Porter’S Five Forces,Porter’S 5 Forces

Porter’s Five Forces Model is a framework for understanding the competitive forces that shape industry attractiveness. It is a strategic management tool developed by Michael E. Porter in 1979.

The five forces are:

1. Threat of New Entrants:– This force refers to the ease or difficulty of new companies entering an industry. Factors that influence this force include industry growth, barriers to entry, and the presence of strong incumbents.

2. Bargaining Power of Buyers:– This force refers to the power that buyers have in negotiating prices and terms of service. Factors that influence this force include the volume of buyers, their willingness to switch brands, and the presence of substitute products.

3. Bargaining Power of Suppliers:– This force refers to the power that suppliers have in setting prices and controlling the supply of key inputs. Factors that influence this force include the number of key suppliers, their ability to influence prices, and the presence of alternative sources.

4. Threat of Substitutes:– This force refers to the threat of products that can satisfy the same needs as the industry product, but at a lower price. Factors that influence this force include the availability of substitutes, their price, and the ease of switching between products.

5. Competitive Rivalry:– This force refers to the intensity of competition between existing firms. Factors that influence this force include the number of competitors, their market share, and the strength of their competitive advantages.

Additional Considerations:

• The five forces are not static and can change over time.
• The relative strength of each force varies depending on the industry and market conditions.
• Companies can influence the forces to their advantage by developing strategies that strengthen their position in the industry.

Example:

In the automotive industry, the threat of new entrants is high due to the high barriers to entry. The bargaining power of buyers is moderate, as there are a few large buyers who have a high market share. The bargaining power of suppliers is high, as there are a few large suppliers who control a majority of the supply of key inputs. The threat of substitutes is moderate, as there are a few substitute products available. Competitive rivalry is intense, with a number of strong competitors vying for market share.