Porter five forces analysis

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	SUPPLIER POWER Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry
THREAT OF NEW ENTRANTS Barriers to Entry Absolute cost advantages Proprietary learning curve Access to inputs Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Proprietary products		THREAT OF SUBSTITUTES -Switching costs -Buyer inclination to  substitute -Price-performance  trade-off of substitutes
	BUYER POWER Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs. industry Substitutes available Buyers' incentives	DEGREE OF RIVALRY -Exit barriers -Industry concentration -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes

                                                                                                                                                                                                                                                                                  

A graphical representation of Porter's Five Forces

Porter's Five Forces is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business Schoolin 1979. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven down to zero.

Three of Porter's five forces refer to competition from external sources. The remainder are internal threats.

Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally, requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average.

Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers.

This five forces analysis, is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies.^[

Porter developed his Five Forces analysis in reaction to the then-popular SWOT analysis, which he found unrigorous and ad hoc.^[

 

 

 

 

 

 

The five forces

 

 

The threat of the entry of new competitors

Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero (perfect competition).

§                    The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.

§                    Economies of product differences

§                    Brand equity

§                    Switching costs or sunk costs

§                    Capital requirements

§                    Access to distribution

§                    Customer loyalty to established brands

§                    Absolute cost

§                    Industry profitability; the more profitable the industry the more attractive it will be to new competitors

 

 

 

 

 

 

The threat of substitute products or services

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives:

§                    Buyer propensity to substitute

§                    Relative price performance of substitute

§                    Buyer switching costs

§                    Perceived level of product differentiation

§                    Number of substitute products available in the market

§                    Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product.

§                    Substandard product

§                    Quality depreciation

 

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

§                    Buyer concentration to firm concentration ratio

§                    Degree of dependency upon existing channels of distribution

§                    Bargaining leverage, particularly in industries with high fixed costs

§                    Buyer volume

§                    Buyer switching costs relative to firm switching costs

§                    Buyer information availability

§                    Ability to backward integrate

§                    Availability of existing substitute products

§                    Buyer price sensitivity

§                    Differential advantage (uniqueness) of industry products

§                    RFM Analysis

 

The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.

§                    Supplier switching costs relative to firm switching costs

§                    Degree of differentiation of inputs

§                    Impact of inputs on cost or differentiation

§                    Presence of substitute inputs

§                    Strength of distribution channel

§                    Supplier concentration to firm concentration ratio

§                    Employee solidarity (e.g. labor unions)

§                    Supplier competition - ability to forward vertically integrate and cut out the BUYER

Ex. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from him.

 

 

 

The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

§                    Sustainable competitive advantage through innovation

§                    Competition between online and offline companies

§                    Level of advertising expense

§                    Powerful competitive strategy

§                    The visibility of proprietary items on the Web^[2] used by a company which can intensify competitive pressures on their rivals.

How will competition react to a certain behavior by another firm? Competitive rivalry is likely to be based on dimensions such as price, quality, and innovation. Technological advances protect companies from competition. This applies to products and services. Companies that are successful with introducing new technology, are able to charge higher prices and achieve higher profits, until competitors imitate them. Examples of recent technology advantage in have been mp3 players and mobile telephones. Vertical integration is a strategy to reduce a business' own cost and thereby intensify pressure on its rival.

 

 

 

 

 

Usage

Strategy consultants occasionally use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position. However, for most consultants, the framework is only a starting point or "checklist" they might use " Value Chain " afterward. Like all general frameworks, an analysis that uses it to the exclusion of specifics about a particular situation is considered naїve.

According to Porter, the five forces model should be used at the line-of-business industry level; it is not designed to be used at the industry group or industry sector level. An industry is defined at a lower, more basic level: a market in which similar or closely related products and/or services are sold to buyers. (See industry information.) A firm that competes in a single industry should develop, at a minimum, one five forces analysis for its industry. Porter makes clear that for diversified companies, the first fundamental issue in corporate strategy is the selection of industries (lines of business) in which the company should compete; and each line of business should develop its own, industry-specific, five forces analysis. The average Global 1,000 company competes in approximately 52 industries (lines of business).

