Porters Five forces analaysis

To  analyze a firm’s profit potential, analyst has to first assess the profit
potential of each of the industries in which the firm is competing because
the profitability of various industries vary systematically and predictably
over time. We have used Porters five forces model to analyze insurance
industry.

 Threat of New Entrants in the Industry

Threat of new entry is one of the factors influencing the profitability of the
industry. To earn abnormal profit, the new entrants may be attracted in the
industry. The ease with which a new firm can enter an industry is a key
determinant of its profitability. The other parameter attracting investments
are economies of scale, first mover advantage, and access to channels of
distribution and relationship and legal barriers maybe cited. As the said
industry requires large economies of scale as well as investment, the threat
of new entrants is moderate. On the other hand, the customer switching
cost and high initial investment may be a barrier. The law for this particular
sector is not so strict which allow common investors to invest in this sector.

 Bargaining Power of the Industry’s Suppliers

There are many suppliers available in this sector. It results high control
over the industry to be put by the suppliers. This provides the industry-
selecting supplier as per the choice of the industry.

 Bargaining power of the industry’s customers

The choice of the final product is depends on the consumers can choose
any company’s product because the products of various companies’ are of
different in nature. The products of this industry are mainly sold as per the
comparative high benefit of the depositors. They can switch over any
company’s product without incurring any cost. Hence, customer’s switching
cost is very low resulting bargaining power of buyer is very high.

 Rivalry among Existing Competitors in the Industry

In most industries, the average of profitability is primarily influenced by the

nature of rivalry among existing firms. Both the price and non-price rivalry
are seen in this industry. The industry is growing very rapidly. So the
incumbent firms need not grab market share from each other to grow.
There are some big firms in this sector that create undesirable competition
among them to maintain their market shares because the companies
cannot leave the industry easily. An individual firm cannot set price.

 Threats of Substitute Products

In this industry there exists substitute product in this industry. The banking
organizations provide better benefit to the depositors.