Five Forces

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Porter’s model looks at the competitive arena in which businesses operate and describes five basic competitive forces that directly impact on how successfully a business unit operates. By understanding and knowing what these competitive forces are and how they impact on the business, managers are better equipped to prepare their plans. They are also more able to focus on those aspects that have the greatest impact on their business and can, if necessary, realign their resources to ensure the best outcome.

Essentially, competition in an industry depends on five basic competitive forces: The bargaining power of suppliers
The bargaining power of buyers
The threat of substitutes
The threat of new entrants
The intensity of rivalry among competitors

Suppliers
* Industry depends upon several organic chemicals;
* Very competitive and fragmented industry;
* Chemicals are largely a commodity;
* Suppliers have very low bargaining power;
* Industry can switch from their suppliers without incurring a very high cost Buyers
* Doctors’ opinions are taken for granted
* Little buying power
* Low concentration of buyers
* High demand for treatment of life-threatening illnesses * High purchase volume

Rivalries

* Most competitive industries in the country with as many as 10,000 different players * The degree of rivalry among existing firms is a high competitive force; * High industry growth rate

* High product differentiation
* High growth prospects;
* Fixed costs requirement is low and need for working capital is high * Top player in the country has only 6 % market share and top five have 18 %. Product differentiation is very high in the industry because drugs, for example, are usually completely unique in each firm. Firms are investing more in developing improved versions of existing drugs, which will ultimately result in the less effective drug becoming obsolete. Customers who require a...
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