Porter’s 5 Forces
Porter’s 5 forces analysis is a framework for industry analysis and business strategy development developed by Michael E. Porter in 1979 of Harvard Business School. It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the microenvironment, 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 company to re-assess the marketplace. Strategy consultants use Porter’s five forces framework when making a qualitative evaluation of a firm’s strategic position. The framework is textbook material for modern business studies and therefore widely known. Porter’s Five Forces include three forces from ‘horizontal’ competition: threat of substitute…… Porter provided a framework that models an industry as being influenced by five forces.
Porter’s 5 Forces Essay Example
The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates. Our primary objective is to analyze the Telecommunication industry of Sri lanka using Porter’s Five forces frame work.. In this report we try to discuss about the Porter’s Five forces ,taking each of them individually and come up with its interrelationship with the existing Telecommunication industry. Nowadays in Sri lanka, Telecommunication is an industry which has a rapid growth with the time.
As there are number of competitors competing with each other to get the attraction of the customers ,we can have a satisfactory service which can fulfill our desires. The basic concepts of Porter’s rule clearly defines the main roles of a particular competitor which tries to survive in the industry of Telecommunication in Sri Lanaka. Telecommunication is an industry which has spread over a wide range. But, Porter’s rule can be applied to this industry to get an overview of how the industry is being controlled by those factors.
What are Porter’s five frame factors and how they are interrelated with each other. The above picture illustrates the main concepts in the Porter’s five frame work. These concepts plays the major role of existent of a particular industry. Telecommunication is an industry which has obtained a considerable amount of development through the last few years. With respect to Telecommunication industry we can analyze the above five factors. 1. )Rivalry among existing firms.. With the development of the industry, a number of companies came to party.
These companies use several techniques to attract the customers towards their company products. Examples of a few companies in Sri Lanka which delivers the telecommunication services to the society: Dialog Mobitel Suntel Sri lanka Bell 2. )Threat of new entrants. We know that in near future ,the number of competitors competing in the telecommunication industry in Sri Lanka will grow up. Eg: We know that a company named as “Airtell” is above to loach their company in Sri Lanka in near future. 3. )Bargaining power of suppliers
It is clear that the companies which provide telecommunication services to the society do not implement the equipment they use,but they buy those equipment from the existing equipment suppliers. *Supplier concentration *Importance of volume to supplier *Differentiation of inputs *Impact of inputs on cost or differentiation *Switching costs of firms in the industry *Presence of substitute inputs *Threat of forward integration *Cost relative to total purchases in industry Eg:Dialog use the Telecommunication equipment produced by the CISCO. 4. )Bargaining power of buyers.
Customers have a right to buy the product which they think is the most suitable. Further more they can choose the product according to their income. *Bargaining leverage *Buyer volume *Buyer information *Brand identity *Price sensitivity *Threat of backward integration *Product differentiation *Buyer concentration vs. industry *Substitutes available *Buyers’ incentives Eg: Some customers use prepaid connections while some other customers use connections with monthly rental. 5. )Threat of substitute product or services. Human being is a creature which has a great amount of curiosity in his mind to discover new things.
As a result of this the existing Telecommunication industry may be replaced by a new industry which use a different approach and a different technology. Eg; A new technology might be implemented in future to provide a better communication via the whole world with a little cost of money. 1. ) Rivalry among existing firms.. A larger number of firms This increases rivalry because more firms must compete for the same customers and resources. The rivalry intensifies if the firms have similar market share, leading to a struggle for market leadership.
If w e consider about the situation in Sri Lanka ,there is only a limited number of people living in Sri Lanka. As a result of that ,the number of people ,who uses the modern technology to communicate with each other is limited. Eg: Total number of Dialog customers is equal to 10 million. There are a lot of Telecommunication companies competing with each other to attract the customers to their company. But there are only a limited number of people who uses these Technology to fulfill their desires. Slow market growth This causes firms to fight for market share.
In a growing market, firms are able to improve revenues simply because of the expanding market. As a result of limited population in Sri Lanka ,market growth is comparatively slow. This leads to a big competition between the companies to obtain profit. Low switching costs This increases rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers. If we consider about the Telecommunication side,one customer might switch from one company to another. Eg: Dialog customer may switch to Tigo. This leads to a critical issue, where companies are struggling to capture the customers.