Porter's Five Forces Model Of Nestle

After selecting a topic, I then decided on which industry I would focus on and which company specifically. I chose the food industry mainly because it contributes to the growth of the economy as a whole. It is said that the industry is slowly focusing on the needs of the consumers, especially millennials. There is a desire for a fresh, healthy and natural choices of food. In a recent survey, health and wellness are having a significant positive impact on sales of the F&B companies. (RSM, 2017)1

According to a business magazine, Nestle is one of the biggest food companies in the market and continues to lead the industry. (Forbes, 2017)2 That is why I have chosen Nestle Pakistan as my main company because it is the market leader in the food industry

Therefore, the results may be bias or inconsequential that may mislead the readers of the analysis. (Quora, 2016)10

- It gives equal weightage to every four elements as there is no guide to which element is most significant to the company. (Profolus, 2017)11

Porter’s five forces

Porters five forces is a model which looks at how attractive an industry is and the level of potential profit it can make. Porter decided that there are five forces that makes an industry attractive. The five forces are:

Threat of new entrants Threat of new entrants is high when the barriers to entry are low. Examples of barriers to entry are high initial cost of investment, switching cost, government regulations, dominant players, etc.

Bargaining power of buyers The bargaining power of customers is high when they are able to demand lower prices in return for high quality products. This happens when there is low switching costs and similar products are available in other markets.

Bargaining power of suppliers The bargaining power of suppliers, on the other hand, is when the suppliers are able to increase their prices in return for a low quality product. This happens when the supplier is offering a unique product or offers technical

(Kaplan Publishing, 2017)12

Porter’s five forces may be a great tool when analyzing the industry attractiveness of a certain industry however limitations do exist and some of these limitations are:

- Porter devised the model which assumes that the industry would be a static industry. Whereas in reality, external factors may be present that may significantly affect the company such as globalization or advanced technology are emerging. (Investopedia, 2018)13

- It gives equal consideration to the five forces in which in reality, there may be one or two forces that are stronger than the other forces. In some cases, when the customer forward integrated and therefore makes their bargaining power very strong or on the other hand suppliers backward integrated. (Investopedia, 2018)14

Ratio Analysis

Ratio analysis is used by companies to be able to further understand the overall financial performance during the year. (Open tuition, 2018)15 It is usually done by calculating financial ratios (profitability, liquidity, gearing and investor related) and comparing it against the previous’ year ratios or industry averages. It may recognize any trends in the performance or may identify issues. (Open tuition,