...unit. This tends to lower the number of firms in the industry and reduce competition. Proprietary product differences are the characteristics that make a product appeal to a large market segment. But only those characteristics that cannot be copied at low cost by competitors (“proprietary”) will be a barrier to entry. Brand identity is the extent to which buyers take the brand name into account when making purchase decisions. Capital requirements are the total cost of acquiring the plant and equipment necessary to begin operating in the industry. 1 This material is a summary drawn from Porter’s Competitive Advantage (1985). The material in question is on pages 5 – 8. 1 “Porter’s Five Forces” by Prof. Lima February 25, 2006 2. Bargaining Power of Suppliers Differentiation of inputs means that different suppliers provide different input characteristics for inputs that basically do the same job. The greater the degrees of differentiation among suppliers the more bargaining power suppliers have. Presence [and availability] of substitute inputs means the extent to which it is possible to switch to another supplier for an...
Words: 931 - Pages: 4
...of new entrants to consumer electronics industry is not significant due to cost and financial, knowledge and technological barriers. However, it is important to note that new businesses may overcome these barriers if they are able to introduce new products to the market based on innovative concepts. Large players such as Dell, Apple, HP, Samsung and Acer derive extensive benefits from the economies of scale and this fact represents an additional entry barrier to the consumer electronics industry. Bargaining power of buyers is immense due to the abundancy of offer and little differentiation amongst products. Moreover, there are usually no additional costs for Dell customers to switch to the competition and the majority of customers are well educated about products and services offered by Dell, another important factor that fuels buyer bargaining power. High level of price sensitivity for the type of products and services offered by Dell also increases the bargaining power of buyers. However, inability of backward integration, i.e. producing products offered by Dell by customers, can be specified as an...
Words: 903 - Pages: 4
...consumers. Internal analysis: Performances: After the new CEO get on the stage, the company starts increase its revenue. Now the company use acquisition strategy to growth. And now they already acquire 2 companies YSL and Sergio Rossi. Current strategies: At the corporate level, the company operates in two directions, which is vertical and horizontal. Horizontally, the company purchased companies in the same industry such as YSL Beaute, Sergio Rossi and YSL couture. This acquisition not only broadens the product lines the company carries; it also provides the company with more specific targets with each of its brands. Vertically, the company has integrated both forward and backwards. It established partnering relationships with some of its suppliers and also tried to gain more control over its DOS (directly operated stores). In integrating vertically, the company is able to more control the entire value adding process, thus able to provide the most value to its customers. Also, they will be able to control costs and the overall image of the brand. Although there are a lot of positive reasons for integration, the company still has to consider factors like management resources and the ability to sustain the profit in the integrated businesses. External analysis: (See appendix 1 for detailed five force analysis) The business environment now is derived by change. Thus the fashion industry also has to adapt to changing consumer needs, change in materials used, and change in the competitive...
Words: 2009 - Pages: 9
...effect on business practices, reducing the ability of any company to establish an operational advantage that can be sustained. 103 Internet Technology provides buyers with easier access to information about products and suppliers, thus bolstering buyer bargaining power. 105 With more competitors selling largely undifferentiated products, the basis for competition shifts ever more toward price. 107 On the Internet, buyers can often switch suppliers with just a few mouse clicks, and new Web technologies are systematically reducing switching costs even further. ON COMPETITION Strategy and the Internet 97 Some companies, for example, have used Internet technology to shift the basis of competition away from quality, featurs, and service and toward price, making it harder for anyone in their industries to turn a profit. 98 When seen with fresh eyes, it becomes clear that the Internet is not necessarily a blessing. It tends to alter industry structures in ways that dampen overall profitability, and it has a leveling effect on business practices, reducing the ability of any company to establish an operational advantage that can be sustained. 103 Internet Technology provides buyers with easier access to information about products and suppliers, thus bolstering buyer bargaining power. 105 With more competitors selling largely undifferentiated products, the basis...
