A2 BUSINESS UNIT 4

Porters Five Forces Revision

MAKING BUSINESS DECISIONS
Learning Objectives
To be able to explain what the business expects to gain
from analysing the five forces identified by Porter To understand what impact each force will have on price and profits To apply Porters Five Forces to Toyota

PORTERS FIVE FORCES REVISION

Definition: Porters Five Forces A model put forward by Michael Porter looking at the competitive environment.

Understanding Porter
Porter outlines five forces or factors which determine the profitability of an industry. He argues that the ultimate aim of competitive strategy is to cope with and ideally change those rules in favour of the business.
Where the collective strength of those five forces is favourable, a business will be able to earn above average rates of return on capital. Where they are unfavourable, a business will be locked into low returns or wildly fluctuating returns.

Learning Objectives
Porters Five Forces Revision
To be able to explain what the business expects to gain from analysis Porters Five Forces To understand what impact each force will have on prices and profits To apply Porters Five Forces to Toyota

RATIO ANALYSIS REVISION

20
M I N U T E S

Revise Porters Five Forces focusing on impacts of each force on prices and profits.

Learning Objectives
Porters Five Forces Revision
To be able to explain what the business expects to gain from analysis Porters Five Forces To understand what impact each force will have on prices and profits To apply Porters Five Forces to Toyota

PORTERS FIVE FORCES TOYOTA

Application
What is Toyotas competitive environment like?

Threats of Substitution (Low) A mass public transportation system? Affordable private jets? Rivalry of Industry Competitors (High) Some product and branding differences, but many products are similar Slow industry growth so it is all about gaining market share A race for Developing hybrid and eco friendly models and other new technologies Intense price competition and discounting Medium/High exit barriers

Supplier Power (Low/Medium) Numerous, diluted suppliers But quite hard for Manufacturers to switch suppliers Suppliers survive only if the manufacturer survives, so they have to work together

Customer Power (Medium/ High) Easy to switch brands Several cars offered in each category Customers expect to negotiate on price with the car dealer

Learning (Medium/Low)Objectives
Porters Five Forces Revision

Threat of New Entrants

Dueable to high up front investment the To be to explain whatcosts theand business expects to gain of several strong brands, it is hard to from presence analysis Porters Five Forces enter this industry To understand what impact each force will have on However, some recent new entrants have entered the market in Emerging countries (e.g. Tata Motors) prices and profits To apply Porters Five Forces to Toyota

RATIO ANALYSIS REVISION

How can you use this information?

Learning Objectives
Porters Five Forces Revision
To be able to explain what the business expects to gain from analysis Porters Five Forces To understand what impact each force will have on prices and profits To apply Porters Five Forces to Toyota