It is undeniable fact as business operates in an environment, there are some factors which are

responsible in influencing the operation of the business. Business environment constitutes of

internal and external factors that are mainly responsible in influencing the company’s operations.

The internal environment of the business organization are composed of the elements within the

organization, like employees, management and corporate culture which generally impact the

performance of the business. Meanwhile, external environmental factors are the forces that

affects the company’s ability to develop and maintain successful transactions and relationship

with its target customers (Kotler & Keller, 2016). Internal environment are within the control

reach of the organizational management however the external environment are not with in the

controllable limits of the organization. Both of the internal and external factors are to be well

kept into consideration by the organization whenever they think to formulate any strategic plans

related to enhance their business.

PESTLE analysis is the one of the adopted method in order to analyze the influence of external

factors on business. Strategy formulators in an organization conduct PESTLE analysis in order to

determine the position of the business firm at present point of time (Cadle & Paul, 2014). In

order to further analyze the external factors Michael E Porter came up with an industry analysis

in order to understand the mystery behind success of several companies falling under several

similar industry category. Porter’s five forces analysis concerns about the business threats that

any business organization receives due to external business factors. According to Fabian (2014),

as new digitization and information technology have conquered business world, the Porters five

strategic forces still are valid since the relation between buyers, suppliers, competitors and

customers are still valid. Any industry is assumed to be profitable only if these five model leads

any industry to achieve profit (Porter, 1979). The strategic manager of any business organization
looking for competitive advantage over the competitive firms can have elaborative knowledge

regarding the attractiveness or competitiveness to perform better in the market. Some of the

Porter’s competitive forces that have effect on organization external environment are listed,

analyzed and described below:

Threat of New Entry: New entries in any organization comes up with newer dimensional vision

in order to change the market circumstances which adds more pressure to any existing industry.

This force as described by porter identifies how easy or not it is for a new emerging business to

step in a particular industry. Since very few barriers prevents a new startup to insert in the

business venture, the rivalry within the same industry intensifies and also results in decrease in

profits as more companies offering similar products or services will be fighting for narrow

market space. However, there are certain industries which are creating high barriers to entry, in

order to make the industry attractive and profitable. As I am an agricultural engineer and have

analyzed farm machinery sector precisely, I would like to take reference of the farm machinery

field in order to effective clarify the effect of Porter’s five forces in farm machinery sector. As

new entrants having very less entry barriers are emerging in the agricultural sector and are

offering similar type of products at decent costs, old players in the industry like John Deere,

International Harvester are constantly losing their portion of market share.

Bargaining Power of Suppliers: Any industry with low bargaining power of suppliers always

becomes profitable. An industry with high bargaining power of suppliers always forces the

companies to buy the raw materials at higher cost than usual or enforces the business

organization to buy lower quality raw material. These force directly affects the profitability of

the company as it makes business firm to invest for the raw material more than usual. If the

number of suppliers is less than the organization have to actually refer to the limited number of
the suppliers to fulfill their basic needs for business operation thereby providing the suppliers

with more power to bargain. John Deere, a renowned agricultural equipment manufacturers has

strong supplier relation with Honda, Hitachi Consulting, Topcon, Frontier equipment, TNC,

Odin Technology, and Hana in order to gather all required accessories, the raw materials are

easily available, hence suppliers powers is less for John Deere.

Bargaining Power of Customers: These forces is highly impacted by the quantity that any

customers tend to buy from the organization. If the customer wills to buy significant proportion

of the quantity of the product, then the customers bargains with the companies in order to bring

the cost of the products down. Higher bargaining power of the customers will result in lower

profitability to the business organization as the organization gets forced to sell the product at a

cost lesser than the usual rate accepted by the market. The smaller and powerful customer bases

will create more intensity of bargaining power of the customer. Since, John Deere is focused to

serve premium products at considerably higher amount, and due to more industry rivals the

consumers are always in search of reduction in cost of the machineries and equipment’s

manufactured by John Deere.

Threat of New Substitute: A new substitute can be considered as that product or service from

other industry of better quality and competitive price which the consumers can avail as a

replacement to existing product (Speed , 1989). Since these days, the substitute for agricultural

machinery manufacturers like vertical farming techniques which includes Aerophonics,

hydroponics is being fiercely introduced which is leading to the huge decrease in Sales of John

Deere agricultural machinery products. Thereby, there possess greater risks for agricultural

machine manufacturers as the substitute agricultural technique can be used to eliminate the

traditional agricultural practices.

Industrial Rivals: In today’s competent marketing arena, there are a lot of similar brands

serving similar products are fighting in the market for sales of similar products. It will not be

wrong to say, there exist unhealthy competitions between several renowned MNC’s. Whenever

there prevails high industry rivals the profitability of the company lowers as the same market

share has to be divided among different competitors fighting for narrow market space. These

force is used to examine the number of competitors and their ability to threaten the industry. As

in case of agricultural machinery manufacturers since the global demand of food production is

increasing thereby more companies are entering these sector resulting in fierce competition

between the companies. Taking John Deere as a reference, some of the direct competitors of

John Deere are Kubota Tractor Corporation, Caterpillar Inc., CNH Global N.V, international

harvester, green machines. Furthermore, the enterprise practicing vertical farming like

Aerophonics, hydroponics and the companies producing traditional manually operated

machinery are indirect competitors of John Deere.

In summary, I feel precise and clear understanding of the Porter’s five forces and its impact on

the organization will help organizational management to create several effective strategies in

order to soak all external pressures suppressing the business ultimately to make the business

profitable and sustainable.

References
Cadle, J., & Paul, D. (2014). Business analysis techniques. London: British Informatics Society

Limited .

Fabian, D. (2014). Are Porter’s Five Competitive Forces still Applicable? Enschede: University

of Twente.
Kotler, P., & Keller, K. L. (2016). Marketing Management (15 ed.). Essex: Pearson Education

Limited.

Porter, M. E. (1979). The Five Competative Sources that Shape Strategy. Harvard Business

Review, 25-40.

Speed , R. J. (1989). Oh Mr Porter! A re-appraisal of competitive strategy. Marketing

Intelligence and Planning, 7(6), 8-15.