Individual Assignment #1

Porter forces chapter 4

MAN 4720 Strategic Management

In chapter 4 Porter identifies 6 forces that determine the level of competitive intensity in industry which are: threat of new entrants, rivalry among existing firms, threat of substitute products or services, bargaining power of buyers, and bargaining power of suppliers. The sixth force stated in the textbook said that the relative power of other stakeholders is to reflect the power that governments, local communities, and other groups from the task environment wield over industry activities.
The first force that is introduced is threat of new entrants which explain the new competitor threat pose to existing competition in an industry. For this to happen a barrier to entry is involve which give factor or condition in the competitive environment of an industry to make it hard or make an obstruction for new business to start operating in a specific market. When an industry has a low threat the industry become more profitability bringing the business high in profit, which involves the economies of scale which in the book states Scale economies in the production and sale of microprocessors, for example, gave Intel a significant cost advantage over any new rival. Because the threat is low most industry won’t bother fighting them in the business world like a mom and pops stores or starting a new industry. But because it low and archives profitably it is weak in term of level of competitive intensity. For this to happen the industry must be a high threat which bring the fight to the competitive intensity and make it harder for the industry in market to make business because of barriers that are involve make it harder for them. For example, Apple has a strong brand image, innovation and customer service so this make other industry difficult for new entrant to compete against.so for apple the barrier is product differentiation which help and benefit apple. Also, since the Image is well known apple will have access to distribution channels at ease unlike for example boost mobile where it small and barely unheard in the market world.
Now the second force is rivalry among existing firms which mean that whatever change a company does the change won’t go unnoticed to the competitors and will pressure other rivalry to change their way of thinking to be able to compete with that competitor and others. The book give an example of Samsung and amazon where they have made big names and make a lot profitability and make competition hard for other business but in term of phone product and table Apple find new way and idea to compete with Samsung which in term put pressure on it competition. The barrier of number competitor give me an example of a friend of my which own a pawn shop. He lives in a small area and there are two other pawn shop any change or different pricing that he does in his store the other two pawn shop will notice and will try to figure how to compete the change. This affect the level of competitive intensity which one store pressure the others. In term of profitability it will be short depending the product or service the business is providing. If Apple came out with a new phone that won’t hit any other store for a month that one month alone will profit Apple and decrease sale in other market value companies.
Third force that porter talk about that affect the competitive industry is threat of substitute products or service which the book states a product or service that appears to be different but can satisfy the same need as another product or service. Porter quotes “Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge.” Which if a product or service at the barrier of switching cost can have a strong effect on an industry which in term bring profitability to the company and the same time make the level of competitive hard or easy. If Starbucks were to raise their prices in coffee and a store next door sold coffee but a lower price or let say sold tea. The customer will slowly turn to tea and that store profit will go up and Starbucks will go down because it is losing customer while the other store is gaining profit for low tea .because it a substitute for coffee and bring the same pleasure to the customer as if it was coffee. Same goes for consoles games. If a game is too high price for a someone to enjoy that person will look for the second or third best game there is and affordable and play that until the game they wanted is lower in price.in the competitive industry this substitute threat is a major key factor for if your product can replace other industry it can be profitability to the industry.

Forth force to be brought in from porter is bargaining power of buyers. From the textbook it define buyers affect an industry through their ability to force down prices, bargain for higher quality or more services, and play competitors against each other. For example Apple keeps switching cost high by keeping key products feature the same and easily transferable among device, i.e. contacts, calendar, ICloud, iPhoto, IOS. Also Apples to increase its power to the customer in bargaining power is that have even broaden they innovative product flow to IPad to iwatch but always on the same operating system they use IOS. The point of this force is if an industry is able to give it customer bargain power to what they are buying they will stay with them and profit will continue to raise. The buyer will always seek to find something at a reasonable or lower price or look for alternate choices that give a buyer a freedom to think and choice like gas station or office supplies. In an industry this is a factor that must be thought through for the industry to be able to compete with other in the market.

Now the fifth factor to determine the level competitive intensity in an industry is The Bargaining Power of Supplier. Which in term Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services. For example in the case of a product or service would be word, PowerPoint, and excel for the fact that this are unique software application and can built up switching costs. The company that supply electricity are well in profitability and in competitive term because not anyone can supply their own power plant and give out electricity without going through government policy. Also if an industry make the parts that another industry need and that industry is the only one available then that company become dependent to make their business run and if the supplier industry goes to another competitor then the original industry will fall behind and must look somewhere else for a supplier. One must secure a supplier if an industry seek to be profitable and be ahead of the game then other industry.
The Sixth force that porter talk about is the relative power of other stakeholders which are the government. What make this force important is depending on the state one industry is in. for the fact that if a state is against a certain raw material and cannot not be use then the industry is in trouble and must find ways to let the shareholders to vote and change the state mind to allow a material to be use in the industry or it must move to another location. Key international stakeholders who determine many of the international trade regulations and standards are the World Trade Organization, the European Union, NAFTA, ASEAN, and Mercosur. For one industry to be able to make business they need another one that supply their need like the textbook gave an example of an industries that make tires which would profit an automobile industries.

As you can see, porter gave five key factor that an industry need to be able to affect a competitive level and to be able to be profitability. Also a six factor in which a stakeholder can affect an industry as well. I have explain the different force provide by Porter and explain and discuss how each force can help an industry or hurt it.
Cited

Wheelen, Thomas L.; Hunger, J. David; Hoffman, Alan N.; Bamford, Charles E. (2014-03-03). Strategic Management and Business Policy: Globalization, Innovation and Sustainability (14th Edition) (Page 104 - 110). Prentice Hall. Kindle Edition.