External Factor

The External Assessment

Chapter Three

Competitive Analysis: Porter’s Five Forces Model

• Porter’s Five Forces Model of Competitive analysis

is a widely used approach for developing

strategies in many industries. • According to Porter, the nature of competitiveness in a given industry can be viewed a composite of five forces:

2

The Five-Forces Model of Competition

3-3

The Five-Forces Model of Competition

Following three steps can indicate whether the firm

can make an acceptable profit:

1. 2. 3.

Identify

key

aspects

or

elements

of

each

competitive force that impact the firm.

Evaluate how strong and important each element is

for the firm.

Decide whether the collective strength of the elements is worth the firm entering or staying in the industry.

3-4

The Five-Forces Model

1. Rivalry among competing firms

• Most powerful of the five forces.

• Focus on competitive advantage of strategies

over other firms.

3-5

The Five-Forces Model

3-6

Barriers: walls Perishable: Unpreserved or fresh Excess: Extra or surplus

7

The Five-Forces Model

2. Potential Entry of New Competitors • Whenever new firms can easily enter a particular industry, the intensity of

competitiveness among firms increases. • Barriers to entry are important. • Quality, pricing, and marketing can defeat barriers.

3-8

Barriers to Entry

• •

Need to gain economies of measure quickly.

Need to gain technology and specialized knowhow.

• • • • •

Lack of experience.

Strong customer loyalty.

Strong brand preferences.

Large capital requirements.

Lack of adequate distribution channels.

.3-9

Barriers to Entry

• • • • • • •

Government regulatory policies

Charges/rates

Lack of access to raw materials

Control of patents Undesirable locations Counterattack by fixed firms Possible overload of the market

3-10

The Five-Forces Model

3. Potential development of substitute products:

Firms may...