Five Forces Model

Porters five forces analysis is used by many corporations to analyze the external specific
environment of the industry that the company is involved in. The industry is a group of
organizations and services that are competing for similar customers and resources. Analyzing the
specific environment involves looking at industry variables. These variables include: the current
rivalry of businesses, major barriers to entry, the bargaining poer of the buyer, the bargaining
poer of the supplier, and the threat of substitute products in the market. !ach part of this
analysis is provided for "# company in the folloing revie.
Current Rivalry
The current rivalry is the competition that "# ill face from other businesses in the same
markets. $ndustry groth is a very important opportunity for "# to keep rivalry lo. %henever
the industry reaches it&s peak groing point the rivalry of competitors starts to increase
dramatically. There can also be the situation here the industry never reaches its groing point
and becomes obsolete completely. $n either of these situations the increased stress level of
competition beteen firms is a direct result of the lack of ne markets to increase the
corporations sales. There is an opportunity for "# in the current rivalry sector of the five forces
model because of the ne markets that are available. 'ince there are still groing markets in the
industry the company doesn&t face the rivalry pressures that it ould in a market ithout groth.
(roth is high in global markets such as )hina, *ussia, +razil, and Taian. These
economies are forecasted to gro by ,-. in the next seven years. "#&s diversified product line
provides opportunities for the company in most of the markets including the medical, housing,
and electronic markets. Though the /nited 'tates, !ngland, and 0apan have experienced some
maturity in these same markets, "# can expect to leverage it&s products in ne markets that ill
make its business profitable. The medical segments of these markets are expected to gro from
,1. in 2--1 to 22. in 2-2-. This is an ideal opportunity for "# because of it&s large presence in
the housing, and medical industry. This opportunity should also keep the stress level of
competitors to a minimum.
3o fixed costs are another opportunity that "# is able to take advantage of. +ecause of
"#&s conglomerate business model they produce many products creating economies of scale. 4or
example 5- . of /.'. homes use tape that "# manufacturers. +ecause "# manufacturers such
idely used products the fixed costs are spread out over this mass number of merchandise. "#
also produces products such as optical lenses that are in most cameras today. Their mass
production allos them to manufacture products at little cost.
Major Entry Barriers
+arriers to entry are an important player in the five forces model because they also
directly affect the level of competition in the industry of the company. A barrier to entry is any
situation or instance that makes it difficult for another firm to enter the market and be successful.
The threat of ne entrants for "# company is lo. "# possesses an high opportunity to
dominate it&s markets because of the high capital re6uirements it creates to manufacture
innovative products in each industry it competes in. 4or example the type of products that "#
manufactures in the medical industry re6uire heavy capital spending in order to promote research
and development. "# spent 7,,25" million in 2--5 on research and development alone. $f a firm
does not have capital of this caliber it cannot enter the industry. They also re6uire high expertise
in each field due to the extremely refined subject matter. 8ften there is little room for error hen
dealing ith products in the medical field. #ore money is spent as a direct result of these
re6uirements. $t costs more to hire top experts in the industry to ensure products are effective and
differentiated enough to succeed.
49A and '#9A regulation is another barrier to entry that creates and opportunity for
"#. This barrier is of medium importance because these if ne companies ant to enter the
industry they have to comply ith the safety standards provided. The 49A can recall products it
thinks are at high risk, and it can also fine those ho violate it standards. The 'afe #edical
9evices Act re6uires manufacturers to keep record of patients ho have replacements and
implanted devices. $t also re6uires the manufacturer to provide a summary of accuracy and safety
for each device that is manufactured. This all creates a moderate barrier to entry for ne firms
because they have to make sure their products comply ith these rules before they can be sold on
the market.
Bargaining Power of the Buyer
The bargaining poer of the buyer is the ability for customers to negotiate better prices in
the market. The bargaining poer of the buyer for "# is lo in most industries because of the
innovative products that they make. 4or example "# introduced the first electronic stethoscope
ith +luetooth technology. A product that ould be very hard for a buyer to duplicate due to its
complicated structure and heavy capital re6uirements. "#&s products cannot be manufactured by
anyone else except for their innovative scientists and research team. This is a high opportunity
for "# because it increases their leverage in the market and loers the buying poer of their
customers because they depend on such innovative items. These innovative items are not just in
the medical industry but across the "# product line. Adhesives that are pressure sensitive are
very complicated to manufacture. 8ptical lenses for computer displays and military use are in
highly specialized markets. Pharmaceutical products often re6uire extensive testing and research
before they can be approved by government regulation. "# has also patented about :-,---
products making product duplication almost impossible.
8ne significant threat that increases the bargaining poer of the buyer for "# is the sheer
amount of products that businesses and corporations purchase from "#. This is a high threat
because their buying poer increases due to the significance of their sales adds to "#&s balance
sheet. "# sells it&s products to major medical, technological, and housing netorks. 5- . of
homes use transparent tape manufactured by "#. $t takes ,,--- layers of optical film made by
"# to produce a product like a indo reflector. The customers of "# are creating relationships
that increase their negotiating poer.
Bargaining Power of the Supplier
The size of "# provides a high opportunity hen it comes to supplier bargaining poer.
$f a supplier ill not negotiate ith "# they ill usually vertically integrate into that supply
category. They ill buy all of the necessary materials to produce the supplies needed themselves.
Therefore suppliers look at "# as an important source of revenue for their company. They see
the amount of product that "# manufacturers and purchases from them and it only strengthens
their relationship ith the company. They cannot afford to lose the business of a company like
"# because it is often a significant portion of their market share.
The type of products that "# purchases are usually ra materials. These ra materials
are not as significant of an input as other supplies ould be. $f "# doesn&t find the right business
from one of it&s providers it can simply find another provider of ra materials to buy from. The
significantly reduces the bargaining poer of the suppliers because the supply is not
differentiated. There are no sitching costs of choosing a different supplier for ra materials.
There of substitutes:;designated to joe heater