An Assignment On

Business Environment Analysis

Submitted By

Sajjal Ghimire

First Semester

Nepal Business College

Author Note

This assignment was prepared for Business Environment Analysis, MBA,

MGT 516 Department of Management, tutored by Prof. Dr. Mohan Basnet

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 Acknowledgement
This assignment is a wonderful experience for me because it gives us knowledge of different

conceptual and practicable curriculum of our study. There is very vast in saying and doing.

Every study has curiosity about their conceptual studies.

I would like to express my special thanks to my Faculty Prof. Dr. Mohan Basnet who gave

me such a golden opportunity to do this wonderful project on the topic “SWOT ANALYSIS

& PORTERS FIVE FORCES” which also helps me in doing lots of research and I come to

know about so many things. I really thanks to them from my inner heart who helps in this

project.

I’m making this project not only for the marks but also for increasing my knowledge.

I also apologies for weakness, spelling, grammatical error or any kinds of mistake in this
project

With Regards
Sajjal Ghimire

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Contents
ACKNOWLEDGEMENT................................................................................................................2
CHAPTER I: INTRODUCTION...................................................................................................4
1.1 Context Information.........................................................................................................4
1.2 Purpose of the study.........................................................................................................4
1.3 Significance of study........................................................................................................4
1.4 Research Methodology.....................................................................................................4
1.4.1 Research methods......................................................................................................4
CHAPTER II: ANALYSIS AND DATA PRESENTATION................................................5
2.1 SWOT ANALYSIS…………………………………………………………………………………………………….…5
2.1.1CONCLUSIONS………………………………………………………………………………………………….…….…..15
2.2 PRESEPECTIVES OF PORTERS FIVE FORCES……………………………………………………………..……16
CHAPTER III: CONCLUSION...........................................................................................25
Bibliography.............................................................................................................................26

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 CHAPTER I: INTRODUCTION
1.1 Context Information
SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to
evaluate a company's competitive position and to develop strategic planning. SWOT analysis
assesses internal and external factors, as well as current and future potential. Porter's Five
Forces is a model that identifies and analyses five competitive forces that shape every
industry and helps determine an industry's weaknesses and strengths. Five Forces analysis is
frequently used to identify an industry's structure to determine corporate strategy.

1.2 Purpose of the study

 To get better understanding about SWOT analysis.

 To get better Understanding about Porters Five Forces Model.

1.3 Significance of study

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and so a SWOT
Analysis is a technique for assessing these four aspects of your business. Porter’s five forces
model is an analysis tool that uses five industry forces to determine the intensity of
competition in an industry and its profitability level.

1.4 Research Methodology

1.4.1 Research methods

Researcher has applied only secondary method of research to collect data and information.

All data and information are collected from different secondary sources like documentary

video, internet etc.

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CHAPTER II: ANALYSIS AND DATA PRESENTATION
1. Analyse changes taking place (due to the on-going pandemic COVID-19) that
may result in opportunities or threats for the firm in Nepal.

Ans: COVID-19 is a unique, severe and unprecedented health and economic crisis
that is changing our lives. Three things make it unique. First, it is a rolling
combination of a health pandemic and an economic crisis. Second, the crisis has
turned global in record time. Third, it is both a demand and supply side shock to all
the major economies. The damage caused by the virus and the policy responses it
requires are deep and multifaceted. COVID-19 is the global pandemic. Coronavirus
disease 2019 (COVID-19) is an infectious disease caused by severe acute respiratory
syndrome coronavirus 2 (SARS-CoV-2).Due to the COVID-19 Nepal along with the
various countries in world are in lockdown .Due to this pandemic every business
house, hotel ,restaurant’s and college are closed . The COVID-19 crisis has a major
impact on both individual citizens and businesses in the Nepal. It is too early to
provide an analysis of the effects of the coronavirus outbreak on the Nepalese
economy. However, it is clear that various sectors will be affected. Due to the one
month more lockdown Nepalese economy is suffering day by day. Nepal is starting to
suffer the most abrupt and widespread cessation of economic activity due to outbreak
of this virus. As we know the impact of the coronavirus (COVID-19) is being felt by
all businesses around the world. Leaders are navigating a broad range of interrelated
issues that span from keeping their employees and customer safe, shoring-up cash and
liquidity, reorienting operations and navigating complicated government support
programs.

