Porter’s Five Forces Analysis of Berkshire Hathaway
Key Facts
| Name | Berkshire Hathaway |
| Industry | Diversified Financials |
| Founded | 1839 |
| Headquarters | Omaha, Nebraska |
| CEOs | Warren Edward Buffett |
| Revenues | $276.1 billion,2022 |
| Profit | $89.8 billion, 2022 |
| Competitors | Allstate, UnitedHealth Group, The Carlyle Group, BlackRock, Allegheny Technologies |
Company Overview
Berkshire Hathaway, Inc. is a standard insurance and reassurance company that offers utilities and energy, freight rail transportation, financing, manufacturing, retailing, and services.Oliver Chace created the corporation in 1839, and it is headquartered in Omaha, Nebraska. The corporation was also renowned for its high stock price, which was over $350,000 for one Class A share in 2020. Berkshire Hathaway’s revenue for the fiscal year ended 2022 was US$276.1 billion.Berkshire Hathaway’s total assets for 2021 were $958.784 billion.
Berkshire Hathaway also has major stakes in firms that it does not own. For example, it has owned between 6 and 10% of the Coca-Cola Company since 1989, and by 2021 bought more than 5% of Apple Inc. shares.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is a widely used model to evaluate companies’ strategies in reference to its industry for neutralizing the competition and increase the margins, it is developed by Professor Micheal E. Porter in 1979, at Harvard Business School.
Berkshire Hathaway Rivalry among Existing Competitor
- Berkshire Hathaway Business Segments: The Berkshire Hathaway Energy segments deals with regulated electric and gas utility, including power generation and distribution activities, and real estate brokerage activities. The McLane Company segment offers wholesale distribution of groceries and non-food items. The Manufacturing segment includes industrial and end-user products, building products, and apparel. The Service and Retailing segment provides fractional aircraft ownership programs, aviation pilot training, electronic components distribution, and various retailing businesses, including automobile dealerships, and trailer and furniture leasing.
- Berkshire Hathaway Global Operations Year 2021-2022: Berkshire Hathaway, the conglomerate led by Warren Buffett, saw its shares soar by huge margins in 2021, returning 23.2% and recovering from the COVID-related slump. Berkshire’s property and casualty reinsurance business expanded last year, with premiums jumping by more than 6.4% to $14.15 billion. The conglomerate made waves for acquiring 14.7 million shares through $1 billion investment in gaming, i.e. Activision Blizzard in 2021.
- UnitedHealth Group: UnitedHealth Group, Inc. provides health care coverage, software, and data consulting services.In 2022, it made $297.6 billion in revenue.It has $221.2 billion in assets.In 2022, it earned $17.5 billion in profits.
- Allstate: Through its subsidiaries, Allstate Corp. provides property and casualty insurance as well as life, accident, and health insurance.It earned $50.6 billion in revenue in 2022.Its assets total $90.7 billion.It made $5.7 billion in profit in 2022.
- BlackRock: BlackRock, Inc. offers investment management, risk management, and advisory services to institutional and individual clients across the world.It earned $20.3 billion revenue in 2022. BlackRock assets total $152.6 billion.It made $6.1 billion profit earnings in 2022.
- Investment in Research & Development-Marketing Cost and Brand Image: Berkshire Hathaway has a market valuation of $686.12 billion as of January 2023. It is known as the leading insurance company.Berkshire’s stock-picking approach begins with assessing a firm using its value investing mindset. It seeks for businesses that give a strong return on equity over a long period of time, especially compared to competitors in the same sector.
Berkshire Hathaway Threat of New Entrants
- Global Conglomerate Industry: In 2021, there are expected to be roughly 333.34 million enterprises globally. Saudi Aramco, the Saudi Arabian oil business, had the greatest net revenue of any firm in the world in 2022, with earnings of more than $300 billion US dollars.Apple, Microsoft, Alphabet, and Equinor rounded up the top five most lucrative firms in the world.
- High Capital Investment- Trained Human Resources: It invests in variety of stocks that have massive scale businesses operating worldwide and require people working with high level of professional expertise and experience. Buffet invests in businesses and delegates the responsibilities to these professionals which enable the company to gain profits each year.
