Environmental Analysis- Porter's Five Forces

491 Words2 Pages
Michael Porter’s ‘Five forces’ model is very important to let us understand the competition and analyse competitive forces in the environment. Porter is looking at the competition in a new way, showing its different aspects, and that it is coming from more than one area. Analysis of the present and future forces suppliers and customers is a very important part of the analysis of the sector. This allows the company to locate the factors causing the costs and profits of the company and identify strategic suppliers and customers and determine to what extent they can contribute to the success or failure of the company's strategy in the future. Traditional approach would consider rivalry among existing competitors (i.e. other companies existing on the market and offering this same/similar product) as a main area of competition and it would focus mainly on that. However it is essential to look at the ‘bigger picture’ that Porter is proposing to ensure full analysis of the competition in our industry. As per model shown above one of the areas that Porter had highlighted was the ‘Threat of new entrants’. To analyse the market, and competition we have to ask ourselves few questions: how easy it is to get to the market? Are there any barriers to enter the market or to start manufacturing the product? Answers for these questions will influence the analysis. Another force is the Threat of Substitute Products or Services, i.e. company that is offering a product or service similar to ours that will provide this same outcome of satisfactions, however this is done by using different methods to the ones used by us i.e. very often using new technology. Bargaining power of suppliers is the fourth force according to Porter’s model. Level of competition is affected by the bargaining power of the suppliers. For example when there is many suppliers and not that many companies

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