Porter’s five forces of competition framework view the profitability of an industry as determined by five sources of competitive pressure. These five forces of competition include three sources of “horizontal” competition: competition from substitutes, competition from entrants, and competition from established rivals. Two sources of “vertical” competition are the power of suppliers and power of buyers. Following are the sources of “horizontal” competition:
1) Competition from Substitutes:
Since we are utilizing newer form of Water Filtration Technique, there is no substitute for this product as of now. This new technology coupled with an environmentally friendly approach will keep the threat of substitutes low in the near future.
2) Threat of Entry
Since the new proprietary technology will make us become profitable relatively quickly, the water filtration industry will become more attractive to the outside industry. Due to absolute cost advantages over competitors ($1.00/cubic meter), We will become experience absolute cost advantages over competitors. However, due to a high threat of entry, we will have to constrain its prices to the competitive level. One of the major advantages we have is that new entrants will not be able to enter water filtration market on equal terms. The main sources of barriers to entry are discussed below: a) Capital Requirements:
The start up capital costs of developing technology in water filtration industry are large enough to dissuade all but the large companies with high capital at their disposal. b) Economies of scale: Low-High
Since water filtration is a research-oriented industry, efficiency requires large-scale operation. The new product development costs are high and it will require large-scale sales to break even. Since our RO model is has significant new features, it will be able to achieve economies of scale pretty quickly. c) Absolute cost...