Five force

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Five force

  1. 1. Competitive Business Environment According to Michael Porter the nature and degree of competition in an industry depends on Five Forces. ULSAH T.N
  2. 2. Goals Industry Competitors (Intensity of competition)‏ Threat of New Entities Bargaining power of customer Threat of Substitutes Bargaining power of customers
  3. 3. Five Forces Environmental Analysis <ul><li>Porter has identified five competitive forces that shape every industry and every market. </li></ul><ul><li>An industry’s profit potential depends on 5 basic competitive forces within that industry. </li></ul><ul><li>These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. </li></ul><ul><li>The objective of corporate strategy should be to modify these competitive forces in such a way to improve the position of the organisation. </li></ul>
  4. 4. The 5 competitive forces <ul><li>Threat of new entry </li></ul><ul><ul><li>The threat of new entrants depend on the extent to </li></ul></ul><ul><li>which there are barriers to entry. </li></ul><ul><li>• Economies of scale </li></ul><ul><li>• Expected retaliation </li></ul><ul><li>• Product differentiation </li></ul><ul><li>• Capital requirement </li></ul><ul><li>• Cost advantages of existing players due to experience curve effects of operation </li></ul>
  5. 5. <ul><li>The objective of corporate strategy should be to modify these competitive forces in such a way to improve the position of the organisation. </li></ul><ul><li>Access to distribution channels </li></ul><ul><li>Protected intellectual property rights like patents, licences </li></ul><ul><li>Scarcity of major resources </li></ul><ul><li>Access to raw materials is controlled by existing players </li></ul><ul><li>Brand loyalty of customers </li></ul><ul><li>Switching costs for customers </li></ul>
  6. 6. <ul><li>Powerful suppliers </li></ul><ul><li>Supplier bargaining power is likely to be high </li></ul><ul><li>when- </li></ul><ul><li>• High supplier concentration rather than a </li></ul><ul><li>fragmented source of supply </li></ul><ul><li>• No substitutes </li></ul><ul><li>• The suppliers’ customers are fragmented, so their </li></ul><ul><li>bargaining power is low </li></ul><ul><li>• The switching costs from one supplier to another </li></ul><ul><li>are high </li></ul><ul><li>• Possibility of supplier integrating forward. </li></ul>
  7. 7. <ul><li>Powerful buyers </li></ul><ul><li>Customers’ bargaining power are high under </li></ul><ul><li>the following circumstances- </li></ul><ul><li>• Concentration of buyers </li></ul><ul><li>• Undifferentiated products </li></ul><ul><li>• Switching is relatively simple </li></ul><ul><li>• Customers are price sensitive </li></ul><ul><li>• Backward integration of customer </li></ul><ul><li>• Customer is aware of the production costs </li></ul><ul><li>of the product. </li></ul>
  8. 8. <ul><li>Threat of substitutes </li></ul><ul><li>Determined by factors like- </li></ul><ul><li>• Brand loyalty of customers </li></ul><ul><li>• Close customer relationships </li></ul><ul><li>• Switching costs for customers </li></ul><ul><li>• The relative price or performance of </li></ul><ul><li>substitutes </li></ul><ul><li>• Current trends </li></ul>
  9. 9. <ul><li>Competitive rivalry </li></ul><ul><li>Describes the intensity of competition </li></ul><ul><li>between existing players in an industry. </li></ul><ul><li>This is likely to be high when- </li></ul><ul><li>• There are many players of about the same </li></ul><ul><li>size. </li></ul><ul><li>• Players have similar strategies </li></ul><ul><li>• Product not much differentiated </li></ul><ul><li>• Low market growth rates </li></ul><ul><li>• Exit barriers are high </li></ul>
  10. 10. THANK YOU

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