Porter 5 Forces analysis is an exc ellent fram ework that could help m anagers, ent repreneurs and

investors to evaluate whet her a business is oper ating in a profitable industry. From the results of this analysis, strategies could be formulated to help companies identify opportuniti es and avoid threats. Here is a Porter 5 Forces fr amework:

Source: page 40 , Strat egic Managem ent An integrated Approach written by Char les W. L. Hill and Gareth R. J ones Each force in this framework could be cat egorized as strong, medium, or weak. Strong forces are perceived as threats to the enterpr ise. Strong forces have strong bar gain ing power thus limit the enterpris e’s abilit y to increase price or lower cost. On the other hand, w eak forces are perceived as opportunities. Weak forces have low bar gainin g pow er thus the enterpris e could increase pric e or lower cost to sustain more profit. Here is a list of the f ive forces. Answer the questions on the right -han d column and you will be able ident ify wheth er the forces should be cat egorized as opportu nities or threats . The f ive forces in this fram ework include th e followin gs:

Potential Competitors/ Barrier of Entry(Companies currently not

1. How loyal are the end users in this industry? 2. How troublesome or hard is it for the end users to switch and use another product? 3. Does it require a large seed capital to enter this industry?

consolidated. How extensively do your direct competitors advertise? Bargaining power of buyers (Customers) How large are your buyers’ company? How many companies are there for the buyer to choose from? Are the buyers buying a huge volume? Do you depend only on a few buyers to sustain your sales? How hard is it for the buyers to switch and use a competing product? 6. How high are the exit barriers? Do your competitors have a high committed fixed cost thus they have to operate even at a loss? 6. How pricy are the substitutes? 3. What are the sizes of your close competitors? 3.competing in the industry but have the necessary resources to do so) 4. 5. 3. oligopoly or monopoly industry? 4. Are the buyers purchasing from you as well as your competitors? 7. How many close substitutes are available? 2. What is the industry structure? Is it a fragmented. 2. Do the buyers have the capacity to enter your business and produce the goods themselves? 1. How diversified are your competitors? 7. How long does it take for new staff to acquire the necessary skills to do the work? Threat of Substitutes(Products in another industry that satisfy similar needs) 1. How many close competitors exist in the industry? 2. Do entries to this industry regulated by government? 5. 4. How hard is it to gain access to the distribution channels? 6. What is the current industry growth rate? 5. What is the perceived quality of the substitutes? Intensity of rivalry among established firms (Direct competitors competing for market share) 1. .

When they limit competition. Does your company capable to enter the supplier’s business? Intensity of Existing Rivalry Government limits competition (General Electric) Government policies and regulations can dictate the level of competition within the industry. this is a positive forGeneral Electric. Do suppliers have the capacity to enter your business? 5.Bargaining power of suppliers 1. Limited substitutes are a positive for General Electric. Do your suppliers serve multiple industries? Does the total industry revenue accounting for only a small portion of the supplier’s total revenue? 3. High switching costs positively affect General Electric. Large industry size is a positive for General Electric. which is a positive for General Electric. High cost of switching to substitutes (General Electric) Limited number of substitutes means that customers cannot easily switch to other products or services of similar price and still receive the same benefits. … Relatively few competitors (General Electric) Few competitors mean fewer firms are competing for the same customers and resources. Limited number of substitutes (General Electric) A limited number of substitutes mean that customers cannot easily find other products or services that fulfil their needs. Do you have high switching cost to use another supplier? 4. Are there substitutes for your suppliers’ products? 2. … Bargaining Power of Suppliers Threat of Substitutes Substitute has lower performance (General Electric) A lower performance product means a customer is less likely to switch from General Electric to another product or service Substitute is lower quality (General Electric) A lower quality product means a customer is less likely to switch from General Electric to another product or service Substitute product is inferior (General Electric) An inferior product means a customer is less likely to switch from General Electric to another product or service. Large industry size (General Electric) Large industries allow multiple firms and produces to prosper without having to steal market share from each other. Bargaining Power of Customers .

These costs positively affect General Electric. High sunk costs limit competition (General Electric) High sunk costs make it difficult for a competitor to enter a new market. Economies of scale positively affect General Electric. … Threat of New Competitors High capital requirements (General Electric) High capital requirements mean a company must spend a lot of money in order to compete in the market. they are less likely to switch to producers who have difficulty meeting their demands. Industry requires economies of scale (General Electric) Economies of scale help producers to lower their cost by producing the next unit of output at lower costs. Buyer customization positively affects General Electric. When companies need to spend resources building a brand. because they have to commit money up front with no guarantee of returns in the end. new competitors must spend time and money studying the market before they can effectively compete.Buyers require special customization (General Electric) When customers require special customizations. no one customer tends to have bargaining leverage. High capital requirements positively affect General Electric. because the best methods are patented. it is more difficult for new competitors to enter the market. … Large number of customers (General Electric) When there are large numbers of customers. Customers are loyal to existing brands (General Electric) It takes time and money to build a brand. High learning curves positively affect profits for General Electric. they will have a higher cost of production. Five Forces Model • Current Competitors . When new competitors enter the market. High entry barriers positively affect profits for General Electric. High sunk costs positively affect General Electric Advanced technologies are required (General Electric) Advanced technologies make it difficult for new competitors to enter the market because they have to develop those technologies before effectively competing. Entry barriers are high (General Electric) When barriers are high. High learning curve (General Electric) When the learning curve is high. Patents limit new competition (General Electric) Patents that cover vital technologies make it difficult for new competitors. Patents positively affect General Electric. Limited bargaining leverage helps General Electric. because they have smaller economies of scale. they have fewer resources to compete in the marketplace. The requirement for advanced technologies positively affects General Electric.

