substitutes
The popularity of new energy technologies has allowed new small companies to enter the market with low-cost technology and energy. Therefore, it is easier to find substitutions of its products on a smaller scale.
Although the competition in the industry is fierce, the entrant barriers to new players are high with the customer and the supplier having limited bargaining power. The pressure from small companies which promote green energy will keep increasing from their advantages of prices and costs.
The evidence shows that the company has invested in a considerable scale and market share through diversity (Borsch, 2007). Given the strong brand image of the company with its global market penetration, a take-it-or-leave-it offer is the best alternative. The company can only work with connected brands with products of high quality in several markets. The steady financial performance enables the company to manage its operations well, meaning that it will require suppliers with financial flexibility over the coming years. The company’s strong research and development capabilities are another strong suit that demands a supplier with significant investments in R&D to meet its demands at the negotiation table. The company’s focus on R&D over the recent years demands a supplier who has invested in developing new products and has a strong market position capable of serving a wider segment of customers. These highlights describe the best alternative, which Siemens demands of its suppliers to engage them in business.
Overall, the trends show that Siemens competes with big players such as General Electric (GE) with a strong market position in the industry. While the degree of rivalry is high, the products of the company could most likely be pushed down by free market forces. Similarly, the bargaining power of suppliers is low as electric systems have little value unless they are complete. The suppliers can also be easily replaced. Next, the threat of new entrants into the market is real with the company investing heavily in R&D. The only downside is the threats of substitutes that piles pressure to Siemens as a supplier. The strengths of the company give it a higher bargaining power in negotiations, especially where the barrier of new entrants is high and customers, as well as suppliers, have limited bargaining power. In sum, Porter’s five forces clearly depict the upper hand that Siemens has in negotiating with German suppliers.
- Borsch, A. (2007). Global Pressure, National System: How German Corporate Governance is Changing. Ithaca, New York: Cornell University Press.
- Luger, E. (2003). Siemens AG Austria Section DEMATIC. Germany: GRIN Verlag.
- Spangler, B. (2012). Best Alternative to a Negotiated Agreement (BATNA). Colorado: Beyond Intractability Conflict Information Consortium.