The persistent drumbeat of positive tests and reported deaths in other countries due to
novel coronavirus (COVID-19) has created widespread concerns in Nepal also. Nepal
is starting to suffer the most abrupt and widespread cessation of economic activity due
to outbreak of this virus. As per the analysis by the Asian Development Bank, the
outbreak of this deadly disease will hit almost every sector of the Nepali economy,
shaving up to 0.13 per cent off the gross domestic product and rendering up to 15,880
people jobless. Nepalese economy is suffering day by day as all the business house
third quarter report has shown they are in loss. There is no production and due to this

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industry are suffering day by day due to this pandemic. It is absolute that the world
will go in the global recession after this pandemic. The UNO has predicted that except
China and India entire world go into the global recession the situation will worse than
the 2009 recession. In context of Nepal COVID has hit different Sector in Nepal like
Agriculture, Foreign Employment, and Retail sector and vice versa. As we know that
the wholesale and retail sector is the second largest contributor to the economy, after
agriculture. The sector contributes 14.37 percent to the economy, which is already
being affected by the drastic downfall in imports from China following the outbreak
of the disease. While these are the prevailing state, looking ahead there is also a high
risk of general inflation. In the situation of limited supply from China, Nepal may
have to import from third countries, which results the products to become more
costly. The situation is alarming. Although we are yet to experience full impact and
aftermath of the coronavirus, this worldwide threat has already created economic
uncertainty among all of us. People are worried as still we don’t know much about
this deadly virus and how deep and widespread the economic fallout will be.

SWOT analysis is a structured process used by an organization in developing a

strategic plan for goal and mission accomplishment. SWOT analysis consists of
examining an organization's strengths, weaknesses, opportunities and threats in its
business environment. SWOT explores two types of environments: the internal
environment, which focuses on strengths and weaknesses, and the external environment,
which focuses on opportunities and threats. External opportunities provide an organization
with a means to improve its performance and competitive advantage in a market environment.
Some opportunities can be foreseen, such as being able to expand a franchise into a new city,
while some may fall into your lap, such as another country opening up its market to foreign
business. If you can think far enough ahead, you may even be able to create some
opportunities, like a chess master being able to calculate the checkmate of his opponent in
five moves just by looking at the board. For example, you may be able to see the potential of
new products that can be developed from emerging technology. Prime examples of this type
of foresight are the social media giants Facebook and Twitter. External threats are anything
from your organizations outside environment that can adversely affect its performance or
achievement of its goals. Ironically, stronger organizations can be exposed to a greater level
of threats than weaker organizations, because success breeds envy and competition to take
what your organization has achieved. Examples of external threats include new and existing
regulations, new and existing competitors, new technologies that may make your products or
services obsolete, unstable political and legal systems in foreign markets, and economic

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downturns. Sometimes you can turn a threat into an opportunity, such as a new technology
that may displace one of your key products but also provides an opportunity for new product
development.

The purpose of a SWOT analysis is to support strategic decision-making. SWOT

analysis can be critical for smaller consulting firms to cover all bases when making
business decisions. The process can be an exhaustive and thorough group effort. It can
also be quickly used by individuals for less critical decision. Involving other team
members can help identify factors that an individual might miss.

SWOT analysis of Unilever Nepal

Unilever Nepal Limited is a subsidiary company of Hindustan Unilever Company.

This is one of the blue chip public limited manufacturing companies operating in
Nepal. The Unilever Nepal Limited manufactures personal care and hygiene products
like Soaps, Shampoo, Toothpaste and Detergents for domestic market as well as for
export. Some of its famous product are Sun silk, Lux, Fair & Lovely, etc. There are
607 companies in the Unilever Nepal Limited corporate family. The company derives
its competitive advantage from its global footprint and its track record of enhancing

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 value for the consumers around the world. Even in the current recessionary
environment, it has managed to grow at a respectable pace though as we shall discuss
latter, Unilever cannot afford to ignore the emerging threats from a wide range of
global, regional, and local players. Apart from this, as the succeeding SWOT Analysis
makes it clear, the battle for the emerging markets is likely to escalate into a no holds
barred competition with a race to the bottom ensuing between the global giants like
Unilever and Proctor and Gamble and array of local players.

