...How to do a Five Force Analysis Step 1: You need to define the industry the company is in. This will help you establish who the players in the market are (rivals and substitutes). There is no right way to do this as an industry’s just help us conceptualize the market they don’t actually exist. A great way to do this is to draw a map of the industry players. Step 2: Go through the indicators for each of the 5 industry forces to establish whether it is a high or low threat to your industry. DO NOT DO THIS ON A COMPANY LEVEL. The five forces were meant only to analyze the industry you defined in step one. Be careful not to include any company specific information that may be in your case. Power of Buyers | Power of Suppliers | 1. Price Sensitivity * Product Cost vs. Total Cost * Product Differentiation * Impact on Quality/ Performance * Buyer Strategy * Buyer Profitability 2. Intrinsic Bargaining Strength * Buyer Concentration * Switching Costs * Volume of Purchases * Alternative Products * Buyer Information * Threat of Backward Integration | * Supplier Concentration * Supplier Volume * Substitute Inputs * Product Differentiation * Switching Costs * Buyer Information * Threat of Forward Integration * Pull-Through | Degree of Rivalry | Threat of Substitutes | Do structural conditions create potential for market power among firms in the industry? * Concentration and Balance of Competitors (usually as more competitors...
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...Five Forces Analysis of PC Industry Threats of Entry The threats of new entrants in the PC industry are low in the U.S. market. The advanced technology is required to make and design PC. The US PC market was dominated by a few big names in year 2007, for example HP, Dell, Apple, and they have their own differentiate products. It is thus hard for new competitor to break into the established brand and customer loyalty. Each firm has contract or has built tight relationship with its suppliers that prevents others from entering the supply chain. The industry requires certain level of capital. Small firms lack the resources and capability of acquiring enough capital to compete with the existing large firms. The established distribution channels of either retail stores or outlet also somewhat prevents the small firms from entering. The bargaining powers of suppliers In the PC industry, the big suppliers such as Intel and Microsoft have a relatively large power over its differentiate products (microprocessor, Windows system) while the mass small firms that produce other simple components lack of bargaining power, and faces great competition in price and design. The Bargaining Power of Buyers Home and corporate users dominate the five categories of buyers on PC consumption. There are large amount of these buyers in the market that are price sensitive with low switching cost on the products, which raises the overall buyers’ power. Threat of substitutes The emergence of PDF...
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...Five Forces Analysis of the Video Game Industry The video game industry is the economic sector involved with the development, marketing and sale of video and computer games. It includes video game consoles, game software, handheld devices, mobile games and online games. The video gaming industry has been growing exponentially in recent years with Sony, Microsoft and Nintendo competing for the higher profits in the market. This essay will analyze each of the five forces acting on the industry: threat of new entrants, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and the competitive rivalry among existing firms. Then it will be determined if the video game industry is still an attractive industry for Sony. The video game industry has high entry barriers because of its high research and development costs, and capital investment needed to start a business in the console industry. The cost required to develop and manufacture a product that could be a decent competitor in this market is too great for a non-established company in this industry. The technology that is needed to be successful is too advanced for new competitors to achieve. For this reason, the threat to Sony, Microsoft and Nintendo of new entrants, was not very high in 2008. Additionally, Sony’s PlayStation, Microsoft’s Xbox, and Nintendo’s gaming systems were very well established names in the industry. The prestige of these products was so strong that it...
