Industry Analysis

a corporation is most concerned with its intensity of competition within the industry.Porter¶s Approach to Industry Analysis According to Porter. The level of this intensity is determined by basic competitive forces .

the corporation must assess the importance to its success to each of the five forces: . where profit is measured in terms of long run return on invested capital While scanning the industry.The collective strength of these forces. determines the ultimate profit potential in the industry.

Rivalry among existing firms.Threat of New Entrants. Threat of substitute products Bargaining power of buyers Bargaining power of suppliers .

New Entrants Suppliers INDUSTRY COMPETITORS Buyers Substitutes .

Threat of New Entrants New entrants to an industry bring to it new capacity. which pose threat to the existing competitors . a desire to gain market share. and substantial resources.

Capital requirements Switching Costs Access to Distribution Channels Cost Disadvantage independent of size. . Government Policy.Possible Barriers to entrants: Economies of Scale Production Differentiation.

Rivalry among existing firms A Competitive move by one firm can be expected to have a noticeable effect on its competitors and thus may cause retaliation or counter efforts. .

Capacity Height of Exit barriers.Intense rivalry is related to the presence of several factors Number of Competitors Rate of industry Growth. Product or Service Characteristics. Diversity of Rivals . Amount of Fixed Costs.

firms in an industry can profitable charge. .Threat of Substitute Product Substitutes limit the potential returns of an industry by placing a ceiling on the prices. Price Differential and amount of switching cost are two important determinants here.

Bargaining Power of Buyers. Amount of purchase. Low Switching Cost. Potential of Backward Integration. Standard Product. Rate of profit of buyers. Percentage of buyers total cost. .

Potential of Forward Integration. Non Availability of Substitutes. Percentage of Sales .Bargaining Power of Suppliers Number of Suppliers. Standard Product / Unique Product.