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Competitive Analysis

2006 words - 9 pages

Porter five forces analysis
From Wikipedia, the free encyclopedia

A graphical representation of Porter's five forces

Porter five forces analysis is a framework to analyze the level of competition within an industry
and business strategy development. It draws upon industrial organization (IO) economics to derive
five forces that determine the competitive intensity and therefore attractiveness of an Industry.
Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is
one in which the combination of these five forces acts to drive down overall profitability. A very
unattractive industry would be one approaching "pure competition", in ...view middle of the document...

Porter developed his Five Forces analysis in reaction to the then-popular SWOT analysis, which he
found unrigorous and ad hoc.[1]Porter's five forces is based on the Structure-Conduct-Performance
paradigm in industrial organizational economics. It has been applied to a diverse range of problems,
from helping businesses become more profitable to helping governments stabilize industries.[2] Other
Porter strategic frameworks include the value chain and the generic strategies.
Contents

1 Five forces
o 1.1 Threat of new entrants
o 1.2 Threat of substitute products or services





o 1.3 Bargaining power of customers (buyers)
o 1.4 Bargaining power of suppliers
o 1.5 Intensity of competitive rivalry
2 Usage
3 Criticisms
4 See also
5 References
6 Further reading

Five forces[edit]
Part of a series on Strategy

Strategy

Major dimensions


Strategy • Strategic management
Military strategy • Strategic thinking

Strategic planning • Game theory

Strategic studies

Thought leaders

Michael Porter • Henry Mintzberg

Bruce Henderson • Gary Hamel


Jim Collins • Liddell Hart

Carl Von Clausewitz • Sun Tzu • Chris Zook • Adrian Slywotzky

Concepts

Business model

Competitive advantage • Experience curve


Value chain • Portfolio theory

Core competency • Generic strategies

Frameworks & Tools



SWOT • Five Forces

Balanced scorecard • Strategy map
PEST analysis • Growth–share matrix

V

T

E

Threat of new entrants[edit]
Profitable markets that yield high returns will attract new firms. This results in many new entrants,
which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms
can be blocked by incumbents (which in business refers to the largest company in a certain industry,
for instance, in telecommunications, the traditional phone company, typically called the "incumbent
operator"), the abnormal profit rate will trend towards zero (perfect competition).
The following factors can have an effect on how much of a threat new entrants may pose:













The existence of barriers to entry (patents, rights, etc.). The most attractive segment is one in
which entry barriers are high and exit barriers are low. Few new firms can enter and nonperforming firms can exit easily.
Government policy
Capital requirements
Absolute cost
Cost disadvantages independent of size
Economies of scale
Economies of product differences
Product differentiation
Brand equity
Switching costs or sunk costs
Expected retaliation
Access to distribution
Customer loyalty to established brands
Industry profitability (the more profitable the industry the more attractive it will be to new
competitors)

Threat of substitute products or services[edit]
The existence of products outside of the realm of the common product boundaries...

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