Words: 10834 - Pages: 44
...profits start to fall. It is essential for existing organizations to create high barriers to enter to deter new entrants. Threat of new entrants is high when: * Low amount of capital is required to enter a market * Existing companies can do little to retaliate * Existing firms do not possess patents, trademarks or do not have established brand reputation * There is no government regulation * Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to other industries) * There is low customer loyalty * Products are nearly identical * Economies of scale can be easily achieved. * Government policies that encourage competition. Bargaining power of suppliers Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their buyers....
Words: 698 - Pages: 3
...competitive forces namely: 1. Threats of potential new entrants 2. Bargaining power of buyers 3. Bargaining power of suppliers 4. Threats of substitute products 5. Rivalry among competitors 1. Threats of potential new entrants The threat of new entrants is usually based on the market entry barriers, which can be said to provide obstacles for newcomers to gain a foothold in any given industry. These barriers can take many different forms. Briefly, it can be said that entry barriers exist whenever it is difficult or not economically feasible for an outsider to copy or imitate the existing player’s competitive capabilities. Common forms of entry barriers are depicted below: * Economies of scale * Capital requirement of entry * Access to supplies and distribution channels * Customer or supplier loyalty * Lack of experience in industry * Legal restrains such as trade barriers 2. Bargaining Power Of Buyers Important determinants of buyer power are the size and the concentration of customers. Other factors are the extent to which the buyers are informed about other vendors and suppliers and to the extent to which buyers can quickly identify other sources of supply. Common reasons for great bargaining power of buyers are depicted below: * Great concentration of buyers – few buyers * The cost of switching supplier is low * Many equally competent suppliers...
Words: 525 - Pages: 3
...Assess how attractive and potentially profitable is an industry Introduction (2) • This is a framework for understanding an industry or an organisation’s position with respect to the forces operating in the microenvironment • It can be used to explain the performance of competitors in a market • From the analysis a number of generic competitive strategies can be derived • Cost leadership • Differentiation • Focus The five forces • The ability of firms to earn an good return depends on five forces: namely the… • Threat of new entrants‐ the ability of new competitors to enter the industry • Bargaining power of suppliers • Bargaining power of customers • Threat of substitute products • Degree of competitive rivalry The five forces framework Threat of Substitute Products Bargaining Power of Suppliers Intensity of rivalry within the industry Bargaining Power of Buyers (Customers) Threat of New Entrants The threat of new entrants Threat of new entrants • If new entrants move into an industry they will gain market share, rivalry will accelerate and profits will decline • If it is difficult to enter an industry the position of existing firms will be strengthened • Impediments to the entry of new firms are known as barriers to entry • If barriers to entry are low then the threat of new entrants will be high, and vice versa Barriers to entry • Capital cost of entry • High cost will deter entry • High capital requirements might mean that only large firms can ...
Words: 1809 - Pages: 8
...in general and the producers like Nucor that make new steel products via recycling scrap steel in particular? Please do a five-forces analysis to support your answer. http://www.slideshare.net/sizzlingmayank/strategic-management-4836230 1. -Porter’s Five Forces Analysis of Steel Industry in the United States of America Threat of new entrants Bargaining Power of Suppliers Bargaining Power of Buyers Internal rivalry within Industry Threat of Substitutes 2. Bargaining Power of Buyer’s a. With an increase in domestic competition in steel sector in the USA, the options for buyers are on a rise. b. Low Product Differentiation. c. Switching costs is low. d. Buyers buying in large scale posses strong negotiating power. Buyer’s Market !!! 3. Bargaining Power of Supplier’s a. Scarcity of raw-materials like steel shreds, iron ore, coke, recycled steel. b. Few Suppliers. c. Most of the raw-materials are imported. Cost strategy drives Joint ventures, Mergers and Acquisitions between suppliers and manufactures !!! 4. Major players in the United States of America Major M&A involving foreign partner 5. Internal Rivalry a. Domestic market – more than 20 players. b. Intense rivalry – Price wars. c. No differentiated product. d. Joint ventures helps in driving economies of scale. Low fixed...
