Porter's Five Structure Of 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 (Usmak 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 customers can get substitute products or services easily then the competition will increase, therefore causing the profits to decrease (Williams and Mc Williams, 2010). According to Ucmak and Arslan (2012), substitute products and services can affect the attractiveness and the profitability of the industry because price level is limited (Ucmak and Arslan, 2012, p. 1038). Moreover, bargaining power of suppliers is determining on how much control suppliers have in setting the price for the parts or materials that supply as an input to firms in an industry. If a company only relies on a specific supplier, then the supplier will have the bargaining power to set the price of the parts or materials (Williams and Mc Williams, 2010). However, if a company can purchase the same material from many different suppliers, then the company will have the opportunity to bargain with the supplier in order to keep the price low (Williams and Mc Williams,