employ approximately 70. a GE competitor. Siemens AG (SI) is a leading diversified company offering products and services in information and communications. Siemens’ most closely mirrors General Electric’s size and structure. Breaking GE down into individual segments reveals a more accurate depiction of the company’s competition. debt consolidation loans. General electric has a strong hold on many separate markets. bank cards. Citigroup. auto loans. lighting. ranging from Advanced Materials to NBC Universal. Siemens' is one of the largest markets in the world. financing.S. home loans. These financial institutes offer a wide array of services and products such as commercial loans.000 people in over 60 countries. Global Corporate & Investment Banking Group.000 people globally.General electric is one of the world's largest and most diversified companies. media. Global Investment Management. but there are few companies that can compete with General Electric as a whole. Phillips is a global company that generates more than 39 billion in sales and employees 161. General electrics main advantage is the fact that they are so diversified. Citigroup competes with General Electric’s financial service business segment with their four business groups in the financial services. transportation. power. GE maintains a relatively competitive profit. While all eleven segments of the company are important. and home equity loans. The competition in this area is high between GE and Citigroup. real estate. medical. and Global Wealth Management. provides financial services for more than 200 million people in over 100 countries with revenues of over 66 billion. Phillips is one of General Electric’s smaller competitors though Philips Medical Systems is increasingly creating more competition in that business segment of General Electric. motion picture company and other various media outlets. automation and control. such as Disney and Time Warner Inc. Each separate venture of GE has its own degree of competition. These segments consist of Global Consumer Group. • New Entrants . The competition is steep in each of their individual companies. General Electrics' main competitor on a conglomerate level consists of Siemens. As a whole. world-renowned theme parks. leasing and financing inventory. with thirteen worldwide businesses and annual sales of $97 billion. and technology businesses. making it their largest competitor. While GE NBC produces a lower revenue than its competitors. With eleven different segments of the company. and home appliances. the largest and most profitable areas of business are GE’s finance. water and wastewater treatment. GE’s Consumer Finance and Commercial Finance are GE’s most lucrative businesses producing 39 billion dollars in revenue for 2004. Another large competitor GE faces is Koninklijke Philips Electronics competing on more of a technological battlefield.. Siemens companies in the U.000 people and 430. GE NBC Universal is one of the worlds leading media and entertainment companies owning a television network.

Not only must new entrants have a mass amount of capital and legal issues but they must also compete with the NBC name. GE is no exception. The financial segment of GE is not as susceptible to a threat of substitutes as other units of GE. It would be difficult for new entrants to obtain the cash and development that is essential in this industry. Substitution for GE NBC is as easy as viewers switching a channel and advertisers switching networks. A consumer is not as likely to switch their financial provider. which are difficult to break into. From their consumer products to their healthcare technologies. • Threat of Substitute Products Every company has to worry about the threat of new products being created which would make their product obsolete. GE NBC also has little threat of new entrants imposing competition. The threat of new entrants to the finance industry competing on the scale that GE competes in is very small. People already have a solid relationship with the brand name GE. The finance industry also hinges on an established and trusted name for success. New entrants must also face the legal barriers licensing regulations created by the government to limit entry into the broadcast industry. The threat of new entrants in all aspects of GE is low due to the repeating trends of the market requirements that GE employs. Technology is yet another industry that requires large capital and expense. GE NBC is one segment that could be prone to substitutes. as they are their light bulb brand. Also.The threat of new entrants for General Electric is small due to the vast size of the company. This creates a high level of competition that promotes companies to continually have the edge over their competitors. The technology industry is also an at-risk industry to threats of substitutions. and it would be very expensive for a new company to try and compete with it. In the world of broadcast and entertainment there is also a great deal of monetary value that must be expended in order to even have hopes of competing with such networks as NBC. everything has the ability to be taken over by a newer technology or a more efficient product. Just about every product that General Electric creates has the threat of substitute products. It would require a great deal of capital in advertising to get a new companies brand name out to the public. The financial services industry would require an extremely large amount of start up cost and capital making it difficult for small companies to compete. All of GE's companies are in very large-scale economies. The scale of economy that GE operates in places a hardship on new entrants to any of the three major segments of GE. Many of GE's companies require a great deal of brand recognition to stay successful. . new companies must take into realized the channels of distribution for the production of technologies are difficult to achieve without an already established relationship.

Some of General Electric’s companies. This is true for most of their companies. Due to the shear volume of goods that GE buys from their suppliers. the volume per buyer is very large in both quantity of goods and cost of goods. This is true with the financial. giving GE yet another advantage over their buyers. • Bargaining Power of Buyers Due to the size of General electric. With new products coming out all of the time. . the switching cost for buyer is extremely high. For many companies. but not all. • Bargaining Power of Suppliers The bargaining power of suppliers is relatively low for General Electrics many industries. This gives them the advantage of having suppliers fight for their business. consumers may be reluctant to switch due to their loyalty to the GE brand name. the switching cost of buying a different product is minimal. they have considerable bargaining power for most of their products. such as GE Consumer and Industrial.General electrics advantage in this field is their strength of brand name. GE must stay competitive in the price wars with their competition. such as GE Healthcare. In these few scenarios. General Electric is also very flexible in who they choose to be their suppliers. broadcasting and technology industry. For many of their companies. the suppliers have no ability to bargain with GE. Most of GE's suppliers could not survive if they lost GE's business. This makes the switching cost for buyers high.

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