Words: 1161 - Pages: 5
...of Tanzania 1 2.0 .PORTER’S FIVE FORCES FRAMEWORK MODEL, PFFF 1 2.1. Degree of rivalry among existing firms. 2 2.2. Threat of substitute Products or Service. 3 2.3. Threats of new entrants 4 2.4 Bargaining power of buyers/Customers. 5 2.5. Bargaining power of Suppliers 5 2.6. Mapping the Porter’s Five Forces Model in the Mobile Industry in TANZANIA. 5 3.0. CONCLUSION. 7 4.0.REFERENCE 8 ABSTRACT The Mobile Phone industry of Tanzania has been growing very slowly in terms of the number of firms in the industry during the last two decades. The growth rate in terms of the number of customers has been very fast. Number of things ishappening within the industry after its liberalization. The aspect of competition is now crucial for the operators who are within the Mobile Phone industry. Porter’s Five Forces Framework is one of the strategic models used to assess the attractiveness of the industry (being service or manufacturing). This model is defined by the five key forces which are; Rivalry among the existing firms, Threat of new entrants,Threat of substitutes, Bargaining power of suppliers and bargaining power of customers. The mobile phone industry of Tanzania has 7 mobile phone operators, and two (2) substitute service provider.Bargaining Power of Suppliers, threat of new...
Words: 2552 - Pages: 11
...reaffirmed his faith in the model, quoting examples from the airline and steel industries. The model along with the others that Porter has developed, such as the value chain, strategic groups and national competitive advantage, continue to influence strategic thinking in profound ways. And yet, one cannot help observing that perhaps the time has come to re-examine these models in the light of empirical evidence. This paper attempts to argue that the usefulness of the five-force model is limited in emerging economies as compared to mature markets. A longitudinal study of the IT Enabled Services Industry in India demonstrates that with low entry barriers, a high degree of competition (industry rivalry), bargaining power of buyers (Fortune 100 companies), bargaining power of suppliers (large manufacturers of hardware who force technological up gradation at regular intervals), and the absence of clear differentiators (or close substitutes being offered), the industry should have been very unattractive according to the five-force model. On a practical level though, the paper shows that the major players in the industry have all been able to turn in stellar performances year after year. With this apparent dichotomy between theory and practice, the paper questions the usefulness of depending on one model for all situations. INTRODUCTION: The five-force model of competition was first introduced by Porter in 1980 in his book on Competitive Strategy. For 30 years since the...
Words: 4583 - Pages: 19
...Carbonated Soft Drink Industry Analysis A framework, known as the five forces model, was created by Michael E. Porter to assist managers with identifying opportunities and threats within an industry by analyzing the competitive forces. His five forces consist of: the risk of entry by potential competitors, the intensity of rivalry among established companies within an industry, the bargaining power of buyers, the bargaining power of suppliers, and the closeness of substitutes to an industry’s products. The Carbonated Soft Drink (CSD) Industry will be thoroughly analyzed using Porter’s Five Forces. Risk of Entry by Potential Competitors With high barriers to entry, the risk of potential competitors entering into the CSD industry is low. The high cost of developing a manufacturing plant in order to meet demand is a barrier that makes the risk of entry low. Coke and Pepsi have spent numerous amounts of money to gain the brand loyalty of their customers. Because brand loyalty is already established in the CSD industry, the risk of competitors entering is lowered. Due to brand loyalty, both Coke and Pepsi have a high demand for their products. Both companies are able to produce in mass quantities and lower the variable cost for each product. With the variable cost being lowered, they are able to lower their selling price. Another barrier that lowers the risk of entry is franchise agreements that Coke and Pepsi have made with their bottlers. The agreements state that...