Unilever SWOT Analysis

SWOT analysis is a framework that is used to analyse a company’s competitive
positioning in its business environment. This can be used by Unilever, and will
involve the identification of its internal Strengths (S) and Weaknesses (W) followed
by the identification of the Opportunities (O) and Threats (T) it faces in its extensive
business environment. Unilever is among the leading firms within its industry, and it
needs to retain this position. Unilever is carefully reviewing its SWOT analysis and
using it to make strategic decisions. For a SWOT analysis to be conducted of the firm,
an interactive process needs to be undertaken by coordinating among all the
departments of the firm such as finance, marketing, operations, human resource,
logistics, strategic planning, management information systems etc. A SWOT matrix is
a 2x2 matrix that has the internal strategic factors listed in the first row; Strengths and
Weaknesses. It has the external strategic factors listed in the second row;
Opportunities and Threats. This SWOT strategic framework allows company
managers to easily view all of the company’s strengths, weaknesses, opportunities and
threats in one matrix.

Internal Strengths Weaknesses

External Opportunities Threats

The SWOT analysis matrix helps in the development of 4 types of strategies by

managers. These are:

Strengths-Opportunities Strategies (SO): This involves using internal strengths to

take advantage of opportunities.

Weaknesses-Opportunities Strategies (WO): This involves improving on the

company’s weaknesses by making use of the opportunities.

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 Strengths-Threats Strategies (ST): This involves the using of strengths to minimize
the weaknesses.

Weaknesses-Threats Strategies (WT): This involves the elimination of weaknesses

to combat the threats.

The main objective of the SWOT analysis is to help in identifying the strategies that
can be used by the company to build on its strengths, eliminate its weaknesses while
making the most of opportunities and countering threats.

SWOT Analysis of Unilever

Strengths of Unilever

 Partnerships: Strategic partnerships are established by Unilever with its suppliers,

dealers, retailers 
 Distribution and Reach: Unilever has a large number of outlets in almost every
state, supported by a strong distribution network that makes sure that its products are
available easily to a large number of customers in a timely manner.
 Cost Structure: Unilever’s low cost structure helps it produce at a low cost and sell
its products at a low price, making it affordable for its customers.
 Dealer Community: Unilever has a strong relationship with its dealers that not only
provide them with supplies but also focus on promoting the company's products and
training.
 Financial Position: Unilever has a strong financial position with consecutive profits
in the past 5 years, along with accumulated profit reserves that can be used to finance
future capital expenditures.
 Return on Capital Expenditure: Unilever has been successfully able to generate
positive returns on the capital expenditure it has incurred on various projects in the
past.
 Automation: Automation of various stages of production has allowed the more
efficient use of resources and reducing costs. It also allows for consistency in quality
of its products and provides the ability to scale up and scale down production as per
the demand in the market.

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 Skilled Labour force: Unilever has invested extensively in the training of its
employees that has resulted in it employing a large number of skilled and motivated
employees.
 Entering new markets: Unilever’s innovative teams have allowed it to come up with
new products and enter new markets. It has been successful in past, in most of the
initiatives it has taken in new markets.
 Social Media: Unilever has a strong presence on social media with more than
millions of followers on the three most famous social media platforms: Facebook,
Twitter and Instagram. It has high levels of customer engagement on these platforms
with low customer response time.
 Website: Unilever has a well-functioning and interactive website that draws a large
number of internet traffic and sales.
 Product Portfolio: Unilever has a large product portfolio where it provides products
in a large range of categories. It has a number of unique product offerings that are not
provided by competitors.
 The geography and location of Unilever provide it with a cost advantage in serving its
customers, when compared to that with the competition.
 Unilever has a well-established IT system that ensures efficiency in its internal and
external operations.
 Unilever owns a number of intellectual property rights that include trademarks and
patents. These allow it exclusivity over its products and competitors cannot copy or
reverse engineer them.
 Unilever is a brand that has been in the market for years, and people are aware of it.
This makes its brand awareness high.
 Its products have maintained quality over the years and are still valued by customers,
who find it as good value for the amount of money that they pay.
 Unilever has a diversified workforce, with people of many geographical, racial,
cultural and educational backgrounds that help the company by bringing in diverse
ideas and methodologies of doing things.
 Unilever has qualified and accredited professionals working under in its team.