 

 

 

 

 

 

Criticisms

Porter's framework has been challenged by other academics and strategists such as Stewart Neill. Similarly, the likes of Kevin P. Coyne [1] and Somu Subramaniam have stated that three dubious assumptions underlie the five forces:

§                    That buyers, competitors, and suppliers are unrelated and do not interact and collude.

§                    That the source of value is structural advantage (creating barriers to entry).

§                    That uncertainty is low, allowing participants in a market to plan for and respond to competitive behavior. ^[3]

An important extension to Porter was found in the work of Adam Brandenburger and Barry Nalebuff in the mid-1990s. Using game theory, they added the concept of complementors (also called "the 6th force"), helping to explain the reasoning behind strategic alliances. The idea that complementors are the sixth force has often been credited to Andrew Grove, former CEO of Intel Corporation. According to most references, the sixth force is government or the public. Martyn Richard Jones, whilst consulting at Groupe Bull, developed an augmented 5 forces model in Scotland in 1993. It is based on Porter's model and includes Government (national and regional) as well as Pressure Groups as the notional 6th force. This model was the result of work carried out as part of Groupe Bull's Knowledge Asset Management Organisation initiative.

Porter indirectly rebutted the assertions of other forces, by referring to innovation, government, and complementary products and services as "factors" that affect the five forces.

It is also perhaps not feasible to evaluate the attractiveness of an industry independent of the resources a firm brings to that industry. It is thus argued^{[citation needed]} that this theory be coupled with theResource-Based View (RBV) in order for the firm to develop a much more sound strategy.

England win a Test Championship

Ayaseja Test against Australia in Test cricket after winning England had to prove their strength. The soil of India and the country has been devastated by the ICC ryankinyera first possession sthanatao strausa - force. Jayai not only a series, India were devastated by the hoyaitaoyasera lajjateo dubiyeche. I organized the first test of the ICC Test Championship: 1 Number of target groups. The storm with 013 in February pratyayai anustheya winning this championship siropata pesara stuyarda broad program.Broad said in an interview Saturday, "We now have a target for Championship. As many of our winning team, it is likely to top ICC ryankinyera there. The first phase, we have many good khelachi. And secondly, if we draw the final, and even our titles will be widespread. "Sirijatate Test against India in a broad hyatatrikasaha of 5 wickets. This was not very good, but the length of pesarera February.Do not get a place in the first Test series, it was in doubt. However, his ability to end a great bowling with his bhalomatoi evidence. The development of domestic cricket for the Game in a lot of work has নটিংহ্যামশায়ারের Broad said. Said, 'Sri Lanka after the tour, I realized that what I want to be the kind of bowler. What better way to taking all the wickets in Tests. I like a lot of pressure for the first time in my kyariyare parechilama. But then, so I really did lardase taking 4 wickets in that series took the ball to the left myacagulote me how to be.

