Porter Five Model

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PORTER’S FIVE FORCES MODEL

Porter’s five forces is a framework developed by economist Michael E. Porter to analyze level of competition within an industry and business strategy development. Further, it determines the probability and attractiveness of a market or market segment. In 1979, Porter was an associate professor at Harvard Business School, the Porter’s framework maintains that the attractiveness of a market segment is determined by five competitive forces namely: 1. Threats of potential new entrants 2. Bargaining power of buyers 3. Bargaining power of suppliers 4. Threats of substitute products 5. Rivalry among competitors

1. Threats of potential new entrants
The threat of new entrants is usually based on the market entry barriers, which can be said to provide obstacles for newcomers to gain a foothold in any given industry. These barriers can take many different forms. Briefly, it can be said that entry barriers exist whenever it is difficult or not economically feasible for an outsider to copy or imitate the existing player’s competitive capabilities. Common forms of entry barriers are depicted below: * Economies of scale * Capital requirement of entry * Access to supplies and distribution channels * Customer or supplier loyalty * Lack of experience in industry * Legal restrains such as trade barriers

2. Bargaining Power Of Buyers
Important determinants of buyer power are the size and the concentration of customers. Other factors are the extent to which the buyers are informed about other vendors and suppliers and to the extent to which buyers can quickly identify other sources of supply. Common reasons for great bargaining power of buyers are depicted below: * Great concentration of buyers – few buyers * The cost of switching supplier is low * Many equally competent suppliers…...

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