Course Number: MGT599
May 6, 2013
Porter’s Five Forces and Political, Economic, Sociocultural and Technology (PEST) analyses are key components used to complete an environmental analysis for the packaged food industry. This paper provides a brief summary of the components of each analysis and provides recommended sources to complete the required components within each system. Accessing federal and state government resources, journals, newspapers and industry financial records provide adequate resources to complete each analysis that will ultimately lead to an accurate environmental analysis.
Porter’s Five Forces & PEST
Porter’s Five Forces and Political, Economic, Sociocultural and Technology (PEST) analyses are key components used to complete an environmental analysis for the packaged food industry. However, completing either of these analyses is not possible without first understanding where to find the information to build a complete picture. This paper provides a brief summary on each of the analysis systems and nails down the sources that will inevitably lead to the packaged food industry analysis. Porter’s Five Forces
The configuration of the five forces differs by industry. The strongest competitive force or forces determine the profitability of an industry and become the most important to strategy formulation. The most prominent force, however, is not always obvious. Industry structure grows out of a set of economic and technical characteristics that determine the strength of each competitive force. Taking the perspective of an incumbent or a company already present in the industry molds the end result of the analysis. The analysis can be readily extended to understand the challenges facing a potential entrant. Moreover, the devil is in the details of locating the key data to conduct the actual analysis. The following sections provide a brief summary of the five forces and resources necessary to conducting analysis. Threat of New Entrants
In Porter’s Five Forces, threat of new entrants refers to the threat new competitors pose to existing competitors in an industry. Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will trend towards zero (WikiCFO, 2012). Barriers to entrants can be found on company’s annual reports, quarterly earnings reports, dividend announcements and similar websites reporting on their financial data (Gwin, 2001). Additionally, the Securities Exchange Commission (SEC) is another great source to obtain financial reports containing information on barriers (SEC, ND). In addition to financial reports, food and beverage regulation administered by the U.S. Food and Drug Administration or the U.S Department of Agriculture may pose significant obstacles to entrants (Barrios, 2008). Threat of Substitutes
Substitutes perform the same or a similar function as an industry’s product by a different means. Substitutes are always present, but they can be easy to overlook because they may appear to be very different from the industry’s product. For example, Father’s Day gifts like neckties and power tools may be substitutes or used items vice buying new (Porter, 2008). However, the food industry may not have parallel issues identifying its competitors or substitutes. An excellent source to determine substitutes for the food industry is the U.S. Census Bureau. It classifies industries with the North American Industrial Classification System (NAICS) accessible through the Census Bureau’s website (Gwin, 2001). Analysis into competitors and/or substitutes is tailored using codes ranging from two to six digits that provide broad to narrow focus, respectively. Bargaining Power of Suppliers