Porter’s Five Forces Analysis of Linde
Key Facts
| Name | Linde PLC |
| Industry | Chemicals |
| Founded | June 21, 1879 |
| Headquarters | Woking, Surrey, UK |
| CEOs | Sanjiv Lamba |
| Revenues | USD 30.79 billion (CY21) |
| Profit | USD 3.83 billion (CY21) |
| Competitors | Air Liquide SA, Air Products and Chemicals, Dow Inc. |
Company Overview
Linde has been into existence since more than 140 years and have survived more than a century thanks to company’s techno-focused ideology. The prime business of the company is chemicals, but the company ventures into various other sectors as well. Linde ranks as the largest industrial gas company in the world.
Linde ranks as 191th on Mexico’s Best Employers (2022) and 494th on World’s Best Employers (2022). Linde specializes in the production and distribution of industrial gases and has operations across the globe.
From a financial standpoint, Linde reported CY21 earnings of USD 30.79 billion, up 13% YoY on the back of improving volumes as the world resumes after Covid-19 pandemic. Also, the Profit from continuing operations improved by a whopping 53% YoY to USD 3.82 billion as the company as the company managed to continue increasing prices and achieve efficiency measures. For CY22, the sales increased by 8% YoY to USD 33.36 billion while income increased by 11% YoY to USD 6.19 billion. The company managed to achieve double digit growth in all segments (except healthcare).
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is used to determine the company’s competitive position reference to it’s Industry for better strategizing the companies’ operations for higher profits and less competition, defined by Professor Micheal E. Porter in 1979,at Harvard Business School.
Linde Rivalry among Existing Competitors
- Aggressive Competition
Theindustrial gas industry is highly concentrated with three leading players dominating the chunk of global market share. Linde along with Air Products and Chemicals and Air Liquide controls major business and pricing power.
- Air Liquide
Air Liquide is French giant of Industrial gases that ranges from medical to electronic to even manufacturing concerns and is the second largest supplier in world after Linde with operations in more than 80 countries. The company posted revenues of € 23.34 billion and profit of € 2.57 billionin CY21 highest in past couple of years. The company recently patched with TotalEnergies to create a chain of 100 hydrogen stations for heavy duty vehicles across Europe.
- Air Products and Chemicals
Air Products is an American Gas giant and third largest gas producer in the world. The company serves Technology, Healthcare, Energy, Food and Industrial markets among others. Air Products has a long relationship with NASA and has provided liquid hydrogen for every space shuttle in Mercury and Apollo Missions. The company reported Sales of USD 12.69 billion and profit of USD 2.27 billion in CY22. The company intends to build a green hydrogen project costing USD 4 billion in Texas with COD in 2027.
- Key differentiating factors
Linde and other gas manufacturers are providing similar kinds of gases and the main clients are mostly industrialists who use these as a raw material to provide finished goods. Hence, there is no major product differentiation. However, how Linde (and the other to gas makers) came on top is because of their logistics efficiencies. These companies have a global network of production with spread out facilities that help them achieve large scale productions in all major countries.
Linde Threat of New Entrants
- Extraordinary Working Capital Requirements
There is immense capital required for setting up facilities that can actually manufacture, store, and transport industrial gases. Moreover, extremely highly skilled workers are required to run these facilities. In many countries, either such kind of skill is not present or it is expensive which reduces the threat of new entry.
- Research and Development Costs
There is excessive research and development expenditure required in setting up facilities, collecting raw materials, getting the right hearting and cooling requirements and even adding up new products to the ever expanding gas lineup as per the needs of the business. Linde has set up Research facilities in China and US. Linde spent USD 143 million on Research in CY21.
- Excessively Regulated
The gas business is highly regulated with many certifications required from different agencies. These companies have to comply with international environmental and trade laws along with the local regulations that allow them to operate. Regular audits are conducted to renew licenses and ensure standards are being met.
Linde Bargaining Power of Suppliers
- Large number of suppliers for Lesser number of Gas producers
The bargaining power is essentially moderate with a large number of suppliers who supports essential machinery and raw materials for procurements, storage and creation of industrial gases.These suppliers not only provide expensive state of the art technology but also provides regular updates, maintenance and after sales services like training. Hence, suppliers have some say in overall pricing power. Linde’s brand value has increased too since the past years and is also illustrated below:
- Risk of Supply Chain disruptions
The supply chain disruptions were caused by the aftermath of the Russia-Ukraine war when commodity prices (especially energy) soared which affected all industries across the globe. Countries faced immense inflationary pressures and resorted to monetary tightening (including major powers like US and UK). The impact of this high cost of leverage is accurately reflected in the high cost of parts manufactured for airline and defense business which majorly affected supplier margins.
- External Events to influence supply
Significant external events like the advent of Covid-19 pandemic, floods, and natural disasters pose a direct threat to the overall supply chain of gas producers as the network is spread vast across the globe. These could result in unavailability of right materials for production and supply runs.
Linde Bargaining Power of Buyers
- Ability to pass on Cost-push inflation
The last year has been extremely painful for buyers and sellers alike as the supply chain disruption caused by the Russia Ukraine crisis led to shortage of various raw materials and with the soaring energy prices to their yearly highs created further problems for the Gas production industry. Gas manufacturers around the world have increased their product prices to cope up with elevated inflationary pressures and high Finance costs as the world’s central bankers resorted to monetary tightening.
- Diversified client base
Linde has a diversified client base of more than 60 countries in all the continents as the company holds a vast global presence and caters to essential hydrocarbon gas needs of a diverse range of industrial consumers in a variety of sectors. Linde is the largest global gas company globally.
Linde Threat of Substitute Products or Services
- Lesser Alternatives available
Industrial gases are highly sensitive raw materials which takes intense research and high tech facilities to be produced. Due to this very nature of the product, they are not easily replicable and companies like Linde provides the best quality along with necessary regulatory compliances which makes finding and switching to alternatives nearly impossible.
- Industry Concentration
Only the top three gas producers hold a major chunk of business globally which suggests how much concentrated the industry is. This makes very difficult for inhouse production by industrialists due to excessive regulations and heavy investments required. There are a few alternatives, however, they are so expensive that the users can not sustainably operate at profitable margins hence decreasing the threat of substitute products.
References
- Annual Financial Statements, Press Release and Company Presentations (CY21-22), Company website [online], Available at: Financial Statements
- Forbes, (2022), Linde [online], Available at: Forbes
- Fortune, (2022), Linde [online], Available at: Fortune
- The Wall Street Journal, Topic: Linde[online], Available at: Wall Street Journal
- GuruFocus, (2023), Linde: A Leading Hydrogen Growth Stock [Online], Available at: Forbes
- Trefis Team, (2022), This Chemical Company Is A Better Pick Over Philip Morris Stock [Online], Available at: Forbes
- Statista, (2021), Sales of Linde plc from 2014 to 2021 [Online], Available at: Statista
- David Trainer, (2020), The Good And Bad: Molina Healthcare And Linde PLC [Online], Available at: Forbes
- Statista, (2022), Linde PLC [Online], Available at: Statista
- David Trainer, (2020), Linde’s Acquisition Of Praxair Has Not Created Shareholder Value [Online], Available at: Forbes
- Statista Research Department, (2023), Brand value of Linde plc worldwide from 2015 to 2022 [Online], Available at: Statista