Michael porter’s five forces analysis is a frame work for industry analysis and business strategy development formed by Michael E Porter of Harvard business school in 1979.Five Forces model of Michael Porter is a very elaborate concept for evaluating company's competitive position.
Three of porters five forces refer to competition from external sources and the remainder are internal threats .porters referred to this forces are micro environment to contrast it with more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit.
By using TANESCO as an organization to make reference with applicability of Michael porters five mode of competition .TANESCO (TANZANIA ELECTRIC SUPPLY COMPANY LIMITED) is a monopoly power supply company in Tanzania which was established in 1964 and it is wholly owned by the government of Tanzania. The ministry of energy and minerals regulate the operations of TANESCO.Its headquarter is in Dar esSalaam Tanzania and its main objective is to supply electricity to Tanzania and Zanzibar.
The following are the applicability of Michael porters five mode of competition in relation to TANESCO as our company of reference. Michael Porter provided a framework that models an industry and therefore implicitly also businesses as being influenced by five forces. Michael Porter's Five Forces model is often used in strategic planning.
Michael porters five frame work of competition and their applicability can be explained as follows;
Threats of new entrants or barriers to entry; profitable markets that yield high returns will attract new firms, this result in many new entrants which eventually will result a decrease in profitability for all firm in an industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will trend towards zero [perfect competition].one reason new entrants pose such a threat is that they bring additional production capacity. Unless the demand for a good or services is increasing.Additional capacity holds consumers costs down,resulting in less revenue and lower returns for competing firms. As a result,new competitors may force existing firms to be more efficient and effective and to learn on how to compete on new dimensions. Applicability: For TANESCO, the threats of new entrants do not exist as the organization is fully owned by the government of Tanzania, and government has restricted new entrants to compete with TANESCO. Therefore this government act of prohibiting new firm to enter the industry has led to TANESCO to operate as Monopoly Company for power supply in Tanzania, even though there are other organization and company who can provide power and compete with TANESCO.
Bargaining Power of Buyers/Customers;Now the question is how strong the position of buyers is, as for suppliers, the powerfully supplies can exert competition in an industry. Buyers always seek to buy product at lowest possible price and an industryseek to maximize the return on their capital invested. This deals with the ability of customer to put the firm under pressure which also affect the customer’s sensitivity to price changes. The bargaining power of customers tends to be relatively greater when customers are few in number and when they purchase large quantities. For example some Tanzania breweries limited purchase most bottles. When customer’spurchases represents a sizable percent of the selling industry total sells. Whencustomers pose a credible threats of backward integration and so on. Applicability; For company like TANESCO as our point of reference, buyers seems not have a bargaining power over the product due its monopoly in nature, therefore they have to buy the product at any price as established by government not only that service which is electricity is somehow necessary. Hence the buyer has no bargain power cannotpose any kind of threat to an organization...
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