Porters Forces

This week our main focus has been about Porter and his theory, which is the five forces analysis. Porter five forces analysis is a framework for industry analysis and business strategy development, the forces mainly consist of

1) Bargaining power of customers ( buyers ) which is the ability of customers to put the firm under pressure which also affects the customers sensitivty to price changes. This is likely to be high if he supplier purchases a large part of a suppliers output or many substitutes are available for the product.

2) Threat of substitute products or services: According to Porters model, this means finding a product that could perform a similar function to the other yet the substitute may be from another industry meaning using a plane instead of a ship.

3) Threat of new entrants: According to Porter, these are the problems faced by companies while entering industries which may include access to distribution, brand equity or capital requirements.

4) Bargaining power of suppliers: This is the power that a supplier has which could be influenced by factors such as the number of suppliers or the switching costs followed by product types.

5) Intensity of competitive rivalry: This is how competitive the firms are within the industry and is likely to be high if there are many firms within an industry, the products being similar or slow market growth taking place.

These are the five forces and I'd like to explain them with the help of the telecommunications industry. The threat of new entrants, would be high as there are high costs to buy the machinery and finance would be one of the biggest barriers. The fixed costs are likely to be high as well and a lot of cash would be required.

For the power of suppliers, telecom equipment suppliers do have bargaining power over operators. As without high tech broadband equipment and other materials the operators would not be able to transmit voice and data from place to place.

As for the power of buyers, there has been an increased choice of telecom products and the power is rising. This is because data services and telephone do not vary much.

Coming forward to the availability of substitues, there are threats of substitution as internet services can substitute for high speed business working needs. Applications such as Skype or OOVOO could be used to replace telephones.

Competitive Rivalry being the last factor, is high, There is new technology plus many entrants and as everybody pays for services, the only thing that could make a company more attractive would be lower prices which may lead to lower profits. Other than this the exit barriers are also high due to its specialized equipment