1. Seminar 2: Introduction to the
Business Environment
Topic Number: Stage 2 Session 1
Principles of Business
2. Outline of the session
• To recap the work we did in the Lecture on Porter’s 5 forces
• To look at a case study on Porter’s 5 forces to see how it all fits together
3. Objectives of this seminar
• By the end of this seminar, students will be fully familiar with the concept of
Porter’s 5 Forces and be able to:
– Identify each of the five forces
– Understand how each of them impacts on the competitive environment of a
business
– Carry out a competitive analysis based on Porter’s Model
4. Porter’s 5 Forces – a recap
• Mainly concerned with the external environment
• Is specifically designed to help a business assess the level of competition in their
chosen industry
• It considers 5 key factors that an organisation needs to consider
5. SUPPLIERS
BUYER POWER
POTENTIAL
ENTRANTS
THREAT OF
SUBSTITUTES
INDUSTRY
RIVALRY
Bargaining power of suppliers
similar to that of buyers
Bargaining power
Threat of
substitute
products
or services
Porter (1980)
• Size/concentration of buyers vs
makers
• Buyers’ switching costs
• Buyers’ information
• Buyers’ ability to backwards
integrate
Price sensitivity
• Cost of product relative to
total cost
• Product differentiation
• Competition between
buyers
• Economies of scale
• Absolute cost advantages
• Capital requirements
• Product differentiation
• Access to distribution
channels
• Govt. & legal barriers
• Retaliation by existing
producers
• Buyers’ propensity to
substitute
• Relative prices and
performance of substitute
products
• Concentration
• Diversity of competitors
• Product differentiation
• Prod’n capacity levels
• Exit barriers
• Cost conditions
6. Let’s hear from the man himself
• www.youtube.com/watch?v=mYF2_FBCvXw
7. Using Porter’s 5 Forces Model
• You will have read the case study
• You’ve seen one video – here are a couple more to provide a bit more background:
• http://www.telegraph.co.uk/finance/good-news/9482147/Why-Brompton-is-built-
in-Britain.html
• http://www.telegraph.co.uk/finance/good-news/9482163/Brompton-boss-Will-
Butler-Adams-bicycles-are-beating-the-downturn.html
8. Now do the work …
• Using all the information you have, you now have 20 minutes to carry out an
analysis of Brompton Bikes against the 5 Forces Model
• Be prepared to present your ideas to the group, and for others to challenge or
question some of the assumptions and assertions you make
9. Now finally – to reinforce your understanding
• You are starting up a new business – you want to assess its position as regards
competition
– Choose the business (what will you sell, where will you sell it)
– Decide how your business fits in with the competition you face
– Make some immediate recommendations as to how you will make YOUR
produce competitive
10. To recap
• Porter’s 5 forces model is about the competitive environment
• You have used the model on a real case – Brompton Bikes
• You have used the model on a hypothetical case – your own business
• In lecture 2 we will be looking at the various ways in which businesses scan the
whole external environment – why they do it and what tools they use
