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Anurag Panjiyar
MBA 3rd Semester
LC NO: LC00016000153
2nd Major Assignment-Strategic Management

Analytical question

Q.1 the market attractiveness and success are measured by major forces
addresses by Poter’s and any new challenges and opportunities can be
determined for the company. Taking a business perspective explain the
fundamental reason for these challenges and opportunities. Poter’s addresses
the major forces, briefly explain what these are.
Ans:-

Knowing who your competition is and how their products, services and marketing strategies
affect you is critical to your survival. Whether you are a Fortune 500 company or a small, local
business, competition has a direct influence on your success.

One way to analyze your competition – and understand your standing in your industry – is using
Porter's Five Forces model. Originally developed by Harvard Business School's Michael E.
Porter in 1979, the five forces model looks at five specific factors that determine whether or not a
business can be profitable in relation to other businesses in the industry. Using Porter's Five
Forces in conjunction with a SWOT analysis will help you understand where your company or
business fits in the industry landscape.

Porter's Five Forces is considered a macro tool in business analytics – it looks at the industry's
economy as whole, while a SWOT analysis is a micro analytical tool, focusing on a specific
company's data and analysis.

"Understanding the competitive forces, and their underlying causes, reveals the roots of an
industry's current profitability while providing a framework for anticipating and influencing
competition (and profitability) over time," Porter wrote in a Harvard Business Review article. "A
healthy industry structure should be as much a competitive concern to strategists as their
company's own position."

Understanding Porter's Five Forces

Porter theorized that understanding both the competitive forces at play and the overall industry
structure are crucial for effective, strategic decision-making, and developing a compelling
competitive strategy for the future.

In Porter's model, the five forces that shape industry competition are

1. Competitive rivalry
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This force examines how intense the competition is in the marketplace. It considers the number
of existing competitors and what each one can do. Rivalry competition is high when there are
just a few businesses selling a product or service, when the industry is growing and when
consumers can easily switch to a competitor's offering for little cost. When rivalry competition is
high, advertising and price wars ensue, which can hurt a business's bottom line.

2. The bargaining power of suppliers

This force analyzes how much power a business's supplier has and how much control it has over
the potential to raise its prices, which, in turn, lowers a business's profitability. It also assesses
the number of suppliers of raw materials and other resources that are available. The fewer
suppliers there are the more power they have. Businesses are in a better position when there are
multiple suppliers.

3. The bargaining power of customers

This force examines the power of the consumer, and their effect on pricing and quality.
Consumers have power when they are fewer in number but there are plentiful sellers and it's easy
for consumers to switch. Conversely, buying power is low when consumers purchase products in
small amounts and the seller's product are very different from that of its competitors.

4. The threat of new entrants

This force considers how easy or difficult it is for competitors to join the marketplace. The easier
it is for a new competitor to gain entry, the greater the risk is of an established business's market
share being depleted. Barriers to entry include absolute cost advantages, access to inputs,
economies of scale and strong brand identity.

5. The threat of substitute products or services

This force studies how easy it is for consumers to switch from a business's product or service to
that of a competitor. It examines the number of competitors, how their prices and quality
compare to the business being examined, and how much of a profit those competitors are
earning, which would determine if they can lower their costs even more. The threat of substitutes
is informed by switching costs, both immediate and long-term, as well as consumers' inclination
to change.

Example of Porter's Five Forces

There are several examples of how Porter's Five Forces can be applied to various industries. The
ultimate goal is to identify the opportunities and threats that could impact a business. As an
example, stock analysis firm Trefis looked at how Under Armour fits into the athletic footwear
and apparel industry.

 Competitive rivalry: Under Armour faces intense competition from Nike, Adidas and
newer players. Nike and Adidas, which have considerably larger resources at their
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disposal, are making a play within the performance apparel market to gain market share
in this up-and-coming product category. Under Armour does not hold any fabric or
process patents, hence its product portfolio could be copied in the future.

 Bargaining power of suppliers: A diverse supplier base limits supplier bargaining power.
Under Armour's products are produced by dozens of manufacturers based in multiple
countries. This provides an advantage to Under Armour by diminishing suppliers'
leverage.

