Tuesday 25 December 2018

Porter five forces analysis

A Porter's Five Forces Analysis is an important tool for understanding the forces that shape competition within an industry. The Five forces model was define by M. Porter in 1979 to understand how five key competitive forces are affecting an industry. The porter five forces Analysis or in English United Kingdom called with Porters’ Five Forces Analysis is a tool that is simple yet very useful to understand where lies the power of our company in the face of the situation of competition in the business world.

By using these five forces Analysis, we can understand the power of the position of the current competition and the strength of the position of competition on businesses that are being planned.

The concept of the five forces Analysis (Five Forces) was first put forth by Michael Porter from Harvard University in 1979. Michael Porter is also known as the father of Modern Business Strategy. Porter five forces analysis or Porter's Five Forces Analysis is one which is often used in the Analysis of management strategy of a company.

Porter five forces analysis (Porter's Five Forces Analysis)

As the name suggests, the Porter's Five Forces Analysis is using Industrial Strength 5 to determine the intensity of competition in an industry. The following are the five Strengths according to Michael Porter or better known as Porter's Five Forces Analysis.

  1. The Threat of new entrants (barriers to new entrants)

    This strength determines how easy (or difficult) to get into certain industries. If the industry can get high profits with little resistance, then the competitors will be immediately springing up. A growing number of rival companies (competitors) that compete in the same market then the profit or earnings will soften. On the contrary, the higher the barrier to entry for new entrants so our company's position in the industry will be more benefited.
    Some of the barriers for new arrivals such as:

    • Require high capital or funds.

    • High Technology.

    • Patent, trademark.

    • Economies of scale

    • Customer Loyalty

    • Government Regulations

  1. Bargaining power of suppliers (Suppliers bargaining power)

    The bargaining power of strong suppliers allow suppliers to sell raw materials at high prices or sell low-quality raw materials to the purchasers. Thus, corporate profits will be low because of the high cost to buy the raw materials of high quality. In contrast, the lower bargaining power suppliers, the higher corporate profits.

    Bargaining power suppliers be high if only a few suppliers that provide the desired raw materials while many buyers who want to buy it, there is only a little bit of a substitute or raw material supplier monopolize the raw materials that exist.

  1. Bargaining power of buyers (Buyer bargaining power)

    It assesses the strength of the bargaining power or the power supply of the purchaser/consumer, the higher the bargaining power of buyers in demanding lower prices or higher quality of product, the lower the profit or earnings which will be obtained by the company manufacturers. Lower product prices mean revenue for the company is also getting lower. On the one hand, companies require high costs in producing a high quality product. In contrast, the lower buyer bargaining power the more profitable for our company.

    Bargaining power of buyers is high in a number of substitute products that are much, much stock available but only a few purchasers.

  1. Threat of substitutes (barriers to substitute products)

    The obstacle or threat occurs when buyers/consumers get cheaper replacement products or replacement products that have better quality with a low diversion costs. The less the substitute products available in the market will be more beneficial to our company.

  1. The Rivalry among existing competitors (Competitive with Competitors)

    This power is the main determinant; the company must compete aggressively to gain a large market share. Our company will be more benefit. When our company strong positions and the level of competition on the market (Market) the same. Increasingly tight competition will occur when many competitors who captured the same market share, customer loyalty is low. The product can be quickly replace, and many of the competitors have the same capabilities in the face of competition.

A Porter's Five Forces Analysis explores five principal industry factors to determine the attractive of a given industry in a given market. In this P5F exercise, we look at the automobile industry in India. This is independent of any manufacturer. As such, it applies to every Indian car manufacturer.

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