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Michaels porter five forces analysis broadly elaborate the various factors that would motivate a firm

to move on from its current position. It main functions are to outline the barriers or obstacles and
advantages head on if the firm is to take its operation to the next level. This is done by creating a
framework which incorporates threat of new entrants, this is to determine threats such as time and
cost of entry, economies of scale, cost advantages, technology protection and barriers to entry. To
sum it all up, it refers to the threat posed by new competitors to current competitors in the market.
Michael porters did it very nicely by adding in threat of new entrants in his analysis as it gives the
firm a better and clearer view of the obstacles it may face created by its competitor. This piece of
analysis also affects the competitive environment for the current competitor as well as the
influences and the capability of the current firms to earn the target profit. A high threat of new
entrant will result to a deadly blow as new competitor are likely to be drawn to the profit of the
industry and will plunge in with easy access. The second factor pinpointed by Porters is competitive
rivalry which inculcates the amount of competitors, quality differences, switching costs, customer
loyalty and costs of leaving market. Numerous factors speak aloud of the force of competitive rivalry
in an industry. If the industry consists of numerous competitors, Porter rivalry will be more intense.
If the competitors are of equal size or market share, the intensity of rivalry will increase. If industry
growth is slow, the intensity of rivalry will be high. If the industrys fixed costs are high, competitive
rivalry will be intense. If the industrys products are undifferentiated or are commodities, rivalry will
be intense. However, if we practically carry out this analysis on a given industry, all of the aforesaid
aspects concerning the force of competitive rivalry Porter sited among current competitors may not
be very useful. But some, if not many, certainly will. And of the factors that do apply, some may
indicate high intensity of rivalry and some may indicate low intensity of rivalry. According to Porters,
the forces or intensity of rivalry is at its peak if,

Competitors are ubiquitous


Competitors have an even volume
Competitors have an even market share
Industry growth is mundane
Fixed cost are at a high rate
Products are not differentiated
Brand loyalty is not a big concern issue
Consumers switching cost is very minimal
Exit barriers are high

However its otherwise if,

Competitors are very little


Competitors have an uneven size
Brand loyalty is taken into consideration
Competitors are not tactically sundry
There is no additional production aptitude

To porters interpretation, low forces or intensity makes the industry very attractive and it would
augment the profitability of the existing firms that is currently investing in the industry and if its
high, it makes the industry less attractive and decreases the profit potential for the firms already
competing within that industry. The intensity of rivalry among existing firms is one of the factors to

consider when analysing the structural environment of an industry using Porters 5 forces
framework. Supplier power as interpreted by Porters acts a determining factor. This is so because if
the buyers are concentrated-let say there are few suppliers against the buyer hence supplier
bargaining power is very high. Supplier power is one of the forces that structured or determine the
competitive edifice of an industry. The thought behind is that the bargaining power of the supplier in
an industry affect the competitive atmosphere for the buyer influences the buyers ability to achieve
viability. Sturdy suppliers can pressure buyers by raising prices, lowering product quality, and
reducing product availability. All of these things represent costs to the buyer. The opposite force
that was generated by Porter is the buyer bargaining power, which is generally the other side of the
coin of what suppliers are dealing. Basically, according to Porters if the buyers are concentrated
meaning to say few buyers and many sellers then buyer power is high, this is obvious logic hence
buyers has the ability to pressure the supplier according to his conditions-lower prices, better quality
or services and abide to it. This forces itself generated by Porter create a lasting impact to the
business industry as both supplier and buyer bargaining power will determine the shape the
structural environment of the organisation framwork. Thus in a nut shell, buyer power is high if,

Buyers are more rigorous than sellers


Buyer switching costs are low
Threat of backward integration is high
Buyer is price sensitive
Buyer is well-educated regarding the product
Buyer purchases product in high volume
However its otherwise if,

Buyers are less concentrated than sellers


Buyer switching costs are high
Threat of backward integration is low
Buyer is not price sensitive
Buyer is uneducated regarding the product
Threat of substitutes plays an important role in analysing the organisation or industry
environment. According to Porters, the availability of a substitutes product will affect the
sales of the existing industry as consumers has the ability to choose between the two and
worst still if its a close substitutes, it will definitely make the market more competitive and
affect the potential sales of existing industry say if the customers substituting costs are low

that is to say that there is low chances if anything preventing the consumer from procuring
the substitute as an alternative of the industrys product, then the threat of substitute
products is high. This is very common in the fast food industry which is the main topic of the
research project discussion.

http://strategiccfo.com/wikicfo/threat-of-new-entrants-one-of-porters-five-forces/
Harrison, Jeffrey S., Michael A. Hitt, Robert E. Hoskisson, R. Duane Ireland. (2008) Competing for
Advantage, Thomson South-Western, United States, 2008.

Porter, M.E. (1979) How competitive forces shape strategy, Harvard Business Review, March/April
1979.

Porter, M.E. (1980) Competitive Strategy, The Free Press, New York, 1980.

Porter, M.E. (1985) Competitive Advantage, The Free Press, New York, 1985.
http://strategiccfo.com/wikicfo/buyer-bargaining-power-one-of-porters-five-forces/