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Weaknesses of Unilever

 Research and Development: Even though Unilever is spending more than the
average research and development expenditure within the industry, it is spending way
less than a few players within the industry that have had a significant advantage as a
result of their innovative products.
 High Day Sales Inventory: The time it takes for products to be purchased and sold
are higher than the industry average, meaning that Unilever builds up on inventory
adding unnecessary costs to the business.
 Rented Property: A significant proportion of the property that Unilever owns is
rented rather than purchased. It has to pay large amounts of rent on these adding to its
costs.
 Low current ratio: The current ratio that shows the company’s ability to meet its
short term financial obligations, is lower than the industry average. This could mean
that the company could have liquidity problems in the future.
 Cash flow problems: There is a lack of proper financial planning at Unilever
regarding cash flows, leading to certain circumstances where there isn’t enough cash
flow as required leading to unnecessary unplanned borrowing.
 Integration: Unilever's current structure and culture have resulted in the failure of
various mergers aimed at vertical integration.
 Diversification in the workforce: The workforce at Unilever is concentrated with
mostly local workers, and low amounts of workers from other racial backgrounds.
Lack of diversification makes it difficult for employees from different racial
background to adjust at the workplace, leading to loss of talent.
 Market Research: Unilever has not conducted market research within the market
that is serves since the past 2 years. As a result, it is making decisions based on 2
years old data, while customer needs may have evolved over time.
 High employee turnover rates: Unilever has a higher employee turnover rate
compared to competitors. This means that it has more people leaving the job, and as a
result, it is spending more on training and development as employees keep leaving
and joining.

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  Quality Control: Unilever has a lower budget for its quality control department than
competitors. This leads to lack of consistency and the possibility of damage to quality
across its various outlets.
 Lack of legal experience and legal department employees are not highly qualified.
 A few products have a high market share, while most of the products have a low
market share. This reliance on a few products makes Unilever vulnerable to external
threats if these few products suffer for any reason.
 The workload is a high per worker as there are fewer workers than the actual work
required. This puts workers under psychological stress and is likely to be less
productive.
 Worker morale is low due to company culture and politics that have grown in recent
years.
 Competition and qualified employees have been leaving the organisation in recent
years, which could mean a shortage of good talent for the company in the upcoming
years.
 The decision making is highly centralized, and decisions by teams need to be
approved by certain officials. This reduces efficiency in operations by making them
more time consuming. It also leads to reduced innovation.
 The performance appraisal is not in a systematic manner. People are often not
appraised for their performance. This leads to lower work morale and lack of
promotion opportunities for employees.
 The company has low levels of current assets compared to current liabilities, and this
can create liquidity problems for it in operations.

Opportunities of Unilever

1. Internet: there has been an increase in the number of internet users all over the world.
This means that there is an opportunity for Unilever to expand their presence online;
by using the internet to interact with its customers.
2. E-commerce: There has been a new trend and a growth in sales of the e-commerce
industry. This means that a lot of people are now making purchases online. Unilever
can earn revenue by opening online stores and making sales through these.
3. Social Media: There has been an increase in the number of social media users
worldwide. The three social media platforms; Facebook, Twitter and Instagram, have