Argentina win, Draw Brazil

Argentina 1 0 MexicoBrazil 1: 1, EgyptAustria 0 0 PanamaEngland 0: 0 North Korea

 Customer service has helped the U.S. not to leave a party uthate sarjio Argentina coach Batista. Anurdhba - 0 China by the end of Batista did not go for a walk to Walter pyarajoke. However, there is no indication that it spared yubabisbakapera Opening day match in Argentina. 1-0 win against China niyei meneikara chandamaya football field, they're. China draw 1-1 with Argentina and Egypt, but jitaleo carabarera champion Brazil. Yesterday another two-match World Cup draw has golasunya Colombia anusthanarata England - North Korea and Austria - Panama.Argentina had the opportunity to put some work in first half June. 48 minutes of their homes meneikara opposite Alan pulidora chip net. However, the cancellation is due to aphasaidera golati. 65 minute shot from so far outside the huyana turabera the meter is near 0. In the 71 minute mark of 0 to 10 meters away from a number of Jersey after the game Eric satei lamela. Helped to start the tournament with a win pyarajo happy coach, as well as strong yubadalatao meneikara kanakakapha win the World Cup anurdhba -17. This is a time to match the ball was in possession of more than oderai. However, I was more terrible akramanagulo and effective.Parapharamyanse happy I was the first match. The group currently has 3 points of winning the 'F' - its first in Argentina. The other match in Group 1 golasunya draw one point of England and North Korea. Byakhyata to Draw with North Korea on February esatika coach Brian Thus, only two weeks before I got together a group. On average, they did not yet include samajhotata. After the first 45 minutes we had a lot of good khelechi.Group 'E' - in Egypt for 1 minute ahead of diyechilena brajilake danilo. The head fell off the mark in the Corner to the defender. It is a 6 minute equilibration danilora bhulei pheraya Egypt. He can not clear a cross ball away from 10 meters to go paratei gabera. Sate is taken away from the equilibrium forward. After a few more opportunities for China Egypt palta attack could put them to work in June. 85 minutes of this field is embraced once again to Egypt and Brazil, Henrik elasahenauke Journals link here. You can find the share of low points in the first Brazilian coach phranko Network, to continue after the beginning of many opportunities we got.Byabadhanei big win would put them to work half than bigger. I do not want to lose points in the next match. " Group 'E' - in Brazil, Egypt, Panama, Austria _ The four groups payentai

Superhit singhama

Before the release of many singhama said, it is not certain, I debaganera dabam.Clothing is one of the UK has forged gajiye gompha khanakei review. He says everyone is different, however, after the release singhama, ajayake action hero, as found after many days. At present, no other action film hero, was not so lucky. "By the fans super happy. This journey began in 1991 with the aura of flowers kamte added to the carrier's first action hero medal lagiyechilena care. Almost all of the action biru debaganera chabitei son had his own book stanta. There are so brave to work after marriage, but kajalake has been to stay away from him. Action photos from the book, even away from the busy parechilena comedy film. However, knowledge is often old nesata umkijhumki marata. I have to wait an actual action, which in turn can be bese manual celluloid screen. Singhama temanai one picture. The first three days, seven million to 31 million rupees in the year's second-highest business openinyera singhama took the record home. It's just, spicy Bollywood action film that Salman Khan is changing the information. His oyanteda, dabam amajanatara Comes back cleanly for recreational bharapura Action, Romance, item songs. The prince alone in the sky into 50 gundake blow out, a great action scene after a commanding win in the end. The result - happy visitors. Kahini how much an exception, not the general audience to think. They expect one to two hours to enter another world, that will just clean the world of entertainment.

Must Read singhama salamanera dabam - not even a copy of the Tamil film singhama - The else a Bollywood dance version. Bollywood star to amajanatara response - all in the concept, singhama blakabastarera chutache way. This prediction, however, the astrologer emanatii in January of this year. The uphill - downhill I passed last year in Mumbai oyansa absent at the time, the kaba jaoge tuma, 3 noise - like a superhit, hit the gift diyechilena visitors. It - and I'd had blakabastara hitati. Astrologer said, Devgan to an 'A' to give away. By luck, but if phere. I believe jyotisasastre singhama - before the shooting started from Devgan in 'Who told Us. I did not break. So, now that the astrologer and he debaganai balale whole.Singhama - The role of the little stars. Thus, a star of Bollywood to audiences nayikake chosen to raise the expectations of mercury sethi rohita. Photo opportunities of the southern film stars Kajol agaraoyalakei. Kajol was born in Mumbai, he opposed the Punjabi Tamil film with the carrier. 1 in the south, he added. Sometimes, however, do not queue gyaya Ho Bollywood film to the character and kept customers aisbariya rye. However, the first Bollywood stars Kajol as singhama chabitei pace. Look for a teacher's role in learning Marathi kajalake stars - Bollywood is one of the top lady and the most popular actress Kajol. Kajalakei not only fresh, ajayakeo regular training at home by his wife Kajol. By costa Marathi film so that, as the Maharashtra police department spokesman, who recently announced the names of the book. Kajol her husband's new film is great utphulla. The entire theater is sisa, Kajol kept clapping her leave. But it is - not, at the end of the film visitors to Rajasthan in respect of the book, and his team. The state is running the show at the request of tinatayao audience. I love nature singhama bajirao siksa and battery pack ayabasa viewers. This love and alliance kajanerai or bhagye?

