Porter’s Five Forces Analysis –

Retail/Real Estate Industry

Submitted to – Finlatics
18/05/2020

Submitted by- Suprit Jariwal

Christ University Institute of Management
Suprit.jariwal@christuniversity.in
According to Michael Porter, a professor of strategy at Harvard Business School; the profitability
of any company is determined by these five forces in the market.

Bargaining Power of Buyer – LOW TO MODERATE

If we look at the real estate industry currently the consumer look for big brand names before
getting associated with any project. All the products are standardized and there are only few
differentiations like designing, location and some other amenities which every player in the
industry can provide. The switching cost is also low. Thus overall the bargaining power of buyer
was low but due to current economic slowdown and no demand for the real estate sector the
power of the buyer is moderate. The sector is facing cash crunch so they have to lower the prices
and lure the customers with discounts and offers.

Bargaining Power of Supplier - LOW

The key supplier of the real estate industry includes land sellers, construction contractors,
building and raw material, home furnishing and capital providers. As there are many players to
get the raw materials and the switching cost is also low in order to change the supplier so the
industry has an upper hand over the suppliers that is why the bargaining power of supplier is low.
There is negligible threat of forward integration by suppliers.

Threat of New Entrants - MODERATE

The threats can be mostly of 3 types -

• Legal Authorization
As there is no legal authorization required to start the business there is always threat for
new competition.
• Technology
As the products are standardized there is no specific need for technological advancements
as many of the work in this industry can be outsource to other supplier companies like
designing, furnishing, and many agents, consultant, property managers and employees
can be hired on contractual basis.
 • Capital
Capital can be consider the main barrier to enter the sector as there is huge amount of
investment involved, the companies require large amount of capital or funds. Capital
accumulation also consider how big player you are and how big is the brand name and
also the previous projects in order to get easy funds. Moreover the ability to obtain
banking financing also limits small players from scaling up their projects.

Threat of Substitute products – VERY LOW

There is basically no substitute for the real estate industry as the demand for houses, offices and
any other building & construction activity can’t be substituted with some other products. So the
threat of substitute products is seemingly nil.

Competitive Rivalry - HIGH

The competition among the industry is very high be it residential development or commercial
development projects, as there are many big players in the market like DLF Ltd, Brigade
enterprises Ltd, Oberoi realty Ltd, etc. There are nearly 40 listed companies on the BSE in the
real estate industry which make the competition even more intense.

The profitability margin is very low due to current economic condition so the companies with
high cash reserves will be able to survive. Thus the companies will try to get the maximum
market share and lure the consumers with more offers and services at a very competitive pricing.