Porter Five Forces Model

1242 Words Sep 4th, 2012 5 Pages
Porter's 5 forces model is a powerful way of analysing the competitive forces that shapes every industry in general. This was developed by Michael E. Porter of Havard Business School in 1979. This tool helps you to identify whether a new product, investment, services or business have the potential to be profitable.

The 5 competative forces that are taken into consideration are:
Competition in the Industry
Potential of new entrant into Industry
Power of Suppliers
Power of Customers
Threat to substitute products

Lets discuss each of these points in detail:

Competition in the Industry:

This describes the competition between the existing firms in an industry. Greater the competitive riverly (companies providing equally good
…show more content…
Huge inital expenditure and lower price leave very less profit margin. The bottom line is a competitor's single innovation can change the whole senario of the industry.
Lets take an example of a monopoly industry. Chocklate industry in India has just one big player Cadbury. Go to any Big Bazaar or a D-Mart outlet you will find 90% of chocklate by Cadbury. When you go to purchase chocklate what you look for ...Dairy Milk, Perk, Eclairs, Temptation, Celebration,Halls all are produced by Cadbury. As far as I remember I have seen Dairy Milk's ad on TV when I was 5 years old and its still there in market and in all probability it will be there for next 20 years.The current market share of Cadbury stands at impressive 71% even the 2003 worm were not able to eat its market share. What we can conclude a monopoly and a great business!!

Potential of new entrant into Industry:

Its not only the existing players in an industry pose threat to each other, a new entrant can also affect the competition. The easier it is for a new firm to enter in a business, the more cut-throat competition there will be.The factors that can limit threat of new entrant are called as Barriers to Entry. Following are some some barriers to entry:

Government Restrictions and legislations: Although government's job is to preserve free competitive market, it restricts competition through regualtions and restrictions. Oil sector in India is an example. Pre liberization era it was a
Open Document