2. Another analytical tool that can be used to assess a
business is Porter’s Five Forces Competitve Position
Analysis. It was developed in 1979 by Michael E.
Porter of Harvard Business School as a framework or
a guide for assessing and evaluating the competitive
strength and position of a business organization
3. • Under Porter’s theory, he identifies five forces that
determine the competitiveness and attractiveness of a
market and which seek to locate the power in a business
situation, its current competitive position, and the
strength of a position that an organization may enter into.
These five forces help in identifying if new products or
services are potentially profitable. Once the area where
power lies is identified, then areas of strength can be
pinpointed and exploited. Solutions to weaknesses may be
proposed, and possible mistakes avoided.
5. •1.Supplier power- it is important to assess
how much power the supplier has in his
ability to drive up prices. Another source of
power is how inique the product or service is.
The more unique the product, the easier it is
for the supplier to drive up the price.
6. • 2. Buyer power- If a supplier can enjoy the power
to drive up, it is also posiible for a buyer to drive
prices down. An assessment needs to be made on of
how easy it is for buyers to drive prices down. The
smaller the number of buyers in the market, the
greater is the power enjoyed by the buyer. Likewise,
the more important an individual buyeris to the
organization, the gereater his power is.
7. • 3. Number of competitors- the number and
capability of competitors in the market will also
impact on the attractiveness of the market. If
competitors are numerous and offer basically
similar products and services, the market will be
less attractive. Low capability of competitors to
meet the market’s current needs will serve as an
attractive opportunity for the firm.
8. •4. Possibility of substitution- when it is
easy to substitute products in a market, it
is expected that buyers will switch to
alternatives in case of price increases.
The suppliers will enjoy less power to
drive up and the market will beless
attractive.
9. • 5. Possibility of new entrants- when investors
see that a market is profitable, they will desire to
join the bandwagon and get a share of the profits.
But when new investors enter a market, the share
of the participants in thye market will be divided
among more people and will therefore decline thus,
eroding profits. However, if barriers to entry
prevent new participant from entering the market,
profits will be maintained among the existing
participants.
