1.The current situation of the dairy industryDairy industry in China has experienced a rollercoaster development process.2001-2007 is a golden period for dairy’s explosive growth.The dairy industry revenue grew at the rate of over20% per year.Yili,Mengniu and other resource-based enterprises seized the opportunity for the development of milk ,and became the industry leaders. The Melamine incident in2008plunged the development of China's dairy industry.After that ,because of the weak irreplaceable and rigid demand of dairy,the whole industry experienced a positive recovery .In 2011 the overall industry generated a revenue of 231.556 billion yuan, grew by 23% over the same period,which meant that the Industry revenue growth rate turned back to more than 20%.Graph 1:the total revenue and growth rate of China's dairy industry between 2004 and 2011(billion yuan)Source:windAffected by the weak economy,t he dairy industry’s growth rate fell in2012.Despite the fact that t he dairy industry is a strongly growing industry,some breakdown categories are not essential consumer goods,which can be greatly influenced by the economy and per capita income.Besides,the product structure of the whole industry is also affected by income. All these factors made the industry revenue growth rate in 2012 fell significantly, which is expected to be about13%.But there are still growth driving factors in the long term, such as potential consumption release of rural population, the increase of core population(children and the elderly) for dairy consumption ,the high-end trend of urban consumption and the needs for new category, new tastes. Based on the above mentioned, it is expected that from 2013, the urbanization policy will drive national income tilt to the2,3-tier cities, and changes in the income distribution structure drive the revenue growth of the dairy industry recovery. Also, the changes in the income distribution structure will lead to the recovery of the dairy industry’s growth. Next year after March, the urbanization policy will become one of the most important policy in order to ensure the stable economic growth in China. With the income structure tilts, high-income people will not reduce the consumption of dairy, and low-income population of urban and rural areas in 2,3-tier cities will increase the consumption of dairy commodities because of the increase of income and the popularity ofchannels. Therefore, the i ndustry revenue growth is expected to recover next year.2.Potter five forces model analysisPotter five-force model analyzes of the industry structure and profitability from the macro level:existing level of competition,substitutes,the bargaining power of the supplier,potential entrants,the bargaining power of the purchaser.The analysis of Mengniu based on the Potter five-force model are as follows:(1)Existing level of competition.From the over view of the competitive landscape of the industry,the entire dairy industry showed the co-existence of national brands and regional brands.Yili and Mengniu come as the representatives of national brands and Sanyuan for the regional brands. Yili and Mengniu have their own source of milk in the north, which have more advantages over southern regional brands in the cost of raw materials .Meanwhile, the freight of shipping to the south also weakened Yili and Mengniu’s competitive advantage in the south.Besides, the recovery of the local dairy companies hinders Yili and Mengniu from developing breeding bases. Therefore, the industry competition is still intense, it’s unlikely to break the existing competition pattern in a short period of time.(2)Substitutes.Dairy products does not have corresponding alternatives, demand is relatively rigid.(3)The bargaining power of the supplier. Since Mengniu has signed a long-term agreement with third-parties to ensure the supply of milk,raw milk prices have been relatively stable.Besides, Mengniu plans to enhance the raw milk supply through direct investment in upstream and the industry chain’s further extent. In the upcoming five years, Mengniu will expand its own cows by 100000-150000 heads,and the total capital expenditure would be 30-35 billion RMB.Therefore, the bargaining power of the supplier is not strong.(4)Potential entrants. At the beginning of 2011, the government requires all dairy and infant formula milk powder enterprises re-exam the production license according to the newly published standards.Since the requirements of the new standard on capital scale are relatively high, it is hard for potential entrants to enter the market.(5)The bargaining power of the purchaser. As the dairy product does not have corresponding alternatives, and China's aging degree is deepening in the next few years, the elderly population will continue to increase consumption for dairy products, and the demand for dairy products is relatively rigid, the purchaser don’t have enough bargaining power.。