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...Porter’s Five Forces Analysis for Airline Industry Threat of entry The government imposes quite lot restrictions on the entrance of the airline industry. What’s more, the high cost and high early stages investment capital for purchasing airplanes are barriers of entry. Threat of substitutes The most threatening substitutes are traveling by trains and cars. Because of the high price of taking planes, many people choose to travel by trains or cars, especially short-distance trip. But it takes a long time for people to take trains or cars, so people tend to choose air when they will experience long-distance trip or when they want to save time. Therefore, the substitutes influence the industry a lot. Threat of powerful suppliers The government also imposes quite lot restrictions on suppliers. Therefore, there are not many companies have the rights to provide products for airline industry. Airline companies have few choices about suppliers, so the suppliers’ bargaining power is very strong. Threat of powerful buyers At most time, when people decided to travel by air, they do not have many choices, and it is very difficult for the buyers to unite to buy services. When sellers gives out the service standards and price, buyers have nothing to do but accept it. So the buyers’ bargaining power is quite weak. Threat of rivalry There are only several airlines in the market. In spite of most of them provide similar services, they share some differences in air routes. So, the threat...
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...Five Forces Analysis of the Video Game Industry The five forces that drive industry competition, a model established by Michael Porter, are; threat of substitution, threat of new entrants, bargaining power of suppliers, bargaining power of buyers, and intensity of rivalry. The video game industry must deal with all five of these forces. The analysis of the strength of these five forces within the video game industry will help to draw a conclusion as to whether or not it is an attractive industry for Sony to be in. The threat of substitutes in the video game industry is relatively low. Most customers are looking for a console that they can play games on and there really isn’t much else to choose from. One could say that computer gaming, although still technically video games, is a potential substitute. Almost every household in America at least has one computer, so it is much easier for customers to just purchase games for their computer rather than buy a new console altogether. Computer gaming is not much of a threat to the video game industry because customers seek the different type of gaming experience that the consoles offer that a computer cannot, such as motion control for the Wii, and special controllers for the Xbox and the PlayStation 2. Clearly the threat of substitutes is not very large in the video game industry. The threat of new entrants in the video game industry is moderate. The three key players in the video game industry are Microsoft, Sony, and Nintendo....
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...Porter’s Five Forces Analysis of the Fast Food Industry Complete a Porter's Five Forces Analysis of the fast food industry and for each of the 4 generic strategies, identify one restaurant that you believe is employing that generic strategy. According to Hoover's Fast Food and Quickservice Restaurant Report, Fast food restaurants make up one of the largest food industry segments with more than 200,000 restaurants in the US. Fast food franchises are known for their low cost and high-speed products served to go as well as for a quick on-site consumption. Consumers are attracted to the idea of standardized menus and familiar meals in each location. Michael Porter’s model discussed below will help us identify five key competitive forces to analyze the fast food industry environment. The threat of entrants - High Entry barriers into the fast food industry seem to be low because of the relatively low capital requirements to start a new restaurant. New entrants are not in need to possess proprietary technology to be able to compete with already established restaurants or franchises. However, the fast food industry is dominated by globally recognized chains with high brand awareness and brand loyalty like McDonald’s, Burger King, KFC, Pizza Hut and etc. Established fast food restaurants have numerous advantages in product technologies, easy access to ingredients and supplies, favorable locations, successful marketing, and experience. While these disadvantages can seem as a significant...
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...[pic] MKT 4100 Strategic Marketing Management Module Handbook Academic Year 2012/2013 Dubai Coordinator: Dr. Doug Young School of Business |Student Name: | | | OR |Student Number: | | | |Seminar Class Details: | |Name of Seminar Tutor: | |Day: | |Time: | |Room: | Lectures: Tuesday from 6:30 - 9:30 PM in KV Block 17, Room 009 ...