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 shown the greatest number of increase in monthly active users. Unilever can use
social media to promote its products, interact with customers and collect feedback
from them.
4. Technological developments: technology comes with numerous benefits among
many departments. Operations can be automated to reduce costs. Technology enables
better data to be collected on customers and improves on marketing efforts.
5. Population: the population has been growing and is expected to grow at a positive
rate for the upcoming years. This is beneficial for Unilever as there will be an increase
in the number of potential customers that it can target.
6. Inflation: The inflation rate has been low and is expected to remain low in the next
two years. This is an opportunity for Unilever as its cost of inputs would remain low
for the next two years.
7. Interest rate: Lower interest rates than compared to previous years provides an
opportunity for Unilever to undergo expansion projects that are financed with loans at
a cheaper interest rate.
8. Tourism: Growth in tourism is beneficial for Unilever as it will provide new potential
customers that it can target in order to gain market share.
9. Skilled workers: increase in education and training by numerous institutes has
increased the amount of skilled labour available within the country. This means that if
Unilever is able to hire skilled labour, it would have to spend less on training and
development, therefore, saving costs.
10. The growth in consumer spending in the economy is likely to increase consumption
for Unilever's products.
11. A number of new niche markets have opened up that are growing. Unilever can sell
products in these markets and take advantage.
12. Consumers within the industry are becoming more conscious of health, and this is a
segment that is growing. Unilever can take advantage by manufacturing products that
are beneficial to customer's health.
13. Trade barriers have been reduced on the import of goods. This will reduce the costs
incurred on inputs for production.

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Threats of Unilever

 Technological developments by competitors: New technological developments by

a few competitors within the industry pose a threat to Unilever as customer attracted
to this new technology can be lost to competitors, decreasing Unilever’s overall
market share.
 Suppliers: The bargaining power of suppliers has increased over the years with the
decrease in the number of suppliers. This means that the costs of inputs could increase
for Unilever.
 New entrants: there have been numerous players that have entered the market and are
gaining market share by gaining existing companies’ market share. This is a threat to
Unilever as it can lose its customers to these new entrants.
 Increasing competition: there has been an increase in competition within the
industry putting downward pressure on prices. This could lead to reduced revenue for
Unilever if it adjusts to the price changes, or loss of market share if it doesn’t.
 Exchange Rate: the exchange rate keeps fluctuating and this affects a company like
Unilever that has sales internationally, while its suppliers are local.
 Political uncertainties in the country prove to be a barrier in business, hindering
performance at times and making the business incur unnecessary costs.
 The fluctuating interest rates in the country do not provide a stable financial and
economic environment.
 Consumer tastes are changing, and this puts pressure on companies to constantly
change their products to meet the needs of these customers.
 Regulations on international trade keep changing, and this requires compliance by
companies if they are to operate globally.
 Substitute products available are also increasing, which is threat collectively for the
whole industry as consumption of current products decrease.
 The rise in prices of fuel has increased in the input costs for Unilever. These costs
have also increased as other industries that provide inputs for this company also have
suffered from increasing fuel prices, thereby charging more.
 Increased promotions by competitors have been a threat for Unilever. On most media,
there is more clutter than ever, and customers are bombarded with multiple messages.
This reduces the effectiveness of promotional messages by Unilever.

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 CONCLUSIONS

Business is becoming more pro-active in seizing opportunities presented by the environment

and by the growth of environmentalism. Opportunities are not seized by all businesses and
there are variations in the degree to which businesses see potential opportunities and have the
ability to seize them. There are a number of constraints to businesses taking environmental
opportunities and these needs to be identified in order to overcome them. Environmental
opportunities come in a number of classes including physical, legislative and social. Perhaps
the biggest potential opportunity comes from the growth of the green consumer who actively
seeks an environmental component to purchases. Identifying and satisfying the wants and
needs of the green market could become highly significant to business in the future. Business
activity inevitably affects the environment, but it need not be an adverse impact. Businesses
are more likely to be keen on participating in environmentally pro-active ways if they can see
benefit for themselves.

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2.2 Perspective of porter's five forces model.

In today Nepalese context service sector is one of the most productive sector in Nepalese
Economy. Contribution of the service sector in the economy has been expanding every
passing year as compared to the manufacturing and agriculture sectors. Education, health,
finance, government, transportation, and trade are service sectors. Among them I have chosen
Service sector i.e. Finance. In finance it includes Bank. As there are more than 165 financial
institutions in Nepal and among them 27 is commercial Bank. Among 27 Commercial Bank I
have Chosen, NMB Bank Ltd. Which I am familiar with.

