Porter five forces pdf download

Download Free PDF. A short summary of this paper. Porter Five Forces Analysis — Industry Analysis Ibrahim Mohammad Rihan Porter five forces analysis is a framework to analyze level of competition within an industry and business strategy development.

It draws upon industrial organization IO 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.

This analysis is associated with its principal innovator Michael E. Porter of Harvard University as of 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. For example, when industry profits increase, we would expect additional firms to enter the market to take advantage of the high profit levels, over time driving down profits for all firms in the industry.

When profits decrease, we would expect some firms to exit the market thus restoring a market equilibrium. Falling prices, or the expectation that future prices will fall, deters rivals from entering a market. Firms also may be reluctant to enter markets that are extremely uncertain, especially if entering involves expensive start-up costs.

These are normal accommodations to market conditions. But if firms individually collective action would be illegal collusion keep prices artificially low as a strategy to prevent potential entrants from entering the market, such entry-deterring pricing establishes a barrier.

Barriers to entry are unique industry characteristics that define the industry. Barriers reduce the rate of entry of new firms, thus maintaining a level of profits for those already in the industry.

From a strategic perspective, barriers can be created or exploited to enhance a firm's competitive advantage. Barriers to entry arise from several sources: 1. Government creates barriers.

Although the principal role of the government in a market is to preserve competition through anti-trust actions, government also restricts competition through the granting of monopolies and through regulation.

Industries such as utilities are considered natural monopolies because it has been more efficient to have one electric company provide power to a locality than to permit many electric companies to compete in a local market. To restrain utilities from exploiting this advantage, government permits a monopoly, but regulates the industry.

Illustrative of this kind of barrier to entry is the local cable company. The franchise to a cable provider may be granted by competitive bidding, but once the franchise is awarded by a community a monopoly is created. Local governments were not effective in monitoring price gouging by cable operators, so the federal government has enacted legislation to review and restrict prices.

The regulatory authority of the government in restricting competition is historically evident in the banking industry. Until the 's, the markets that banks could enter were limited by state governments. As a result, most banks were local commercial and retail banking facilities. When banks were deregulated, banks were permitted to cross state boundaries and expand their markets.

Deregulation of banks intensified rivalry and created uncertainty for banks as they attempted to maintain market share. In the late 's, the strategy of banks shifted from simple marketing tactics to mergers and geographic expansion as rivals attempted to expand markets.

Patents and proprietary knowledge serve to restrict entry into an industry. Ideas and knowledge that provide competitive advantages are treated as private property when patented, preventing others from using the knowledge and thus creating a barrier to entry. Edwin Land introduced the Polaroid camera in and held a monopoly in the instant photography industry. In , Kodak attempted to enter the instant camera market and sold a comparable camera. Polaroid sued for patent infringement and won, keeping Kodak out of the instant camera industry.

Asset specificity inhibits entry into an industry. Asset specificity is the extent to which the firm's assets can be utilized to produce a different product. When an industry requires highly specialized technology or plants and equipment, potential entrants are reluctant to commit to acquiring specialized assets that cannot be sold or converted into other uses if the venture fails.

Asset specificity provides a barrier to entry for two reasons: First, when firms already hold specialized assets they fiercely resist efforts by others from taking their market share.

New entrants can anticipate aggressive rivalry. For example, Kodak had much capital invested in its photographic equipment business and aggressively resisted efforts by Fuji to intrude in its market. These assets are both large and industry specific. The second reason is that potential entrants are reluctant to make investments in highly specialized assets. Organizational Internal Economies of Scale.

This is the point at which unit costs for production are at minimum - i. If MES for firms in an industry is known, then we can determine the amount of market share necessary for low cost entry or cost parity with rivals. The existence of such an economy of scale creates a barrier to entry. This succinct and enlightening overview is a required reading for all those interested in the subject.

In 50 minutes you will be able to: - Understand the five forces that affect profitability and analyze each force in depth in relation to your company - Analyze the intensity of the competition within an industry and how this affects your business - Increase or maintain your competitive advantage according to the analysis ABOUT 50MINUTES. COM provides the tools to quickly understand the main theories and concepts that shape the economic world of today.

Our publications are easy to use and they will save you time. They provide elements of theory and case studies, making them excellent guides to understand key concepts in just a few minutes. In fact, they are the starting point to take action and push your business to the next level. Learn the fundamentals about how to create winning strategy and lead your team to deliver it. To browse Academia. Skip to main content. By using our site, you agree to our collection of information through the use of cookies.

To learn more, view our Privacy Policy. Log In Sign Up. When reviewing your business, whether as a manager or as a business owner, it is sometimes overwhelming as you try to decide what information is important and why. You may use your business review to decide the direction of the business for the next 12 months or even as part of a three or five year plan. Read on to discover the tools and models which could help you.

The ability for you to make good profits in your business is dependent upon the strength of your position in the market. It is still useful and relevant today. Five forces.