INDUSTRY ANALYSIS

(POTER’s ANALYSIS)
5 FORCES OF ANALYSIS
- Proponent: Michael E. Porter (1979), Professor at Harvard Business School
- Sometimes called the Competitive Forces Model.
- The primary tool used in conducting industry analysis
- Conducting an industry analysis is another key step in the planning process. It
allows businesses to evaluate whether or not to enter into a particular industry
will be profitable.

According to Porter, there are five forces that represent

the key sources of competitive pressure within an
industry They are:

1. Competitive Rivalry.
2. Supplier Power.
3. Buyer Power.
4. Threat of Substitution.
5. Threat of New Entry.

1. RIVALRY AMONG EXISTING COMPETITORS

 The first of the Five Forces refers to the number of competitors and their ability to undercut a company. The
larger the number of competitors, along with the number of equivalent products and services they offer, the lesser
the power of a company.

2. THREATS FOR NEW INTRANTS

 A company's power is also affected by the force of new entrants into its market. The less time and money it cost
for a competitor to enter a company's market and be an effective competitor, the more an established company's
position could be significantly weakened.

3. POWER OF SUPPLIERS
 The fewer suppliers to an industry, the more a company would depend on a supplier. As a result, the supplier has
more power and can drive up input costs and push for other advantages in trade. On the other hand, when there
are many suppliers or low switching costs between rival suppliers, a company can keep its input costs lower and
enhance its profits.

4. POWER OF CONSUMERS
 The ability that customers have to drive prices lower or their level of power is one of the Five Forces. It is
affected by how many buyers or customers a company has, how significant each customer is, and how much it
would cost a company to find new customers or markets for its output.

5. THREATS OF SUBSTITUTES
 The presence of substitutes offers consumers options when looking for a certain good or service. When there are
no close substitutes, consumers have no choice but to consume that product. This allows firms to charge higher
prices.
 ENVIRONMENTAL ANALYSIS
(PESTEL ANALYSIS)
- The PEST (or PESTEL) analysis is a method or approach to identifying the external factors that affect a firm’s
operations or ability to enter into a business market or industry. This analysis was introduced by Dr. Francis Aguilar
in 1967.
- GOAL: To assess and analyze the macro-environmental factors that can impact their operations and decision-
making.

1. POLITICAL
o The largest external factor affecting a business. This includes analysis of local, regional, and national political
landscape.
o Government policies directly affect the rate of business tax payable, employee laws, general state of law
and order, business compliances, and general ease of doing business.

Example: If the rate of tax in one state is much higher than a relatively comparable state that charges
businesses much lower taxes, then businesses may find it more prudent and competitive to move their
business.

2. ECONOMIC
o Economic influences are macro-financial factors such as a state or national GDP growth, inflation or
deflation rate, foreign currency debt, federal reserve interest rates and changes, and more.
o These factors play a key role in determining target markets to sell to and where to distribute the products or
services.

Example: Higher unemployment status will result to an unimpressive overall GDP of a country, thus
impacting macro and micro-businesses.

3. SOCIAL
o Companies catering to any consumer band will have to keep themselves aware of the impact of social
movements, cultural shifts, and sensitivities, not just for customers but also for employees.

Example: The theme and visuals of a marketing campaign for a consumer-facing product would be very
different in the Middle Eastern region than that of American or European regions.

4. TECHNOLOGICAL
o A company that is able to study breakthroughs in tech and its impact on the future of its products, services,
and human resources, will also be able to better plan for business continuity and growth to beneficially
leverage these changes rather than get caught off guard by them.
 Example: Companies that already had a remote-work technology stack and policies incorporated into
the work culture managed to handle COVID lockdowns much better.

5. ENVIRONMENTAL
o This new addition to the original PEST analysis was done when enterprises in the 21st century began to
understand the real and measurable impact of environmental factors on their bottom line.
o Factors such as carbon tax, natural disasters, availability of water and natural resources, and human
migrations can have a significant impact, especially on certain businesses and their future plans.

Example: Many businesses are placing increased awareness on carbon neutrality and ecological output.
This can sometimes alter their manufacturing, distribution, or supply chain processes.

6. LEGAL
o These are external factors emerging out of political factors but are focused on regulations related to labor
hiring and firing, business conduct and operations, and taxation.

. Example: The Euro region’s GDPR regulation, which impacted almost every business website on how
they collect visitor data. The EU general data protection regulation (GDPR) governs how the personal
data of individuals in the EU may be processed and transferred.