Strategic Management

Porter’s 5 Forces Analysis.

1. Why are new entrants a threat ?

New entrants will possess threats because it will affect the industry greatly in any way. First it will create competitive rivalry. The competition between firms determines the attractiveness of a sector. Companies are struggling to maintain their power so that they can still exist. The competition changes based on sector development, diversity and the existence of barriers to enter. Second the emerging of substitute product which can be considered as an alternative compared to supply on the market. This means that the consumers have more choice to choose. These substitute products can be dangerous towards the existing company as substitute products often have a better price or quality. Third is the bargaining power of suppliers are more powerful when their product is most effective or unique. Other than that the switching cost from one supplier to another is high and some company couldn’t afford it.

2. What are factors impacting the threat of new entrants ?

a) Low switching cost for consumers. For example for customers to switch to another mode of transport as increasing petrol prices therefore commuters switch to trains.

b) Growing size of the market as the population is increasing so they are more aware of environmental consciousness.

c) Economies of scale this is when the company buy the resources in large quantities, therefore they can purchase it with lower price and the production cost also be lowered. If a company enters at a smaller scale it will be costly and less effective for the company.

d) Differentiation of product is creating a brand identity that differentiates a product or service from competition which encourages loyalty from buyer.