Porter’s 5-Force Analysis Michael Porter’s 5-forces can be used to analyze an industry and help shape and create a “competitive strategy” (Porter, 6). Understanding each of the five forces and how they interact with one another provides a clear picture of the degree of competition being faced within an industry, and therefore its relative attractiveness. The understanding cannot provide an advantage; it is what you do with the understanding. Without the understanding, a strategy can be at risk of being unrealistic. Michael Porter’s 5-force Analysis is a tool for the structural analysis of industries. There are 5 forces that always shape the competitive structure of an industry: Supplier Power, Barriers to Entry, The Threat of Substitutes, Buyer Power, and Industry Rivalry. I. SUPPLIER POWER Supplier power is the ability of a supplier to control the cost and supply of the inputs in the market. The supplier power of an industry can be altered in many ways: 1) Differentiation of Inputs – If a company needs various inputs from different suppliers, then those suppliers have a high power. 2) Switching Costs for Transferring to Other Suppliers - Supplier power is high if the cost to switch over to a new system is high. 3) Availability of Substitutes – If the raw material that’s needed for manufacturing can be replaced with alternatives, the supplier power is low. 4) Supplier Concentration – The fewer suppliers there are, the higher the supplier power. 5) Suppliers’ Dependence on Volume – If suppliers are dependent on supply volume, then the supplier power is low. 6) Cost Relative to Total Purchases in the Industry – If a company thinks that they are being overcharged, they may switch to another supplier. 7) Impac... ... middle of paper ... ...dia.net (30 January 2003) Legamedia.net is mainly a foreign website written in Dutch about Porter’s Analysis. 6. http://panko.com (30 January 2003) This website is a Ray R. Panko’s personal business website. Ray Panko is a Professor at the University of Hawaii and has written a number useful sources about information systems and communications. 7. http://www.quickmba.com (29 January 2003) This website includes a detailed summary of Porter’s Analysis. Information used from this site includes a diagram of Porter’s Five Forces. 8. http://www.themanager.org (31 January 2003) This website offers a description of various management tools including Porter’s Five Force Analysis. 9. Porter, Michael E. Competitive Strategy. New York, New York: The Free Press, 1980. This book written by Michael Porter is unaltered information about his theory.
As strategy consultants of McCormick & Associates, we use Porters Five Forces Model as a framework when making a qualitative evaluation of a firm's strategic position (Appendix 1.2). These five forces determine the competitive intensity and therefore attractiveness of a market. These forces affect the ability of a company to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place.
In addition, the bargaining power of the sources of inputs is high. The switching costs from one supplier to another are high because there are not many substitutes for the particular input for metal products. Besides, the number of suppliers who produce raw metals is small. The threat of substitute is high. There are many different kinds of substitutes for metal product company. These companies may also produce a large variety of product like Slade Company. Therefore, the substitute is low for this market. Only companies that produce high quality are able to not be substituted by the others.
...not provide the company with opportunities to analyze its internal strengths and weaknesses like that of the SWOT analysis. In short, Porter’s five forces model is related to the threats of the company resulted in the current market scenario.
There are two reasons why a firm may perform well in an industry, either 1) the industry is attractive to any firm 2) the firm is better and outperforms it’s rivals. Porter’s theory therefore can be used to discover the markets that are attractive to firms or, in those which aren’t breaking down the five forces so a strategy for success can be developed. In general the firm with be more profitable if each of the forces is low, that is to say there is a low threat of new firms entering, if buyers and suppliers have little power over the firm, if there is a low threat from substitute products and if competitive rivalry is low.
I am going to apply Porter’s 5 Force model in “professional basketball Industry” to draw conclusions about major success factors for firms (here teams). For that I am selecting NBA industry.
The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services.
The suppliers bargaining power is generally strong because of the big monopolies and the high importance of purchasing components and operating system, therefore it decreases the profitability of the market players.
Five-force analysis provides a means of identifying the forces which determine the nature of the competitive environment, especially in terms of:
This implies Primark is not rely on one particular supplier. The company is capable switch to another supplier easily if the costs increase. Hence, Primark can control the costs as well as improve its margins in the long term.
The Porter five forces model (see Appendix 1) as an external analysis tool was established by Michael E. Porter and firstly announced in his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors” in 1980 . The main idea of the Porter five forces concept is that the attractiveness of a market depends on the characteristic of the five competitive forces that have an impact on a company (see Appendix 2).
Porter's five forces analysis is an industry analysis model developed by Michael E. Porter as a tool for developing business strategies to become or stay competitive in an industry or marketplace as per (Braze, 2013).
Porter’s Five Forces model, was recognized by Michael E. Porter, to “identifies and analyzes five competitive forces that shape every industry” (Investopedia,
The number of suppliers shall determine whether the industry shall have competitive position in buying. If suppliers are being threatened they may get in to forward integration. Due to high switching ...
Porter 5 forces analysis is a framework for business management developed by Michael Porter in 1979. It uses concepts developed in Industrial Organization economics to derive 5 forces that determine the attractiveness of a market. It is also known as FFF, Fullerton's Five Forces. Porter referred to these forces as the microenvironment, to contrast it with the more general term macro-environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace. The first force is called bargaining power of customers, the second is the bargaining power of suppliers, the third on is the threat of new entrants, the fourth one is the threat of substitute products, all in which influence the fifth force, the level of competition in an industry.
Porter five forces model is the good example to analyze the market position of the industry and the opportunities and the threats which could affect the company directly. Company’s capabilities are determined and then threats are utilized.