NMB Bank Nepal is a commercial bank in Nepal with headquarters in Kathmandu. The bank
is licensed by central bank of Nepal, the Nepal Rastra Bank and has 163 branches across the
nation providing retail and commercial banking services. Recently, it acquired Om
Development Bank. The bank's shares are publicly traded in the Nepal Stock Exchange. The
Bank has a joint venture agreement with Netherlands Development Finance Company (FMO)
a Dutch development bank which holds 17% of the bank's shares and is the largest
shareholder of the Bank.

Environmental analysis is a strategic tool. It is a process to identify all the external and
internal elements, which can affect the organization’s performance. The analysis entails
assessing the level of threat or opportunity the factors might present. These evaluations are
later translated into the decision-making process. The analysis helps align strategies with the
firm’s environment. Our market is facing changes every day. Many new things develop over
time and the whole scenario can alter in only a few seconds. There are some factors that are
beyond your control. But, you can control a lot of these things. Businesses are greatly
influenced by their environment. All the situational factors which determine day to day
circumstances impact firms. So, businesses must constantly analyse the trade environment
and the market. There are many strategic analysis tools that a firm can use, but some are more
common. The most used detailed analysis of the environment is the PESTLE analysis. This is
a bird’s eye view of the business conduct. Managers and strategy builders use this analysis to
find where their market currently.  It also helps foresee where the organization will be in the
future.

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PESTLE analysis consists of various factors that affect the business environment. Each letter
in the acronym signifies a set of factors. These factors can affect every industry directly or
indirectly.

The letters in PESTLE, also called PESTEL, denote the following things:

 Political factors
 Economic factors
 Social factors
 Technological factors
 Legal factors
 Environmental factor
Often, managers choose to learn about political, economic, social and technological factors
only. In that case, they conduct the PEST analysis.  PEST is also an environmental analysis.
It is a shorter version of PESTLE analysis. STEP, STEEP, STEEPLE, STEEPLED, STEPJE
and LEPEST: All of these are acronyms for the same set of factors. Some of them gauge
additional factors like ethical and demographical factors will discuss the 6 most commonly
assessed factors in environmental analysis.
P for Political factors

The political factors take the country’s current political situation. It also reads the global
political condition’s effect on the country and business. When conducting this step, ask
questions like “What kind of government leadership is impacting decisions of the firm?”

Some political factors that you can study are:

 Government policies
 Taxes laws and tariff
 Stability of government
 Entry mode regulations
E for Economic factors

Economic factors involve all the determinants of the economy and its state. These are factors
that can conclude the direction in which the economy might move. So, businesses analyse
this factor based on the environment. It helps to set up strategies in line with changes.

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I have listed some determinants you can assess to know how economic factors are affecting
your business below:

 The inflation rate

 The interest rate
 Disposable income of buyers
 Credit accessibility
 Unemployment rates
 The monetary or fiscal policies
 The foreign exchange rate
S for Social factors

Countries vary from each other. Every country has a distinctive mind set. These attitudes
have an impact on the businesses. The social factors might ultimately affect the sales of
products and services. Some of the social factors you should study are:

 The cultural implications

 The gender and connected demographics
 The social lifestyles
 The domestic structures
 Educational levels
 Distribution of Wealth
T for Technological factors

Technology is advancing continuously. The advancement is greatly influencing businesses.

Performing environmental analysis on these factors will help you stay up to date with the
changes. Technology alters every minute. This is why companies must stay connected all the
time. Firms should integrate when needed. Technological factors will help you know how the
consumers react to various trends.

Firms can use these factors for their benefit:

 New discoveries
 Rate of technological obsolescence
 Rate of technological advances
 Innovative technological platforms

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L for Legal factors

Legislative changes take place from time to time. Many of these changes affect the business
environment. If a regulatory body sets up a regulation for industries, for example, that law
would impact industries and business in that economy. So, businesses should also analyse the
legal developments in respective environments. I have mentioned some legal factors you
need to be aware of:

 Product regulations
 Employment regulations
 Competitive regulations
 Patent infringements
 Health and safety regulations
E for Environmental factors

The location influences business trades. Changes in climatic changes can affect the trade. The
consumer reactions to particular offering can also be an issue. This most often affects agri-
businesses. Some environmental factors you can study are:

 Geographical location
 The climate and weather
 Waste disposal laws
 Energy consumption regulation
 People’s attitude towards the environment