- High Research & Development Cost: Berkshire Hathaway examines a firm’s profit margins to ensure they are healthy and growing while looking for a particular company to invest. Berkshire Hathaway focuses on businesses that have a unique product or service that offers them a competitive advantage. It also focuses on undervalued companies that it can buy at a favorable bargain.
- Technological Advancement: Berkshire Hathaway purchased more than $4.1 billion of stock in Taiwan Semiconductor (TSM). Taiwan Semi is the world’s largest contract chipmaker and Apple’s primary chip supplier. Berkshire Hathaway also purchased stock in Louisiana-Pacific (LPX), a maker of construction materials and engineered wood components.
Berkshire Hathaway Bargaining Power of Suppliers
- Supplies Industry Influencer: Property and casualty insurance, candy production and retail, newspaper publishing, retail of home furnishings, sale of encyclopedias, sales of home cleaning units, manufacture and distribution of uniforms, retail jewelry, and manufacture, import, and distribution of footwear are among the company’s business activities. It has diverse business and supply chain process.
- Suppliers Collaboration: Berkshire Hathaway adheres to corporate ethics and supplier code of conduct throughout its varied portfolio of enterprises.In 2020, they experienced supply chain interruptions and losses. However, COVID-19 restrictions dropped in 2021, they gained momentum for a seamless supply chain process by collaborating with their global suppliers.
Berkshire Hathaway Bargaining Power of Buyers
- High Product Differentiation: Berkshire Hathaway’s five largest investments in stocks as of December 28, 2022 were Apple, Bank of America, Chevron Corporation, Coca-Cola company, and American Express Company.These five holdings made for 74.85% of the stock portfolio of the conglomerate.
- Customer Satisfaction – After Sales Services: Berkshire Hathaway Energy got the highest score among electric utility holding corporations in the United States, according to TQS Research, Inc., with 95.6% of consumers stating they were extremely satisfied with services.
- Government Rules & Regulations: Berkshire Hathaway’s employees and businesses are located globally. It has consistently followed the USA and international laws that resulted in gainingconsiderable profits.
Berkshire Hathaway Threat of Substitute Products or Services
- Global Investments in Stocks: The New York Stock Exchange is the world’s largest stock exchange, with an equity market value of more than 22.1 trillion US dollars as of October 2022. In 2022, US stock markets accounted for roughly 60% of global stock markets.Japan was the second largest stock market country, followed by the United Kingdom.The New York Stock Exchange (NYSE) and the NASDAQ are the world’s two major stock exchange operators.The overall market capitalization of domestic firms registered on stock exchanges globally was 105.07 trillion US dollars as of June 2022.
- Brand Loyalty: Berkshire Hathaway’s investment portfolio shows that there are substitutes available for these products and services. However, based on the competitive edge and brand loyalty it prefers to invest in running businesses with high potential for growth.
- Post-COVID 19 Market: In 2021, there were anticipated to be 351,520 major enterprises employing 250 or more people worldwide, up from 337,523 in 2020. Berkshire Hathaway prefers to gain profits growth from shareholder equity (SE). Low debt and substantial shareholder ownership, are two critical components for successful stock selecting. In the changing economic and technological scenario and after COVID-19 outbreak Berkshire Hathaway has always been quick in following the growing businesses and have invested in variety of stocks. It invested heavily in food, furniture, cellphones and gadgets.
References
- Forbes, Profile, Berkshire Hathaway
- Forbes, Profile, Allstate
- Forbes, Profile, UnitedHealth Group
- Forbes, Profile, BlackRock
- Britannica, Encyclopedia Berkshire Hathaway. Available at Berkshire Hathaway
- Fortune 500, Berkshire Hathaway. Available at Berkshire Hathaway
- CNBC Berkshire Hathaway Portfolio Tracker. Available at Berkshire Hathaway
- Statista (August,2022) Estimated number of companies worldwide from 2000 to 2021(in millions)| Statista. Statista.Availableat.Statista
- Statista (January 2023) Leading companies in the world in 2022, by net income(in billion U.S. dollars)| Statista. Statista.Availableat.Statista.
- Statista (August 2022) Estimated number of large companies (250+ employees) worldwide from 2000 to 2021(in 1,000s) | Statista. Statista.Availableat Statista
- Statista (November 2022) |Largest stock exchange operators worldwide as of October 2022, by market capitalization of listed companies (in trillion U.S. dollars)| Statista. Statista.Availableat. Statista.