Mapping external environment of a

fiRM
The factors that are beyond a firms control.
Changes in this section directly or indirectly
effects your firm.
Porters model helps determine the long
term attractiveness of a industry.
Porters model helps determine why some
industries are more profitable than others.

Occurs with products that are close
substitutes.
Firms are mutually dependent, what one firm
does the other has to follow, mostly.
Profit decreases as rivalry increases.







The greater the rivalry the less attractive
the market becomes for potential entrants


New entrants would want market share,
hence cutting your pie into even smaller
size.




The less the threats of new entrants the
better it is for existing firms. The higher
threat would make the market for
potential entrants less attractive.

Suppliers?
This can happen when suppliers can force
buyers to increase their product prices hence
effecting their profitability.
Companies now maintain long-term,
corporative relationships with one supplier






The greater the bargaining power of a
supplier the less attractive will be the
industry.

Customer always looks for lesser costs,
improved product quality and added
services.
Buyer holds power in:
1. Buyer purchases large amount of sellers
products.
2. Power of Backward integration.
3. Switching costs are low.
4. Alternative sources of supplier are easily
available.




The greater the bargaining power of buyer
the less attractive the segment will be for
potential entrants.
Substitutes?
Product may serve the same need and
perform the same function
They place a ceiling on the prices which
firms can charge.






The higher the threat of substitution the
less attractive the industry becomes for
new entrants.