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Helen Mc Glew Notes

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Lecturer: Helen McGlew

HETAC notes

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Helen Mc Glew Notes

  1. 1. HETAC (L7) Bachelor of Business Business Strategy
  2. 2. Porter’s Five Forces <ul><li>Model created by Michael Porter </li></ul><ul><li>Success or not of a firm is largely due to industry environment </li></ul><ul><li>Strong competitive force can be a threat </li></ul><ul><li>Weak competitive force can be an opportunity </li></ul>
  3. 3. Porter’s Five Forces Model <ul><li>Five forces determining segment structural attractiveness </li></ul><ul><ul><li>Potential entrants </li></ul></ul><ul><ul><li>Suppliers </li></ul></ul><ul><ul><li>Buyers </li></ul></ul><ul><ul><li>Industry competitors </li></ul></ul><ul><ul><li>Substitutes </li></ul></ul>
  4. 4. Porter’s Five Forces Model
  5. 5. Porter’s Five Forces Model <ul><li>Potential entry of new competitors </li></ul><ul><li>Barriers to entry </li></ul><ul><ul><li>Economies of scale </li></ul></ul><ul><ul><li>Technology and specialised know-how </li></ul></ul><ul><ul><li>Experience </li></ul></ul><ul><ul><li>Strong customer loyalty </li></ul></ul><ul><ul><li>Strong brand preferences </li></ul></ul><ul><ul><li>Patents etc. </li></ul></ul><ul><li>Actions to deter entry </li></ul>
  6. 6. Porter’s Five Forces <ul><li>Intensity of rivalry </li></ul><ul><ul><li>Industry competitive structure </li></ul></ul><ul><ul><ul><li>Fragmented, consolidated (oligopoly, monopoly) </li></ul></ul></ul><ul><ul><li>Demand conditions </li></ul></ul><ul><ul><li>Exit barriers </li></ul></ul><ul><ul><ul><li>Investment in assets </li></ul></ul></ul><ul><ul><ul><li>High fixed costs of exit- staff </li></ul></ul></ul><ul><ul><ul><li>Emotional attachments </li></ul></ul></ul><ul><ul><ul><li>Economic dependence on industry </li></ul></ul></ul><ul><ul><ul><li>Need to maintain assets </li></ul></ul></ul>
  7. 7. Porter’s Five Forces <ul><li>Bargaining power of suppliers </li></ul><ul><ul><li>Powerful if …. </li></ul></ul><ul><ul><ul><li>Product has few substitutes and is vital to companies </li></ul></ul></ul><ul><ul><ul><li>Industry not an important customer to suppliers </li></ul></ul></ul><ul><ul><ul><li>Substantial switching costs </li></ul></ul></ul><ul><ul><ul><li>Can enter customer’s industry </li></ul></ul></ul><ul><ul><ul><li>Hard to enter industry </li></ul></ul></ul><ul><ul><ul><li>Example of PC industry </li></ul></ul></ul>
  8. 8. Porter’s Five Forces <ul><li>Bargaining power of buyers </li></ul><ul><ul><li>Powerful if …. </li></ul></ul><ul><ul><ul><li>Buyers large and few in number </li></ul></ul></ul><ul><ul><ul><li>Purchase in large volumes </li></ul></ul></ul><ul><ul><ul><li>Depends on buyers for vast part of output and orders </li></ul></ul></ul><ul><ul><ul><li>Switching costs are low </li></ul></ul></ul><ul><ul><ul><li>Can purchase inputs from a few companies </li></ul></ul></ul><ul><ul><ul><li>Can enter industry themselves </li></ul></ul></ul><ul><ul><ul><li>Example of car industry </li></ul></ul></ul>
  9. 9. Porter’s Five Forces <ul><li>Threat of substitution </li></ul><ul><ul><li>Not buying product/service </li></ul></ul><ul><ul><li>Depends on whether produce is a consumer want or need </li></ul></ul><ul><ul><ul><li>Grocery industry </li></ul></ul></ul><ul><ul><ul><li>Market for DVD recorders </li></ul></ul></ul><ul><ul><li>Some industries can easily be substituted </li></ul></ul><ul><ul><ul><li>Example of travel industry </li></ul></ul></ul>

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