Chapter 5, Problem 10AYK

Explanation of Solution

Plan for a start-up company to succeed:

The start-up company entrepreneurs must learn and analyze Porter’s five strategies to combat competition in a global world. They must study about their type of industry and evaluate how attractive it would be for a start-up company to enter the marketplace.

Porter’s five strategies:

• The ability of a customer to buy a product, which affects the price, is called as Buyer power.
• The ability of a supplier to impact the value (price) they charge for product is called as Supplier power.
• Threat for product or services depends on number of substitutes to choose from the market, if there are alternatives, the threat is high, if there are few alternative, the threat is low.
• When a competition is easy in market, many new competitors can enter easily and cause a threat for existing products, if the market has barriers to enter, then competition from new competitor will be low.
• A market can see fierce competition, if the rivalry between existing competitors is high and competition can be low, if rivalry is more complacent.

After analyzing this five strategies and determining, if it would be a wise decision to enter certain industry and attain profitability, then to ensure success, the entrepreneurs must determine, which of the Porter’s generic strategies to follow...