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Porters five Forces Model

Porter’s Five Forces analysis is a framework that helps analysing the level of competition
within a certain industry. It is especially useful when starting a new business or when
entering a new industry sector. According to this framework, competitiveness does not only
come from competitors. Rather, the state of competition in an industry depends on five basic
forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers,
threat of substitute products or services, and existing industry rivalry. The collective strength
of these forces determines the profit potential of an industry and thus its attractiveness. If the
five forces are intense (e.g. airline industry), almost no company in the industry earns
attractive returns on investments. If the forces are mild however (e.g. soft drink industry),
there is room for higher returns. Each force will be elaborated on below with the aid of
examples from the airline industry to illustrate the usage.

The Porter's Five Forces model is a simple and powerful for understanding where power lies
in business situations. This is useful, because it helps to understand both the strength of our
current competitive position, and the strength of a position we are considering moving into.

With a clear understanding of where power lies, we can take fair advantage of a situation of
strength, improve a situation of weakness, and avoid taking wrong steps.

Five forces analysis take five important forces into consideration that determine competitive
power in an industry. These are:

1) Bargaining power of supplier

2) Bargaining power of buyer

3) Competitive rivalry

4) Threats of substitutes

5) Threat of new entry

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 Supplier Power
Supplier concentration
Importance of volume
to supplier
Differentiation of inputs
Impact of inputs on cost
or differentiation
Switching costs of firms
in the industry
Presence of substitute
inputs
Threat of forward
integration
Cost relative to total
purchases in industry

Barriers to Entry Degree of Rivalry Threat of

Absolute cost Exit barriers Substitutes
advantages Industry concentration Switching costs
Proprietary learning Fixed costs/Value Buyer inclination
curve added to
Access to inputs Industry growth substitute
Government policy Intermittent Price-
Economies of scale overcapacity performance
Capital requirements Product differences trade-off of
Brand identity Switching costs substitutes
Switching costs Brand identity
Access to distribution Diversity of rivals
Expected retaliation Corporate stakes
Proprietary products

Buyer Power
Bargaining leverage
Buyer volume
Buyer information

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 Brand identity
Price sensitivity
Threat of backward
integration
Product differentiation
Buyer concentration vs.
industry
Substitutes available
Buyers’ incentives

The Competitive Forces analysis is made by the identification of 5 fundamental competitive

forces:

 The entry of competitors (how easy or difficult is it for new entrants to start to
compete, which barriers do exist)
 The threat of substitutes (how easy can our product or service be substituted,
especially cheaper)
 The bargaining power of buyers (how strong is the position of buyers, can
they work together to order large volumes)
 The bargaining power of suppliers (how strong is the position of sellers, are
there many or only few potential suppliers, is there a monopoly)
 The rivalry among the existing players (is there a strong competition between
the existing players, is one player very dominant or all equal in strength/size)

Bargaining Power of Supplier: A banking industry requires enough capital from

shareholder and debt holder, and working integration from workers and staffs, other
components and supplies. This requirement leads to buyer-supplier relationship
between industry and various parties. Bargaining power of supplier is always high in
banking industry. Similarly Depositor and technology are the potential suppliers of a
bank. Due to increasing number of banks there are more suppliers so they demand
higher interest rate and more facilities. Depositors have more options in choosing the
bank so they have high bargaining power. The technology has been coming up as the
vital force for enhancing the banking system. Hence the technology providers such as
software building houses, specialist etc. have high bargaining power The following
table outlines some factors that determine supplier power:

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 Suppliers are powerful if Suppliers are weak if
Credible forward integration threat by Many competitive suppliers are –
suppliers. products and services are standardized.
Suppliers concentrated. Credible backwards integration threat
by purchasers.
Customers are powerful. Customers weak.
Concentrated purchasers.

Bargaining Power of Buyer: The power of buyers in banking industry is limited. As

there are different external forces which leads this industry towards to the success as
well as to the failure. Here power of buyer is generally indicated by the borrowing
rate of interest and the interest rate is generally influenced by external factors such as
economic conditions, market fluctuations and international trade. Though the
bargaining power of buyer is limited, banks always provide the standard services to its
customers which help them to be superior. The following table outlines some factors
that determine buyer power:

Buyers are powerful if Buyers are weak if

Buyers possess a credible backwards
integration threat.
Buyers purchase a significant proportion of
output
Government provides certain right and
authority.
Producers are threaten forward integration.
Buyers are fragmented – no buyer has any
particular influence on industry.
Government provides only limited right on
the industry.

