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Porter 5 Forces

In: Business and Management

Submitted By elaineliew88
Words 558
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1. Barriers to Entrants

The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include:

Existing loyalty to major brands

Incentives for using a particular buyer (such as frequent shopper programs)

High fixed costs

Scarcity of resources

High costs of switching companies

Government restrictions or legislation

Case study:

There are thousands of oil and oil services companies throughout the world, but the barriers to enter this industry are enough to scare away all but the serious companies. Barriers can vary depending on the area of the market in which the company is situated. For example, some types of pumping trucks needed at well sites cost more than $1 million each. Other areas of the oil business require highly specialized workers to operate the equipment and to make key drilling decisions. Companies in industries such as these have higher barriers to entry than ones that are simply offering drilling services or support services. Having ample cash is another barrier - a company had better have deep pockets to take on the existing oil companies.

2. Supplier Power

This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company's margins and volumes, then it holds substantial power. Here are a few reasons that suppliers might have power:

There are very few suppliers of a particular product

There are no substitutes

Switching to another (competitive) product is very costly

The product is extremely important to buyers - can't do without it

The supplying industry has a higher profitability than the buying industry

Case study:

While there are plenty of oil companies in the world, much of the oil and gas business is...

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