 Bargaining power of customers: Under Armour's customers include wholesale customers

and end-user customers. Wholesale customers, like Dick's Sporting Goods, hold a certain
degree of bargaining leverage, as they could substitute Under Armour's products with
those of Under Armour's competitors to gain higher margins. The bargaining power of
end-user customers is lower as Under Armour enjoys strong brand recognition.

 Threat of new entrants: Large capital costs are required for branding, advertising and
creating product demand, which limits the entry of newer players in the sports apparel
market. However, existing companies in the sports apparel industry could enter the
performance apparel market in the future.

 Threat of substitute products: The demand for performance apparel, sports footwear and
accessories is expected to continue to grow. Therefore, this force does not threaten Under
Armour in the foreseeable future.

Trefis has completed a similar analysis of Facebook, Nike, Coach and Ralph Lauren. Another
example of the application of Porter's Five Forces on a familiar brand is the one recently done by
Lawrence Gregory for McDonald's.

Strategies for success

Once your analysis is complete, it's time to implement a strategy to expand your competitive
advantage. To that end, Porter identified three generic strategies that can be implemented in any
industry (and by companies of any size.)

Cost leadership

Your goal is to increase profits by reducing costs while charging industry-standard prices, or to
increase market share by reducing the sales price while retaining profits.

Differentiation

To implement this strategy, your company's products need to be significantly better than the
competition's, improving their competitiveness and value to the public. It requires thorough
research and development, plus effective sales and marketing.

Focus
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Successful implementation entails the company selecting niche markets in which to sell their
goods. It requires an intense understanding of the marketplace, its sellers, buyers and
competitors.

Alternatives to Porter's Five Forces

While Porter's Five Forces is an effective and time-tested model, it has been criticized for failing
to explain strategic alliances. In the 1990s, Yale School of Management professors Adam
Brandenburger and Barry Nalebuff created the idea of a sixth force, "complementary," using the
tools of game theory.

In Brandenburger's and Nalebuff's model, complementary sell products and services that are best
used in conjunction with a product or service from a competitor. Intel, which manufactures
processors and computer manufacturer Apple, could be considered complementary.

Additional modeling tools are likely to help round out your understanding of your business and
it’s potential. A value chain analysis helps companies understand where their best productive
advantage lies, while the BCG matrix helps companies identify which products are likely to
benefit the most from increased investment.

Conclusion:

Porter's Five Forces is a simple but powerful tool for understanding the competitiveness of
business environment, and for identifying to strategy's potential profitability. This is useful,
because, when we understand the forces in environment or industry that can affect to
profitability; you'll be able to adjust your strategy accordingly. For example, we could take fair
advantage of a strong position or improve a weak one, and avoid taking wrong steps in future.

In this article, we explore each of Porter's Five Forces. We look at how they can help you to
analyze the strengths and weaknesses of your position, and how they can impact your long-term
profitability.

Porter’s five forces model has been a very influential strategy framework providing guidelines to
investigate competition, profitability and investment attractiveness within an industry. The
purpose of this paper was to discuss the value of this traditional strategy framework into modern
business environments. Providing a detailed examination of the individual five forces, the
process of competitive industry analysis was explored.

The very process of determining the optimal strategy following the principles of the model was
identified. This relates to an assessment of the level of intensity of the individual five forces
being the threat of entry, the threat of substitutes, the power of buyers, the power of suppliers and
the competitive rivalry between them.
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Extending this principle into subsequent analysis and evaluation of the framework, more recent
research was considered. Major conclusions signify that the defining characteristics of the
framework can still be applied with success into strategy and modern business practices.
However, good decision making practices should include a set of parameters to obtain a
complete and up-to date picture. These parameters are based on the notion that industries are
dynamic environments and changing factors directly affect competition as they impact on each
competitor’s capabilities and profit potential. The most crucial to be included in a relevant
analysis are then defined as technological innovation and advances, mapping of individual
market clusters within industries, convergence and the potential to complement and reposition
products.

Overall, current strategy research follows Porter’s five force’s framework in competition and
industry analysis. The framework is found to be of critical importance in building strategic
decisions. A more practical and realistic approach is nevertheless required in order to achieve a
less vague and contemporary picture.
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BIBLIOGRAPHY

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