Mapping external environment of a

fiRM
The factors that are beyond a firm’s control.
Changes in this section directly or indirectly
effects your firm.
Porter’s model helps determine the long
term attractiveness of a industry.
Porter’s 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 seller’s
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.

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