Article No.

Porters Five Forces

Review
According to porter point of view if you first time enter into industry or you are a new player in industry that is a venture for you. Now the point is that how differ from other? If all firm in existing industry providing same product and service. Background so the porter give the concept of five forces that is based on the point to assess the profitability opportunity and risk. So he gives the five forces that are following (1) supplier (2) buyer (3) entry barrier (4) substitute (5) rivalry.

Power of supplier
So the relation of buyer and supplier is built up on the bases of reliability .when they are providing good raw material so when the material will be good the quality of good of a product will be good So the cost will be low. So the segment will be attractive when the supplier is not good in case of price mean not reduce the price not give good quality. Organize in a formal way etc.

Power of Buyer
That is the impact of consumer on the industry. Some time there may be a concept of monophony means there are many supplier and single buyer. So it has good effect on decision making. For example it can reduce price by competition of supplier or can purchase better material from a regular and organize supplier

Barrier s to entry.
So there may be arise competition when new firm enter in to market that is a big problem for manufacturing firm instead of service firm .so when a good firm enter in to a market that it is difficult leave or exist as was difficult to enter .

Substitutes products
When there is a problem of substitutes then it results not to increase profit margin and cannot make difference. So the product is available to everyone so they have flexibility to buy from any buyer. So price cannot be high.

Competitive rivalry
By competitive rivalry you can gain competitive advantages from the other on the bases o f better strategy formulation, so on the bases of good quality no cot you can gain more benefits as compared to competitors.

Article No.2 Porter five forces analysis

INTRODUCTION

Porter five forces analysis is a framework for industry analysis and business strategy development. It draws upon industrial organization economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. 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 which available profits for all firms are driven to normal profit. Three of Porter's five forces refer to competition from external sources. The remainder is internal threats. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average. Porter's five forces include - three forces from 'horizontal' competition: the threat of substitute products or services, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers.

Review of Five Force model

Threat of new entrants
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, the abnormal profit rate will trend towards zero (perfect competition).

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 non-performing firms can exit easily.

Economies of product differences Brand equity Switching costs or sunk costs Capital requirements Access to distribution Customer loyalty to established brands

Threat of substitute products or services

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), albeit while giving Pepsi a larger slice at Coke's expense. Another example is the substitute of traditional phone with VoIP phone.

Buyer propensity to substitute Relative price performance of substitute Buyer switching costs Perceived level of product differentiation Number of substitute products available in the market Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product. Substandard product Quality depreciation

Bargaining power of customers

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer switching costs relative to firm switching costs Buyer information availability Availability of existing substitute products Buyer price sensitivity

Differential advantage (uniqueness) of industry products

Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources. Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost or differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition - ability to forward vertically integrate and cut out the BUYER

Intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Sustainable competitive advantage through innovation Competition between online and offline companies Level of advertising expense Powerful competitive strategy Firm concentration ratio

REFFERENCE
Michael Porter, Nicholas Argyres, Anita M. McGahan, "An Interview with Michael Porter", The Academy of Management Executive 16:2:44at JSTOR Michael Simkovic, Competition and Crisis in Mortgage Securitization Kevin P. Coyne and Somu Subramaniam, "Bringing discipline to strategy", The McKinsey Quarterly, 1996, Number 4, pp. 14-25

Article No.3

Porters Five Forces

Assessing the Balance of Power in a Business Situation INTRODUCTION
The Porter's Five Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit. Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations. Understanding the Tool: Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are: Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you. Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.

 Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it. These forces show together in a diagram.

This tool was created by Harvard Business School professor, Michael Porter, to analyze the attractiveness and likely-profitability of an industry. Since publication, it has become one of the most important business strategy tools. The classic article which introduces it is "How Competitive Forces Shape Strategy" in Harvard Business.

 The threat of new entry is quite high: if anyone looks as if they're making a sustained profit, new competitors can come into the industry easily, reducing profits. Competitive rivalry is extremely high: if someone raises prices, they'll be quickly undercut. Intense competition puts strong downward pressure on prices. Buyer Power is strong, again implying strong downward pressure on prices.

There is some threat of substitution.

Unless he is able to find some way of changing this situation, this looks like a very tough industry to survive in. Maybe he'll need to specialize in a sector of the market that's protected from some of these forces, or find a related business that's in a stronger position. The Threat of New Entry: The ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down). By thinking about how each force affects you, and by identifying the strength and direction of each force, you can quickly assess the strength of your position and your ability to make a sustained profit in the industry. You can then look at how you can affect each of the forces to move the balance of power more in your favor.