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...U.S. Motor Vehicles and Parts Industry Profitability Analysis (Using Porter’s Five Forces of Competition Framework) Introduction This paper will focus on the U.S. automotive industry and the low profitability it is currently experiencing. The U.S. auto industry can be considered an oligopoly with just three main players; General Motors (GM), Ford and Chrysler – known as the Big Three. From 1999 thru 2005, this segment recorded only 9.8% ROE, ranking it 36 out of the 50 industries (on page 68), resulting in the bottom 28th percentile. The industry’s profitability can be considered low, based on its ranking in this list of U.S. industries (against Japanese rivals, the Big Three made about $3800 less per car/truck and shrinking market share, 1996 - 74%, 2001 - 65%, 2006 - 57%). Working against the industry are high labor costs (labor costs for the Big Three are about 10% more per vehicle, or $1500 per vehicle, than Japanese), rising health care costs for an ageing workforce (Toyota competitive advantage is $900-$1400 per vehicle just on healthcare per vehicle costs), rising fuel and raw material costs, ever toughening competition from Japanese and Korean manufacturers, and the struggling U.S. dollar (yen advantage in current exchange rate). The following overview will use Porter’s Five Forces to show why the auto industry is experiencing such low profitability. The two Forces working against the industry (strong forces against profits) are (1) strong rivalry among competitors...
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...Topic 1 – Overview Theories of Management Topic’s Learning Objectives Examine and evaluate theories of management Adequately outline the management process Assess ways of management Introduction Organizations’ accountability and profitability depends on how well the business is managed. This week we are going to examine the management theories, when each theory can be used and assess ways of management. Before we continue to the main analysis take a few minutes to see this video in YouTube http://www.youtube.com/watch?v=Ubxb9KUOQtI and then proceed to reading. 1 Main Analysis What are the Management Theories? Management theories are implemented to help increase organizational productivity and service quality. Not many managers use a singular theory or concept when implementing strategies in the workplace: They commonly use a combination of a number of theories, depending on the workplace, purpose and workforce. Classical Management As shown in the figure below there are three classical management approaches: (1) scientific management, (2) administrative principles, and (3) bureaucratic organization. Scientific Management Scientific approach was found in 1911 by Frederic W. Taylor and includes four guiding action principles. 1. Develop for every job a “science” that includes rules of motion, standardized work implements, and proper working conditions. 2. Carefully select workers with the right abilities for the job. 3. Carefully train workers...
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...• FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY • FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY ABSTRACT For thirty years, the five-force model of Michael Porter has been used as a standard tool to analyze and determine industry attractiveness. In a recent interview to mark thirty years of the theoretical framework, Porter reaffirmed his faith in the model, quoting examples from the airline and steel industries. The model along with the others that Porter has developed, such as the value chain, strategic groups and national competitive advantage, continue to influence strategic thinking in profound ways. And yet, one cannot help observing that perhaps the time has come to re-examine these models in the light of empirical evidence. This paper attempts to argue that the usefulness of the five-force model is limited in emerging economies as compared to mature markets. A longitudinal study of the IT Enabled Services Industry in India demonstrates that with low entry barriers, a high degree of competition (industry rivalry), bargaining power of buyers (Fortune 100 companies), bargaining power of suppliers (large manufacturers of hardware who force technological up gradation at regular intervals), and the absence of clear differentiators (or close substitutes being offered), the industry should have been very unattractive according to the five-force model. On a practical level though, the paper shows that ...
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...The Five Forces Framework and Competitive Strategy In this framework due to Michael Porter there are two high-level stages in the creation of competitive strategy, each stage corresponding to a high-level determinant of profitability mentioned in the previous section. The first stage is the assessment of the attractiveness of the industry in which a given company is embedded based on a structural analysis of the industry. In this stage, called the five forces framework, five forces that influence industry attractiveness are identified, as well as the factors (e.g., number of competitors, size of competitors, capital requirements) that determine the intensity of each force and therefore the cumulative intensity of the five forces. The purpose of the five forces framework is to relate the degree (or intensity) of competition in a given industry, as qualitatively measured by the combined strength (or intensity) of five forces, to the attractiveness of the industry, defined as its ability to sustain profitability. Based on the structural analysis, a particular company may be in a very attractive industry (e.g., pharmaceuticals) or in an unattractive industry (e.g., steel). However, though a firm exists in an unattractive industry, it can still be highly profitable by choosing the proper competitive position within the industry, for example, e.g., a mini-mill such as Nucor in the steel industry in the nineteen-eighties. The second stage of strategy creation addresses the competitive...
