ACCG601: Accounting Information and Management

Decisions
Fall 2021

Assignment 1

Dr. Zeina ZEIADAN

05/09/2021

Prepared by FEYZA AKIN ( 2104035365)

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1.
2.
3.
4. Porter’s Five Forces model for book publishing industry in Australia

Porter’s Five Forces analysis is a structured model that helps analyzing 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. Porter identifies five forces
that shape an industry: (1) rivalry among existing competitors, (2) threat of new
entrants, (3) bargaining power of suppliers, (4) bargaining power of customers and (5)
the threat of substitute products. 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. softdrink industry), there is for higher returns. 

1.1.The Intensity of rivalry between the existing competitors

There is an intense rivalry in this industry due to the existence of large or long-
established book publishers and the number of large publishers is also increasing.

Products are differentiated to some extent because there are mainstream books and
different genre books but mostly mainstream books are sold in the market by the large
retail chains.

The growth of industry is stable, however book sales are expected to decrease in the
future due to the increase in the usage of internet and cable-TV. So, it is likely that the
market size will shrink.

There is no high exit barriers in the market such as long-term loan agreements and
high fixed cost that can be inferred from the existence of many small publishers. Since
there are many large publishers that have the ability to capture sales, books and
authors, they are in fierce competition among themselves. They cannot charge higher

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prices for their books since they have to benchmark their prices to their rivals. They
also compete for new books and (brand) authors that will further decrease their profits.
On top of this, they also compete to acquire small publishers to keep their market
shares high.

Thus, these publishers compete with each other in many different dimensions that
keep intensity of rivalry high.

1.2.The Threat of New Entrants

The threat of new entrants in the book publishing industry can be considered low.
Although the entry barriers for publishing industry is not high, breaking into the
industry as new company, growing your size, and building your reputation up to the
point where you can compete with big players is very challenging and takes a lot of
time. This is further enforced by the difficulty of and/or high cost of accessing to
distribution channels.

However, there has recently been an increasing trend of self-publishing and the
volume of self-publishing is expected to grow. This will likely decrease the market
share of large retail chains. But this is not a very urgent and pressing force for the
existing big players in the market.

Thus, threat of new entry is not currently an intense force but it can be expected to
slowly to get more and more intense by the time with the prevalence of self-
publishing.

1.3 The Power of Customer

Publishers usually sell their books throughbook shops and retailers to reach the end
customers. In this market, independent retailers, large retail chains,and online retail
company such as Amazon are the customers and they are very powerful. Large retail
chains are very powerful because 70% of sales volume is done through them. But

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since we do not know each retailer’s market share, we cannot know how powerful
each of them is. Although only 10% of books are sold through Internet, the biggest
online retail company Amazon has a huge power as customer. Since the share of
internet sales is expected to increase, the power of large retail chains will likely to
decrease overtime.

Since there are large retail chains and big online retail companies such as Amazon in
this market, customers have big bargaining power against the publishers.

1.4 Substitute products or services

The reading habits of people has been weakening and the book sales is expected to
decline in the future, People have now much more options to choose from to spend
free time. Internet, TV, games, podcasts and cable TV are the main substitute product
and service for books.

There is also an incresing demand for e-books from e-readers. With the use of e-
books, it becomes easier to access to the desired book and it is relatively cheaper and
faster than in the case of buying a traditional copy of the book.

In this market, the power of substitute product is high with new digital media
emerging rapidly, and huge amount of content available free online such as e-books,
internet and cable-TV.

In terms of the book publishing industry the propensity of customers to switch to

alternatives is very high and this will ultimately affect the industry’s profitability and
should therefore also be taken into account when evaluating the industry’s
attractiveness.

1.5. Bargaining power of suppliers

In this sector, suppliers are authors. They are not very powerful except the brand
authors who are very few. As the self-publishing becomes more widespread, they will

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 likely to become more powerful because they will have more alternatives to publish
their books. However, this will probably take a long time. So, bargaining power of
suppliers in this market is not intense.

5. Key Insights

All these forces together shape the industry and determine both the structure and
attractiveness of it. The profit potential of publishers tend to be low because:
 there is an intense rivalry due to many existing large/long-established book
publishers and incresing number of the number of them;
 threat of new entry is not an intense force but tends to slowly to increase with
the prevalence of self-publishing;

 the bargaining power of customers is high and they have the ability to put the
pressure on publishers;
 the power of substitute product is high due to rapid emergence of new digital
media;
 bargaining power of suppliers in this market is not intense but it will likely to
increase with more self-publishing opportunities.

6. Assesment of Attractiveness of the Industry

According to Porter’s five-forces model that mentioned above, the book publishing
industry is not to much attractive and the profibility of the sector is not high.

7. How could a firm use Porter’s Five-forces model in their strategy and planning

activities?

Porter’s Five Forces tries to evaluate potential levels of profitability, opportunity and
risk based on five key factors in a given industry.

When a firm wants to enter an industry as a new player, this model will help it to
assess the potential opportunities and risks for its venture. It is also useful to better
differentiate itself from other rivals that offer similar products and services.

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By using the power of these five forces in the industry, companies can have an idea
about the attractiveness and profitability of the industry and develop their own
strategies and planning activities accordingly. For example, firstly, think about a
market that the rivalry is high, competitors are similar both in size and power and the
products are not much differantiated from each other. A firm can invest heavily in
product upgrades or additional services to stay on this market. Secondly, think about
another market, both entry and exit barriers are high. Profitability potential and the
rate of risk will be high in this market. Then, in this market, firms face more risk
because low performing ones tend to continue to produce regardless of profitability
and continue to add to the supply. Finally, think about another sector in which the
suppliers are very powerful. Then, you need to build win-win relationships with
suppliers or use multiple suppliers to stay on the market.

Thus, the examples mentioned above clearly illustrates how firms can utilize Porter’s
Five-forces model in shaping their market strategies and planning activities not only in
the markets in which they operate but also for the markets that they plan to enter.

REFERENCES

https://www.business-to-you.com/porters-five-forces

https://www.researchgate.net/publication/
331089287_Book_Publishing_Business_in_Romania-
An_Analysis_from_the_Perspective_of_Porter's_Five_Force_Model

https://www.mplans.com/articles/using-porters-five-forces-when-creating-your-
marketing-plan/

http://simoncollinson.com/report/analysis-conclusion.html

https://www.investopedia.com/terms/p/porter.asp

http://www.enlightenmenteconomics.com/blog/index.php/2010/08/books-and-e-
books-substitutes-or-complements/