Michael Porter's Five Forces Shaping The Structure Of An Industry

According to Pringle and Huisman (2011), Harvard professor Michael Porter’s five industry forces is one of the frameworks that most used and applied in industries until today. Porter defines that the structure of industry brings competition and profitability and it is not about the growing of the industry, whether it is developing or matured, high or low tech. In another words, Porter’s five industry forces are used to illustrate the competition within industry, and also to shape the structure of an industry (Pringle and Huisman, 2011, p.50). There are total of five forces such as character of the rivalry, threat of new entrants, threat of substitute products or services, bargaining power of suppliers and bargaining power of buyers (Williams

It determines the level of barrier whether it is easy or difficult for new entrepreneurs or investors to enter into an industry to begin a new business. The level of barrier is directly related to the threat of new entrants. For example, if the level or barrier is low, new entrepreneur can enter into the industry easily; therefore causing the competition of the industry to be high, then the prices and profits will fall (Williams and Mc Williams, 2010). Some industries are very hard to enter such as shipbuilding whereas some industries have a lower level of barrier like agency, restaurants or estate (Ucmak and Arslan, 2012). A great example of threat of new entrants will be the baristas in the coffee industry because they have a low barrier to entry. Nowadays there are many coffee shops such as Starbucks are providing free or low cost coffee-making lessons, such low cost “opportunities” has caused graduates from Barista School into difficulties of looking for a

If a company sells a product or service to numerous buyers, then the company is able to sell at a higher price (Williams and Mc Williams, 2010). According to Pringle and Huisman (2011), customers are able to force the prices of the product or service to be lower, demand a better quality of product or ask for more service, therefore causing a competition between suppliers (Pringle and Huisman, 2011, p. 39). A good example will be the fast food industry such as McDonalds or KFC. There are varieties of fast food in the industry; customers can switch from one fast food restaurant to another fast food restaurant easily. Besides that, customers can also look for other substitutes in the fast food industry like Burger King, so McDonalds have to form a better strategy in order to improve brand