Porter's Five Forces Analysis

Porter’s five forces model was developed by Michal Porter in 1979 and is considered as a classic industry analysis tool. According to Porter’s five forces model he identify five main forces which influence every industry. They are bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threat of substitute products and rivalry among existing competitors. Threat of new entrants, threat of substitute products, rivalry among existing competitors are called as horizontal competition and bargaining power of suppliers, bargaining power of buyers called as vertical competition.

The force rivalry among existing competitors describes the current competition between existing players or the firms in the industry. This determine by number of competitors, exit barriers, industry growth rate, diversity of competitors and relative size. If there are large number of firms of same size and no dominant firm it increases rivalry. Some industry needs expensive machines and other specialized equipment a firm cannot simply move to another industry. If they need to move they have to sell their specialized machines. But it is not easy and therefore they have to remain in the industry and it adds competition to market. When market size is small and has slow growth rate companies have to fight for their market. Let’s take milk powder industry in Sri Lanka. There are many firms like Anchor, Milco (Highland), Malibon milk, Kothmale and Lanka milk foods. There is a very