Words: 852 - Pages: 4
... threat of entry, bargaining power of suppliers, bargaining power of buyers and threat of substitutes. These forces determine an industry structure and the level of competition in that industry. The stronger competitive forces in the industry are the less profitable it is. An industry with low barriers to enter, having few buyers and suppliers but many substitute products and competitors will be seen as very competitive and thus, not so attractive due to its low profitability. Rivalry among existing competitors or our industry rivalry – this force is the major determinant on how competitive and profitable an industry is. In competitive industry, firms have to compete aggressively for a market share, which results in low profits. Threat of new entry – this force determines how easy (or not) it is to enter a particular industry. If an industry is profitable and there are few barriers to enter, rivalry soon intensifies. When more organizations compete for the same market share, profits start to fall. It is essential for existing organizations to create high barriers to enter to deter new entrants. Bargaining power of suppliers – strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their buyers. This directly affects the buying firms’ profits because it has to pay more for materials. Suppliers have strongbargaining power when there are few suppliers but many buyers, few substitute raw materials exist, suppliers hold scarce resources...
Words: 378 - Pages: 2
...5 Forces Analysis on the Paper Industry Looking at the position of the paper industry relative to the five forces model I had to determine exactly what constituted the paper industry. I had to decide between the Paper Mills Industry and Pulp Mills Industry and ultimately decided to analyze the Paper Mills Industry specifically when it came to paper industry as a whole. The NAICS Code that corresponds to the Paper Mills Industry is NAICS: 322121 or SIC Code 2621. Porter’s Five Forces Model of Competition includes the firm’s, or in this case the paper mill industry’s, position relative to current competitors, suppliers, customers, potential new entrants and potential substitutes. Over the next few pages I will conduct a five forces analysis of the Paper Mills Industry. Current Competitors: The degree of rivalry in the paper industry is the center of the five forces and the other four forces branch off of this. The first aspect to look at is the number and position of companies within the paper industry. There were 445 companies in 2009 and as of 2013 there are now 119 companies in the industry. This industry still has many competitors within the industry and therefor, there shouldn’t be any impact of any particular company. This industry is large enough where these firms can prosper without having to steal market share from each other and this is a positive for the paper industry. The second key factor is the industry growth rate and if there is room to increase revenues...
Words: 1279 - Pages: 6
...is an economic model used to characterise industries and markets, and combine to make up the business environment. Porter explains that by studying the structure and underlying dynamics between these forces, Nokia can discover opportunities for improving their marketing strategies, along with determining the industry attractiveness, competitiveness and long-run industry profitability. These five forces are also known as "competitive forces". Michael Porter has identified five forces that are widely used to assess the structure of any industry, along with evaluating what drives competition. Porter’s five forces are: 1. Existing Competitive Rivalry 2. Potential New Entrants 3. Threat of Substitutes 4. Bargaining Power of Suppliers 5. Bargaining Power of Customers Existing Competitive Rivalry The most common and direct threat to a business or organisation is through their rivals and competitors. This usually occurs in a market that sells the same product or offers similar facilities and services, to a population of the same customer base. Overall, general markets are known and seen to be more competitive. The more firms that will operate in the markets the easier it will be for the customers to shop around. Even a minority of firms can dominate a market, for example, supermarkets; even they can cause intense competition. For example, “some forms of competition, such as price competition, are highly unstable and quite likely to leave the entire industry...
Words: 648 - Pages: 3
...high due to the unavailability of new business licences as it is the Central Bank's policy not to issue new licences. Other forms of barriers to entry include: (a) Economies of Scale Firms cannot enter the industry due to the high economies of scale such as high production costs per unit enterprises. (b) Product Differentiation Brand identification creates a barrier to entry, forcing new entrants to compete with established brands. For instance, local brands versus international brands for tea products. (c) Capital Requirements The need for high capital or set-up costs can deter firms from entering the industry, such as the airline industry. (d) High Switching Costs Switching costs refer to the cost of changing from one supplier to another. This can be difficult for certain firms in the industry as it may involve high costs. (e) Access to Distribution Channels Limited access to the channels of distribution can deter firms from entering the market. (f) Cost Disadvantages Independent of Size Some firms may have cost advantages regardless of their size. In such cases, the cost advantages can be due to tax incentives or allowances given by the government for locating the premises in certain areas. This incentive cannot be enjoyed by other firms in different locations. (g) Government Policy Government policy can also deter entry of new firms as the government wants to control the number of players in the industry. Despite these threats to new entrants...
Words: 1553 - Pages: 7
