This chapter discusses Porter's 5 Forces model for analyzing competition within an industry. It introduces the 5 competitive forces as competitive rivalry, power of suppliers, power of buyers, threat of substitutes, and threat of new entrants. For each force, it provides examples of factors that influence the degree of competition, such as differentiation of products, switching costs, price sensitivity, and barriers to entry. The learning outcomes are to define and identify each of the 5 forces and understand how they can impact a business.

1. BAEB501 : ENTREPRENEURSHIP
CHAPTER 3:
RESOURCE AND CAPABILITIES
© 2010 Cosmopoint

2. Chapter 3: Resource and Capabilities
Topic Outlines
3.1 Introduction
3.2 Business Tools
3.3 Porter’s 5 Forces
3.4 Competitive Rivalry
3.5 Power of suppliers
3.6 Power of buyers
3.7 Threats of substitutes3.8 Threat of new entrants
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3. Chapter 3: Resource and Capabilities
Learning Outcomes
 After completing this chapter, student should be able to:
 Define the Porter’s 5 Forces
 Identify each of 5 forces
 Understand how 5 forces can influence in business
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4. Chapter 3: Resource and Capabilities
3.1 Introduction
 How can business be successful?
 How can business maximize profit?
 Business field is very competitive.
There are a lot of examples that we
can see around us.
 E.g automobile, fast food outlet,
airlines industry, oil and gas,
watches, clothes, etc.
 How does a brand still be a
preferred brand to customers?
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5. Chapter 3: Resource and Capabilities
3.2 Business Tools
 Since business is very
competitive. Entrepreneur need to
identify:
- Strategies,
- Business tools
- Planning in order to expand his/
her business.
 For example:
Porter’s 5 Forces
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6. Chapter 3: Resource and Capabilities
3.3 Porter’s 5 Forces
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7. Chapter 3: Resource and Capabilities
3.4 Competitive Rivalry
 Is there a strong competition between
existing players? – Need to analyze and
research your industry.
 Is it one player very dominant or equal?
 Monopolistic?
 Generally competitive rivalry will be
high if:
 There is little differentiation
between the products sold between
customers.
 Competitors are approximately the
same size of each other.
 If the competitors all have similar
strategies.
 It is costly to leave the industry
hence they fight to just stay in ( exit
barriers)
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8. Chapter 3: Resource and Capabilities
3.5 Power of suppliers
 Suppliers do have power. This
power comes from:
 If they are the only
supplier or one of few
suppliers who supply that
particular raw material.
 If it costly for the
organization to move from
one supplier to another
(known also as switching
cost)
 If there is no other
substitute for their product.
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9. Chapter 3: Resource and Capabilities
3.6 Power of buyers
 Power of buyers happens when:
 There is little differentiation over the
product and substitutes can be found
easily.
 Customers are sensitive to price.
 Most customer will concern about the
prices. They will do comparison
which one is cheaper.
 Switching to another product is not
costly.
 Can they work together to order large
volume?
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10. Chapter 3: Resource and Capabilities
3.7 Threats of substitutes
 The threat of substitute is high when:
 Price of that substitute product falls.
 It is easy for consumers to switch from
one substitute product to another.
 Buyers are willing to substitute.
 How easy can your product or service be
substituted?
 When it is cheaper.
 E.g: Email vs. Fax, Toothpaste reduces
the need of dentist, Video Supplier vs.
Travel Company.
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11. Chapter 3: Resource and Capabilities
3.8 Threat of new entrants
 The threat of a new organization
entering the industry is high when it
is easy for an organization to enter
the industry i.e. entry barriers are
low.
 An organization will look at how
loyal customers are to existing
products, how quickly they can
achieve economy of scales, would
they have access to suppliers, would
government legislation prevent them
or encourage them to enter the
industry.
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12. Chapter 3: Resource and Capabilities
Announcement
Project Group (20%)
- 4 to 5 persons in a group
- Submit business type
- Next week topic Business Plan + Revision
on Midterm
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