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...company of the Toyota had a bad year in 2010. They had plenty of manufacturing problems in different countries around the world. So the company needs to recall lots of cars. The incident brought to Toyota big losses. Porter’s Five Forces Perspective and PEST analysis are from different area. Porter’s Five Forces Perspective is used for the analysis of competitive strategy, and can effectively analysis customs of the competitive environment. PEST analysis is a macro-environment analysis. Its’ macro-forces is refers to the impact on all industries and enterprises. Its’ macro-environment can be focus on various situations. The first part is focusing on these two theories that using I chosen the company of Toyota as an example to overview and critique these two theories. Then compare and contrast these two theories. At last, conclusion this report and given some advises for these two theories. 2. Overview and Critique of theory 1 2.1 Overview the Porter Five Forces Perspective Porter five forces perspective has also known as Porter’s five competitive model. This model was first used by Michael Porter (Porter) made. This model was published in 1979 on the "Harvard Business Review" entitled "How to build competitive strategy” and the same mean is “How Competitive Forces Shape Strategy”. Then later in his published "Competitive Strategy" has in the further development and refinement of this model. He recognized that...
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...Knowledge Resource Centre KNOWLEDGE FINDER BACK TO KNOWLEDGE HOMEPAGE ------------------------------------------------- Top of Form Bottom of Form KNOWLEDGE FINDER BACK TO KNOWLEDGE HOMEPAGE PRINT VERSION SEND TO A FRIEND Management Tools Porter's Five Forces and Profitability M.E. Porter, "How Competitive Forces Shape Strategy", Harvard Business Review, 1980. This diagram has been recreated by LMC. LMC explains Porter's Five Forces and Profitability A business strategy tool designed to analyse a strategic business unit and its relationship with and competition within the industry. Using five key areas affecting profitability, the results give a company insight into its industry attractiveness. The five forces are identified as: bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threats from substitute products and competitive rivalry. Each force is analysed in terms of whether it will produce higher or lower profitability if its effects are felt. 1. Bargaining power of suppliers This will be high or strong where there are relatively few individuals holding the power, where the costs of changing suppliers are high, or if the supplier has a strong brand. 2. Bargaining power of buyers This will be strong where market share is controlled by few buyers, for example large supermarket chains in the groceries market, or if the costs of switching supplier are low. 3. Threat of new entrants There can be various barriers...
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...What is it? Framework/theory Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organisation. This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation’s current competitive position, and the strength of a position that an organisation may look to move into. Strategic analysts often use Porter’s five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes. Porter’s five forces of competitive position analysis: The five forces are: 1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another. 2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the: number of buyers in the market; importance of each individual buyer to the organisation; and cost...
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...planning frameworks such as a SWOT analysis or a five forces analysis in strategic planning initiatives. These frameworks help organizations think about the types of questions they need to ask and the information they need to be thinking about before making any business decisions. SWOT A SWOT analysis is a strategic evaluation framework used to look at a company. SWOT stands for strengths, weaknesses, opportunities and threats. The first step of a SWOT analysis is to evaluate the positive and negative aspects of the company. Once the strengths and weaknesses have been determined, the company can look beyond its own organization to evaluate opportunities and threats from the market or competitors. Competitive forces affect strategy because your competitors react to the strategic actions you take in the marketplace, and your company has to react to their strategic moves. You have to make sure this interplay works to your advantage by using SWOT analysis to identify your company's strengths, weaknesses, opportunities and threats, and by performing the same analysis for your competition. You use this information to take action in areas where you are strong and your competitors are weak, exploiting their threats and capitalizing on your opportunities. Five Forces Porter's Five Forces is a framework used to evaluate an industry as opposed to a company. The "forces" refer to five aspects of an industry that dictate its attractiveness. The forces include power of suppliers, power...
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