Industry Analysis Using Porter´s Five Forces Model Essay

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1.0 SECTION ONE: INDUSTRY ANALYSIS 1.1 Features of the Industry The automobile industry experienced intensive competition and low profitability in the past due to crisis. The ‘Five Forces’ model advanced by Porter is influential in its capability to designate many market conditions. This framework predicts the profitability of a market, it is a powerful tool for analysing industries, but firms should consider number of problems experienced when it is used. The major problem are to do with industry definition, the static nature of the model, low cost-differentiation axis. Figure 1.1 The Porter’s Five Forces Model …show more content…

1.1.3 Bargaining of Suppliers The equipment manufacturers can compete for the market share; that is the supplier power can be increased as their sector consolidated through alliance. Goodstein, Nolan and Pfeiffer (1993) postulates that suppliers can impact the industry by raising or threatening to raise prices or by reducing the quality and availability of goods. Such moves can impact profitability of the firms, especially when the firm cannot raises its price to cover the costs incurred. 1.1.4 Competitive Rivalry Tough rivalry pressures companies to seek cost reduction via numerous sources. Due to innovation, economies of scale and cost reduction, a strong wave of competition increases on some established manufacturers. Johnson, Scholes and Whittington (2006. p480) postulated that “…competitive rivalry amongst organisations can raise through the process of generic specifications or diminished if one firm develops a new product or process...” therefore the leading automobile manufacturers determines the desirability of the industry as competitors will be struggling to uphold their power in that industry. 1.1.5 Threat of Substitute Substitution reduces demand for a particular products as customers switch to alternatives. This depends on whether a substitute provides a higher perceived benefit or value, (Johnson and Scholes, 2002). They may be substitution of need by a new product rending the existing

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