Michael Porter's Five Forces Analysis

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A researcher chooses a company based on his area of interest, the objective of his research, the industry sector he need to focus, the issues to be discussed, the business model to be evaluated, the companies in the nearby location, the functional area or specialization he wants to focus, the management theories he wants to test, the easiness of collecting required data etc. The researcher can choose either local or national or international companies for his analysis. Based on surveying the companies available in a chosen industry functioning in his location where he has accessibility to collect data and information, or by collecting information about the business and strategies from the company website and from various other sites. The researcher…show more content…
The given individual company’s performance may be better or worse than the industry it belongs as a whole. Understanding the industry or multiple industries where the company competes is essential to develop a baseline for understanding the external conditions and competitions the company is facing currently and in the future. This can be analysed by using Michael Porters’ five forces framework. The five forces analysis simplifies an industry’s competitive environment and it’s profitability. The five basic forces are: (1) Bargaining Power of Customers. This affects the profitability of a given industry. The various factors like the ease with which customers can switch to the competitor’s products, the price sensitivity of the customers, the volume which buyers command are deciding the bargaining power of customers. (2) Bargaining Power of Suppliers : This includes the concentration of suppliers to an industry compared to the concentration of firms in that industry, the ease of switching away from the industry, the availability of substitute products, the price sensitivity of firms in the industry to input prices, and the ability of suppliers to integrate downwards. (3) Threat of New Entrants : The factors required to face such threat includes high capital investment, a steep long learning curve, high brand equity for existing players, tight government regulation, high switching costs, and constraints in access to resources. (4) Threat of Substitute Products : This depends on factors like buyer switching costs, the similarity features of the substitute product to the reference company product, and the price performance of the substitute product as compared to the reference company product. (5) Intensity of Competitive Rivalry : This depends on the factors like the number and relative size of competitor companies, the industry growth rate in the country, industry exit barriers, whether the industry has high fixed costs or not, and the
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