Porter identified five basic forces that act on the organization;
I. The bargaining power of suppliers;
II. The bargaining power of buyers;
III. The threat of potential new entrants;
IV. The threat of substitutes;
V. The extent of competitive rivalry.
The bargaining power of suppliers.
Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods or services.
In every industry there are suppliers; Porter put forward the idea that suppliers are more powerful under the following conditions;
« If it is dominated by a few companies and is more concentrated than the industry it sells to. This means it is difficult to switch suppliers if they start exerting power.
« It is not obliged to contend with other substitute products for sale to the industry. This is the case if the suppliers role is technical and no other suppliers can offer this product/service.
« The industry is not an important customer of the supplier group. If the industry that the supplier is selling to, does not represent a large proportion of its sales then it can exert power.
« The supplier¡¦s product is an important input to the buyers business. Supplier¡¦s product is essential to the buyer then they can charge whatever price they wish, and the buyer will pay because the product is essential.
The bargaining power of buyers.
Buyers compete with the industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other.
Porter put forw...
... middle of paper ...
1. It assumes that the organisation`s own interests come first; it doesn¡¦t take into account charities or government bodies, where the needs of other people come first. (Lynch 2006)
2. The model assumes relatively static market structures. The competitive environment of an industry is ever-changing. (Lynch 2006)
3. In economic terms, the model assumes a classic perfect market. The more an industry is regulated, the less meaningful insights the model can deliver.
4. It only looks at the macro-environment of an organisation and makes no attempt to investigate the micro-environment.
5. It is said to be dated; when the model was created in the 1980`s, the US economy was under-going cyclical growth primary objectives consisted of profitability and survival. Development in most industries had been fairly stable and predictable, compared with today¡¦s dynamics.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- In my opinion, I think that the Porter five forces model is still relevant in today’s competitive environment. It is because porter’s five forces can give the managers in the corporate to analyse the current situation of their industry in a structured and understand easily way (Porter 2001). Based on the strategic management view, it is good for managers of any organization in the similar industry or sectors to understand the five competitive forces acting and between organizations in the similar industry or sector.... [tags: competitive environment, forces]
838 words (2.4 pages)
- Introduction Myra opened UMUC Haircuts in 1995 but has recently become aware of an increase in competition from numerous competitors. Lately, there has been news of a Hair Cuttery opening up within five miles making Myra anxious about how it might effect her business. She hopes her salon is able to remain and increase revenue by developing some aspect of her business. Five Forces Analysis The Five Forces Model, developed in 1979 by Michael Porter, is a useful business resource. It allows a business to determine if it can be profitable based on the industry and other competitors, in this case the competitor being Hair Cuttery.... [tags: Strategic management, Porter five forces analysis]
737 words (2.1 pages)
- Porter’s Five Forces Model Competitive rivalry or competition- High Force The fast food industry in New Zealand is contemplated on its intense competition involving international franchises for example, McDonald’s and local firms such as BurgerFuel which continue to expand with additional outlets across New Zealand. Wherein the competition between the surviving competitors has a strong force in the industry due to the high number of outlets, low switching and high aggressiveness between firms.... [tags: Fast food, Fast food restaurant, Hamburger]
1073 words (3.1 pages)
- Professor Michael Porter of the Harvard Business School developed a framework that aids in the development of an organizations competitive advantage. Porter identified five basic forces that act on the organization; I. The bargaining power of suppliers; II. The bargaining power of buyers; III. The threat of potential new entrants; IV. The threat of substitutes; V. The extent of competitive rivalry. The bargaining power of suppliers. Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods or services.... [tags: Competetive Advantage Michael Porter Five Forces]
1485 words (4.2 pages)
- ... Due to innovation, economies of scale and cost reduction, a strong wave of competition increases on some established manufacturers. Johnson, Scholes and Whittington (2006. p480) postulated that “…competitive rivalry amongst organisations can raise through the process of generic specifications or diminished if one firm develops a new product or process...” therefore the leading automobile manufacturers determines the desirability of the industry as competitors will be struggling to uphold their power in that industry.... [tags: defintion, model, differentiation, cost]
1223 words (3.5 pages)
- Publix Super Markets Inc Super Markets are few and far between in the south. There are plenty of different variations within a very small region that when one becomes your favorite it’s usually because if convenience. However throughout the local community of Jacksonville and most of Florida, Publix Super Markets have made a very valuable impression on its current consumers. Founded by George W. Jenkins on the idea of what makes a company successful is how they takes care of their customers but also their employees.... [tags: markets, suppliers, buyers]
1209 words (3.5 pages)
- In today’s world, advances in technology have led to the development of materials, tools, techniques, and other means that make life easier, more efficient, and more productive. Businesses in the private sector as well as the governmental organization use those models, devices, and technologies for marketing purposes to help with marketing analysis, market entrance, data tracking for decision making, productivity, ability to serve their members or partners better by supplying quality products and virtual service to promote brand lifting, customer feedback, great customer experience, and offering the right product to the targeted market.... [tags: Business Analysis]
908 words (2.6 pages)
- In my opinion the most important element of their strategy should be forming a trustworthy and positive relationship with their existing and potential customers. As Hennig-Thurau (2000) explains in such a competitive market the contact with customers is vital. There is a lot of arguments in the press relating to compensation for customers that were affected by the scandal, this is because they were sold a vehicle with false information and also will have lost value on their purchase due to the market value dropping (BBC, 2015).... [tags: Strategic management, Management]
946 words (2.7 pages)
- Application of Porter’s Five Forces Model yields some very interesting discoveries when applied to the pulp and paper industries. The model, as discussed in our textbook, attempts to evaluate how well an industry can generate profits by examination of intensity of rivalry, treat of new entrants into the industry, threat of substitutes, bargaining power of buyers and bargaining power of suppliers (Parnell, 2014). While I know from personal experience that it is not easy to be profitable in the paper business, applying the model does provide some insight into the reasons why those difficulties exist.... [tags: Economics, Cost, Marginal cost, Variable cost]
1043 words (3 pages)
- Analysing McDonalds (fast food outlets) using Porters 5 Forces model – sometimes called the Competitive Forces model. Introduction McDonalds Canada opened in 1967, thirteen years after McDonalds had taken the United States by storm. This was the first restaurant to be opened outside of the United States. It was in 1965 that McDonalds went public and offered shares on Wall Street. Since then it has been important for McDonalds to continually monitor its performance, to make sure it is competitive and profitable while also being aware of its immediate community responsibilities.... [tags: Strategic Management]
1194 words (3.4 pages)