Competitive Rivalry: The competitive rivalry in the banking industry seems to

increase as the banks and other financial institutions are growing year by year. The
competition is high among the different banks providing services to the customers.
There are many players in the market with high competition rate. Other banks such as
Standard chartered, Everest Bank, Bank of Kathmandu etc. is considered among the
top banks of the country and many other are coming up with high promotional
strategies along with the service and differentiation and low cost method. As banks
increases in numbers the competition among them are also increased. In pursuing
advantage over the rivals, banks started to choose different competitive moves. Some
of them are:

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  Changing borrowing interest rates and lending rates.
 Improving offered product and services, improving feature and
implementing innovations and new strategies.
 Creatively using channels of distributions.
The intensity of rivalry among the banks is influenced by the following industry
characteristics:
 A large number of firms
 Slow economic growth and market growth
 High exit barriers
 Low levels of product differentiation.
 Mergers and Acquisitions trends
 Low switching costs.

Threats of Substitutes: According to the Porters, threat of substitutes refers to the

ability of the customer to find a different way of doing what you do. In financial
industry the threat of being substitutes is high as there is a stiff competition among the
banks. A threat of substitutes typically impacts an industry through price competition.
Customers always want the quality product and services and they want in a low and
cheap price. Substitute products are those products that appear to be different but can
satisfy the same need as another product. Substitute product for the NMB is other
institutions such as development banks, cooperatives etc. There is Medium threat
from these substitute institutions because the current and potential clients can easily
shift into other institutions if they are not satisfied with NMB.

Threats of New Entrants: The possibility of new entrants in the industry is always a
prominent threat. As the commercial banks for the past decades has dramatically
grown the NRB has impose some restrictions. They have increases the amount of
authorized capital required by the bank. NRB has also motivates the banking sector in
M&A policy. These types of barriers are imposed by government to make the sound
economic environment in the financial sector. Threat of new entrants in the banking
industry were Medium because of the entry barriers to the new banks were medium. It
is neither easy to enter this industry nor too difficult. The high capital requirements,
strict government policy possess some barriers for the new entrants. The new entering

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 banks should come up with the high differentiated service providing option with huge
capital.

CHAPTER THREE: CONCLUSIONS

Porter’s five forces is very helpful for the every business. It is a simple model but very
powerful tool for the business. It plays vital role in hospitality, tourism industry and Banking
industry. By applying this tool, it helps to determine the position of business in the market. It
helps to declare the strengths and weakness of the business which is very important for the
business. In the hospitality and the tourism business if they know their weakness towards the
servicing which they are providing to the customer. They can find out their weakness and try
to implement by taking the best decision. And the most important part in the hospitality
industry is providing the good services to the customers.

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 BIBLOGRAPHY

www.bot-tz.org

Essays, UK. (November 2018). Porter’s five forces model. Retrieved from
https://www.ukessays.com/essays/business/porters-five-forces-model.php?vref=1

Porter, M E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance,

New York: The Free Press.

Rumelt, P. (1991), Richard, P (ed, 1994) Fundamental Issues in Strategy: A Research

Agenda, Harvard Business School Press.

Varey, R J. and Gabriel, E. (2000) ‘How Can a Relational Strategy Contribute to Service
Competition of Two Modes of Passengers Transport?’ 13th UK Conference for services
marketing, University of Nottingham.

Wit, B. and Meyer, R. (1998) Strategy: Process, Content, Context, 2nd Edition, London:
Thomson Business Press.

Zelditch, M. (1962) ‘Some Methodological Problems of Field Studies’ American Journal of

Sociology, Volume 67, Number 5, p. 566-576.

Retrivved from https://www.businessnewsdaily.com/4245-swot-analysis.html

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Essays, UK. (November 2018). SWOT Analysis | What is SWOT Analysis? | Examples of
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