Question

1. Apply Porter’s Five Forces analytical framework to the Internet. Your answer should include critical elements supported with evidence/ justification.

Answer 1

Introduction

Micheal porter came up with the model while researching the nature of competition

Industries differ from one other with respect to factors like profitability, product development, etc

Porter outlined 5 factors to analyse the profitability and attractiveness of an industry

Uses -- if you are trying to start a new business in an industry

The Model

1.Competitive Rivalry

1)This looks at the number of competitors and their strength in comparison to you

2)If rivalry is intense ,companies have to often lower prices and provide incentives to attract customers

3)if not, the profit are generally high

2)The (Bargaining ) power of suppliers

1. If suppliers have high bargaining power they can influence pricing and thereby influence profits
2. The suppliers in an industry are powerful when

1)there are few

2)customers are small

3) cost to switch suppliers is high

        3)examples from the automotive industry:

1)bosch

2)continental

3)michelin

3)The (Bargaining ) power of customers

1)Customers can exert pressure and drive prices down

2)The customers in an industry are powerful when

1)There are few customers

2) They have plenty of suppliers to choose from with low switching costs

3)Selected customers purchase significant quantities

3)Examples:

1. Car manufacturers
2. Dealerships
3. Rental/leasing companies

4)Threat of substitutes

1)Substitutes are alternatives that serve the same need

2)Higher number substitutes will drive prices down and lower number of substitutes can result in a monopoly

Example1:

Choosing a budget airline over driving to another city

Indirect - choosing taxi services to personal vehicles

Example2:

Solar energy companies for traditional energy providers

5) Threat of new entrants

1)Every market has establishes market leaders

2)new entrants can eat into the market share

3) if barrier to entry are low , the threat to existing players is high

4)Barriers can be:

High investment to start up

Government regulations

Access to suppliers (retail prices)

Example:

Electric car companies like Tesla

Conclusion:

Applicability to a specific industry and not to specific organisation as opposed to a SWOT analysis

Collusions among buyers or suppliers

It works primarily for profit oriented organisation and not non- profit or Government entities