Michael Porter Five Forces

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In Michael Porter’s article about The Five Competitive Forces that Shape Strategy, he identifies the five forces that shape industry competition as: threat of new entrants, bargaining power of buyers, threat of substitute products or services, bargaining power of suppliers, and rivalry among existing competitors. Then he breaks each of these down even further, giving information about the factors that should be considered when making assessments in each of these areas. The main underlying purpose of his article was that these five topics are the most important factors that a company must take into consideration when assessing any industry that they are currently in or are thinking about entering into. Assessing the industry in this manner reveals why the industry is profitable (Porter, 2008) and is an essential part of a well developed business strategy. The main points of the article consist of an assessment of each of the five competitive forces that Porter believes shape competition. The first force is threat of new entrants. One of the most important things to consider under this category is what they call “barriers to entry” which are obstacles that make entry into a new market less attractive for companies. He outlines 7 areas to consider when evaluating barriers to entry: supply-side economies of scale, demand-side benefits of scale, customer switching costs, capital requirements, incumbency advantages independent of size, unequal access to distribution channels, and restrictive government policies. Another part of evaluating the threat of new entrants is how the other companies already established in the industry will react to you trying to enter into their territory. Porter also says that, ultimately, “It is the threat of entry, not whether entry actually occurs, that holds down profitability.” (Porter, 2008) The next area to be examined is the power of suppliers. If the suppliers have a lot of power in the industry because, for instance, there are not...
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