The document discusses Porter's Five Forces model for analyzing competition within an industry. It describes the five competitive forces as: (1) threat of new entrants, (2) bargaining power of buyers, (3) bargaining power of suppliers, (4) intensity of rivalry among existing competitors, and (5) threat of substitute products. For each force, it provides examples to illustrate how the competitive intensity in an industry is determined by the collective strength of these five factors.

1. INDUSTRY
COMPETITORS
Intensity
of Rivalry
NEW
ENTRANTS
SUPPLIERS BUYERS
Threat of New
Entrants
Bargaining Power
of Buyers
SUBSTITUTES
Bargaining Power
of Suppliers
Threat of
Substitutes
Porter’s Five Force model
Fig: Porter’s Five Force model
By A. Raja

2. •Competition in an industry is determined not only by existing
competitors but also by other market forces such as customers, suppliers,
potential entrants, and the existence of substitute products.
•Michael E. Porter has developed a framework known as the ‘Five
Forces Model’ to help managers analyze the business environment.
•The five forces included in the model are:
i. the threat of new entrants,
ii. the bargaining power of buyers,
iii. the bargaining power of suppliers,
iv. the rivalry among existing players and
v. the threat of substitute products.

3. 1.Threat of New Entrants:
Firms generally face a threat from new entrants in an industry in which
the entry and exit of new players are free. Any firm can enter or exit such
an industry, at its free will, unless restricted by macro environmental
factors.
VARIOUS ENTRY BARRIERS ARE:
•Economies Of Scale,
•Product Differentiation,
•High Capital Cost,
•Access To Distribution Channels And
•Government Policy etc.

4. Example of Threat of New Entrants:
Reliance Industries that set up a petrochemical plant with the
highest capacity in the industry(27 MTPA capacity) in Jamnagar,
Gujarat. Due to its higher capacity, it was able to achieve economies of
scale. This created entry barriers for new players.
If a company wants to enter in this industry now, it has to develop
a plant of the same or higher capacity. Otherwise, its production cost will
be very high and it will not be able to compete in the marketplace.

5. 2. Bargaining Power of Buyers:
•The bargaining power of buyers is determined by the industry in which
the firm is operating.
•If the firm is operating in a market where there are many suppliers and a
few buyers, then the buyers have the capacity to significantly influence
the price.
For Example:
There are only a few automobile companies in India but there are
numerous suppliers of auto components. For auto components,
automobile companies are the buyers. Therefore, automobile companies
command prices because they have higher bargaining power.

6. 3. Bargaining Power of Suppliers:
When there are only a few suppliers in the market and many buyers, the
suppliers can get together and decide on the price which is most
profitable to them.
For Example:
Intel, the world’s largest manufacturer of microprocessors.
Though there are other players, they are very small in size and their
credibility in the market is not as high as that of Intel. Therefore, most
manufacturers of personal computers are dependent on this single
powerful supplier of computer chips. Most standard personal computers
run on Intel’s microprocessors. As a result, Intel has become the most
powerful supplier in the industry.

7. 4. Intensity of Rivalry among Firms :
•The number of business units operating within a particular industry
indicates the amount of rivalry.
•When a few firms enjoy a large market share, rivalry among them will be
less. Ex. Like Pepsi & Coca cola brands in the soft drink industry
•On the other hand, if significant market share is enjoyed by a large number
of small players, the rivalry among them will be high mainly because of
equality in size. Ex. Different Cement Companies
•When rivalry among firms is high, it leads to price wars, advertising
battles, launches of new products and increased customer services and
warranties. A lack of differentiation among the products of the players in the
industry also leads to intense competition. Similarly, when the switching
costs for customers are low, rivalry among firms is high.

8. 5.Threat of Substitutes:
• Substitutes affect the level of competition in an industry.
• Sometimes, the price that a company can charge from its customers is
restricted by the prices of substitutes.
For example:
Tea, soft drinks, juices, etc. are substitutes for coffee. Because of
the existence of these substitutes, the prices charged by companies in the
coffee industry are restricted. If coffee prices are hiked, customers have
the option of switching over to tea or soft drinks, which are its
substitutes. At the same time, the switching costs are negligible.

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