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PORTERS FIVE FORCES

INTRODUCTION

The five forces analysis is a method of identifying the forces which influence and

have an effect on the level of competition in an industry, and which might

consequently help managers to identify foundations of competitive strategy.

The porter model states that the structure of any industry and the capability of any

firm in that industry to operate strategically depend on the comparative strength of the

five forces that determine the state of competition and therefore the profit potential

within its industry.

Essential competitive forces determine the level of this strength. A competitive

environment contains wide range of influences. Michael Porter has provided

theoretical framework for industry analysis. He developed the five forces model for

industry analysis, which are as follows:

a) The Threat of New Entrants:

This threat is a very significant force and it varies with extent of its entry and exit

barriers. Organizations are attracted by high level of earnings whereby they seek

every opportunity to enter any market that could be a potential for success and high

earnings. New entrants introduce to the industry new ideas, strategies, technologies,

capacities, and sources. The extent of competitive threat to an industry from new

entrants depends upon the presence of obstacles and barriers for entry. The major

aspects of threat of new entrants include several factors that have a general impact on

the business activity:

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 The capital cost of entry: If establishing a corporation needs huge amounts of

financial resources and there are number of competitors in an industry, this

will result to a difficult and high competitive trading environment which will

discourage new industries from investing. Effectively the costs of setting up

and entering a market. As the living standard of Oman is moving to a higher

level day-by-day, it has become difficult for the investors to reach those

standards in terms of higher education industry. The investors have to read the

high standards of the people first and then try to introduce and make the higher

standards of education.

 Access to supply distribution channels: When there are experienced firms like

Muscat College and Majan College which have access to distribution channels it

makes hard for new sectors to have access to these channels of distribution and

supplies. Consequently their level of education and services in the educational

sector would have less potential.

 An economy of scale is a very important factor especially in the higher

education industry. This factor is good for long existing sectors unlike new

industries in the educational field, which would take them more time to achieve

economies of scale.

 Brand loyalty: The industry can be segmented by student-loyalty patterns.

Brand loyalty varies in the amount of power and value existed in the education

place and it is an important aspect that should be considered by new entrants.

Existing firms that provide different levels of education formed high entry

barriers by gaining brand loyal students who find it so difficult to switch to other

products. The value of certification issued by the famous institutes like Majan

College and Muscat College are very high.

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 The confrontation of existing firms: Generally existing firms will face new

entrants with a hostile behavior by reacting strongly in order to make the entry

very costly and unfavorable. For instance, the can under cut prices that will

consequently reduce the new entrants’ opportunities for profitability.

 Experience curve: Early entrants into the educational sector gain experience

sooner than others. This can give the advantage in terms of capital cost of entry,

economies of scale, access to supply distribution channels and students loyalty.

 Government legislations could pose legal restraints on new entrants’

competition. These legislations vary from patent protection to regulation

markets.

b) The Extent of Intense Industry Rivalry:

In most industries the all organization are in a heavy competition with each other in

order to gain the reputation and pride. This high competition can become even more

unattractive when other factors come in such as high fixed costs and high exit

barriers. This will lead to frequent course fees clashes, advertising battles and

different levels of education introductions thus making it expensive for educational

sectors to compete. The direction that a firm chooses depends on the relative

strengths and weaknesses of the factors involved. For example, it is often the threat

of substitutes that leads to the formation of strategic alliances. Rivals are often the

competitors who try to be the best in the industry. Rivals and competitions often lead

to good business and education in the related industry, but sometimes competitions

may lead to heavy loss and the colleges and universities may collapse. Some of the

universities and colleges in Oman try to offer lower fee structure to attract the

students some have high fee structure with advanced courses and higher level of

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certification that match standards of the modern age. All the higher educational

institutions strive to be the best in this competitive educational industry.

c) Bargaining Power of Suppliers:

It is unattractive if the industry supplier’s posses high level of bargaining power

whereby they can raise prices or reduce quantity supplied. Suppliers can be powerful

when there are few substitutes and when the supplied product is an important input

with the fact that the costs of switching suppliers are high. Oman is following the

western educational systems that are the main suppliers of educational system. The

suppliers should be handled with care because the studying material and the

certification materials that the education industries get for their daily and yearly

operation relies on the suppliers that are presently The UK. So if the relation between

the suppliers is not good then there could be problem for the operation of the higher

education sector industry, which could lead to dissatisfaction of the students.

d) The Bargaining Power of Buyers:

When buyers posses a strong bargaining power they will try to force prices down,

demand more quality and services. The buyers bargaining power grows stronger when

products are undifferentiated with many substitutes in the industry. The quantity of

suppliers within the Sultanate of Oman is very low or there are no suppliers who

provide the educational materials for the universities and colleges in and the number

of users of their services i.e. the higher educational institutions are more, so the higher

education industry faces quite a lot of problems in switching between the suppliers

because of their higher costs. So there is a great demand for the suppliers and this

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helps the suppliers to stick on to their prices and give less encouragement to the

customers who bargain.

e) The Threat of Substitute Products:

The availability of substitutes in the industry would place a limit on prices and on the

profits that a company can earn. It technology advances or competition increases in

the industry prices and profits are more likely to fall. Therefore, educational sectors

have to monitor closely the price trends in the substitutes. The educational

institutions within the Sultanate of Oman need to find the local substitute who could

offer better services at cheaper rates and of course with the quality that matches the

standards of The UK.

RECOMMENDATIONS

The Sultanate of Oman is constantly striving for the benefits of higher educational

sectors. In spite of general improvement in performance of higher educational sector

and significant investments held, higher education industry based on continuous

threats constant adopted is required to relate competitive strategy to the threats.

Several strategies should be adopted in order to cope up with faced threats:

 Keep looking for advanced technologies and develop researches and

discoveries about the higher education industry.

 Seek for branch networking within the country.

 Keep developing strategies and monetary policies according to the educational

conditions.

 Set target of increasing high value of services.

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 Try developing the local system of education within the country so that the

cost of hiring and adopting the international system reduces.

 To have highly qualified staff so that the level of education given should be

very high, which further attracts the students.

 To adopt strong marketing and advertising strategies about the educational

college or university using television advertisements etc to make reach to large

number of people throughout the country.

 To have the educational camps within the city and interior areas to spread the

importance of education and the important services and courses offered by the

college and university and the benefits of these courses in their life.

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BIBLIOGRAPHY:

 P. Kotler, (1999). Marketing Management: Analysis, Planning,

Implementation and Control, 9th ed. Prentice-Hall, New Delhi.

 Johnson, Scholes, (2000). Business Strategy, 8th Edition. Pitman’s

Publications, London.

 Campbell, (2002). Business strategy, 2nd Edition. British Library, UK.