Obama attacks Republicans

President Barack Obama warned of a "deep economic crisis" if the United States fails to raise its debt limit and urged Americans to pressure Republican lawmakers to compromise to avert a default.

In a televised addresss late Monday only eight days before Washington begins to run out of money to pay its bills, Obama called the weeks-long debt talks stalemate "a dangerous game" that the country "cannot afford to play." As the president spoke from the East Room of the White House, the dollar plunged to a four month low in Tokyo amid growing jitters as the impasse between Republicans and Democrats over the US debt crisis deepened.

Obama cast the blame for the stalemate on the Republicans' refusal to raise the $14.3 trillion debt ceiling unless there is agreement to make deep spending cuts without increasing taxes on the wealthy.

If Congress fails to raise the ceiling by August 2, the resulting economic disaster could include higher interest rates for the US government as well as for consumers.

Failure to compromise, Obama said in his speech from the White House, "would risk sparking a deep economic crisis -- one caused almost entirely by Washington."

He rejected a Republican proposal for a temporary increase in the debt limit, arguing it would leave the underlying problem unresolved and lead to a repeat of the current crisis in just six months' time.

"That is no way to run the greatest country on Earth. It is a dangerous game we've never played before, and we can't afford to play it now," he said.

With a potential US default as of a week from yesterday, Obama appealed to Americans to "make your voice heard" to members of Congress.

Many Americans appeared to have heeded the president's call.

US media reported that various congressional websites -- including those for prominent Republicans like House Speaker John Boehner, House Majority Whip Kevin McCarthy, and congresswoman and presidential contender Michele Bachmann -- were inaccessible, after an apparent server crash following the speech.

Obama's primetime speech late Monday was only his seventh formal address to the nation, and the first since he unveiled a timeline for a US troop withdrawal from Afghanistan in June.

Boehner, the Republican leader of the US House of Representatives, responded with a late-night speech of his own, blaming Obama for the crisis and warning that while the US cannot default on its debt obligations, Americans nevertheless would demand deep spending cuts.

Boehner -- who has flatly rejected Obama's call to increase taxes on the rich and wealthy corporations -- is proposing a two-step plan with debt increases first to February or March 2012, and later to 2013.

"Time is running short and it would be irresponsible for the president to veto this common-sense plan and run the risk of default," said Boehner.

"I would encourage the Senate to pass this plan and the president to sign it," he said, portraying Obama as the inflexible party in the protracted debt negotiations.

"The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today."

The prospect of the world's richest country running out of cash to pay its bills come next Tuesday sent stocks sliding and gold soaring, while the IMF warned of a "severe shock" to the world economy absent an elusive breakthrough.

All sides in the dispute agree Washington must reduce its deficit but disagree on the size and blend of spending cuts and revenue increases as well as on how and whether to slice into the social safety net.

Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally but can only do so through August 2.

At that point, US leaders will face an agonizing choice about cutting an estimated 40 cents of every dollar in spending and defaulting either on debt payments or on other obligations like government health or retirement benefits.

Meanwhile, there were signs the stand-off was exacting a political toll on both the president and Republicans.

A poll for the Washington Post and ABC television showed weakening support for Obama's economic agenda, and found the percentage of people who said he has made the economy worse has jumped six points since October to 37 percent.

Republicans also took a hit in Americans' esteem.

About as many people blamed Republican policies for the economy's woes as they do Obama. But the poll also found that 65 percent disapproved of the GOP's handling of jobs -- still the top economic issue -- compared to 52 percent for the president.

The International Monetary Fund pressed US politicians to raise the debt ceiling "expeditiously to avoid a severe shock to the US economy and world financial markets" with the deadline now looming large.