The five competitive forces stated by Michael Porter in his competitive analysis model are: 1. Threat of new entrants 2. Threat of substitute products 3. Bargaining power of suppliers 4. Bargaining power of buyers 5. Rivalry among existing competitors

2.  Shows macro-environmental influences that
might affect organization
 Political: government stability, taxation
policy, foreign trade regulations, social
welfare policies
 Economic: business cycles, GNP trends,
interest rates, money supply, inflation,
unemployment, disposable income.
 Socio-cultural: population demographics,
income distribution, social mobility, lifestyle
changes, attitudes to work and leisure,
consumerism, levels of education.

3.  Technological: govt spending on research,
govt and industry focus on technological
effort, new discoveries & developments,
speed of technology transfer, rates of
obsolescence.
 Environmental: EPLs, waste disposal, energy
consumption
 Legal: competition law, employment law,
health and safety, product safety

4.  This framework helps identify the sources of
competition in an industry or sector:
 Forces strong – profits are weak
 Forces weak – profits are strong
 THREAT OF ENTRY: economies of scale,
capital requirement, access to supply or
distribution channels, customer or supplier
loyalty, experience, expected retaliation,
legislation or government action,
differentiation

5.  THREAT OF SUBSTITUTES: e-mail substitutes
postal service, travel substitutes, product
substitutes eye glasses, lenses, laser treatment,
herbal medicine, medicine free way of life.
 POWER OF BUYER OR SUPPLIER: (buyer power)
volume purchase, cost of switching, threat of
acquiring the supplier (supplier power) few
suppliers, switching cost high, competing
directly with buyers
 RIVALRY: competitors: offer similar products to
similar markets, more competition less profit,
low growth affects profits, price wars, low
differentiation.

6.  Competitive environment will differ between
countries.
 Some nations are more competitive than
others.
 The determinants of national advantage:
Demand
Conditions
Firm Strategy,
structure,
rivalry
Related &
Support
Industries
Factor
Conditions

7.  Factor conditions: human resources, physical
resources, knowledge, capital, infrastructure.
 Home demand conditions: Japanese customers
high expectations of electronic equipment
provided impetus for those industries in Japan.
 Related and Support Industries: one successful
industry may lead to advantage in related and
support industry. Italy: leather foot wear, leather
machinery, design services. Singapore, port
services, ship repair services. Pakistan, textiles,
cotton, ginning, weaving.

8.  Firm strategy, industry and rivalry: bases of
advantage. Germany: systematic,
hierarchical processes, contributed to
reliability and technical excellence in
engineering industries. Domestic rivalry:
Pharmaceutical industries in Switzerland.

9.  Scenarios are detailed and plausible views of
how the business environment of an
organization might develop in the future
based on groupings of key environmental
influences and drivers of change about which
there is a high level of uncertainty.
 When environment has high level of
uncertainty due to complexity or rapid
change

10.  Approach to understand the future impact of
the environment
 10 years, 20 years or even more
 Predicting plausible futures
 Improves organizational learning
 How environment unfolds and influences
strategies

11.  Key drivers for change:
 Market globalization: similar needs, global
customers, transferable marketing
 Cost globalization: scale economies, sourcing
efficiencies, country specific costs, high
product development costs
 Globalization of competition:
interdependence, competitors global, high
exports/imports
 Globalization of govt policies: trade policies,
technical standards, host government
policies

13. Q. 1. Identify and explain briefly four factors
which HEL should monitor closely to
anticipate the emerging business
environment in which it operates and its
impact in the formulation of its Strategic
Plans. (10)
Ans : - Demand for products, technological
changes, threat of new entrants, rivalry
among competitors, diversification

14. Q.5 (a) Explain what is meant by Scenario
Planning. (03 marks)
Scenario Planning is a technique which involves
the process of identifying alternative
scenarios in the future, and on the basis of
different assumptions that the strategists
may anticipate in the future, formulate
corporate strategy. The process enables the
company to realign its corporate strategy
quickly in changing business conditions. The
purpose is to avoid formulating corporate
strategy on the basis on a single future
outcome which may not materialize.

15. Q.2 (a) Identify the force of competition which is
relevant in the context of Michael Porter’s Five
Forces Model of Competition in each of the
scenarios presented below. Substantiate your
answer by highlighting the salient features of the
Model of Competition selected by you in
each of these scenarios.
(i) Four companies of similar size and strength are
engaged in the manufacture of detergent powder
for washing clothes. These companies are key
market players and jointly share 95% of the
aggregate market which is not expected to
witness any significant growth in the foreseeable
future.

16. (ii) Soundhealth Pharmaceuticals and Goodcare
Pharmaceuticals are manufacturers of two new
medicines for treatment of cancer. The medicines
have been developed after a long period of research
at a very substantial R&D cost and are highly
effective. Both the existing manufacturers are
earning exceptionally high profits in a market which
is expected to witness growth in the future.
(iii) Lucky Coal Mines Limited is the sole supplier of
coal to a cement plant located in close proximity to
the mines. The cement plant requires substantial
quantities of coal for firing of its kilns. Quality of this
coal is most suitable for the cement plant and also
cost effective due to low transportation costs. Lucky
Coal Mines has several buyers who are willing to
purchase the coal because of its high calorific value.
(09 marks)

17.  Q.2 List and explain briefly four factors
which in your opinion create Exit Barriers
and prevent existing participants from
quitting a loss-incurring industry. (08 marks)

18. 3(b) According to Michael Porter the nature of
competitiveness in any industry is a
composite of Five Forces. The Competitive
Analysis model developed by Porter is widely
followed for formulating business strategies
in many industries. List the five Competitive
Forces stated by Michael Porter. (05)