NOTES ON FIVE FORCES AND

INDUSTRY ANALYSIS
G SRINIVASAN
THREAT OF NEW ENTRANTS
Entry Threats Strong
when
Entry barriers are low
Industry members are
unwilling or unable to
strongly contest the entry
of new comers
Buyer demand is growing
rapidly
Potential entrants have the
capability to overcome
high entry barriers
Entry Threats Weak when
Entry barriers are high
and incumbents enjoy
cost advantage due to
economies of scale
High capital
requirements
Restrictive
governmental policies
Industry outlook is risky
and uncertain
THREAT OF SUBSTITUTE PRODUCTS
Threats are Stronger when Threats are Weaker when
Good substitutes are Good substitutes are not
readily available and readily available or
attractively priced attractively priced
Substitutes have better Substitutes don’t have
performance features comparable or better
Buyers have low performance
switching costs in characteristics
adopting substitute High switching costs
products
HIGH SUPPLIER BARGAINING POWER
Supplier products are in
short supply
Supplier products are
differentiated
High switching costs
between suppliers
Industry members cannot
integrate backward
No good substitutes for
what the supplier provides
Suppliers are not
dependent on the
industry
Supplier industry is
concentrated and is
dominated by a few
large players
Suppliers products don’t
account for a large
fraction of buyer costs
HIGH BARGAINING POWER OF
BUYERS
Buyer demand is weak Buyers have the ability
in relation to industry to integrate backward
supply Buyers have the ability
Products are to postpone purchases
standardized or Buyers are price
undifferentiated sensitive
Switching costs are low Product performance is
Buyers are large and not a critical
few in number consideration
Buyers are well Product represents a
informed about the significant fraction of
quality, prices and costs buyer purchases
STRENGTH OF INTER FIRM RIVALRY
Buyer demand is Industry members have
growing slowly or roughly equal
declining competitive strengths
Buyer costs to switch Rivals have diverse
brands are low objectives and strategies
Industry products are Rivals have different
more like commodities countries of origin
and/or weakly Rivals face high exit
differentiated barriers
Firms have high fixed
costs
Many competitors in the
1. WHAT IS THE COLLECTIVE
STRENGTH OF THE FIVE FORCES?
THE STRONGEST MATCH THE
COMPANY STRATEGY
OF THE FIVE
TO COMPETITIVE
FORCES CONDITIONS
DETERMINES Pursue avenues to
THE EXTENT OF shield the firm from as
THE DOWNWARD many competitive
pressures as possible
PRESSURE ON Take actions to shift
AN INDUSTRY’S the competitive forces
PROFITABILITY in favour of the firm
2. WHAT FACTORS ARE DRIVING INDUSTRY
CHANGE AND WHAT IMPACT WILL THEY
HAVE?
Changes in industry growth
rate
Increase in globalization
Emerging internet
capabilities and applications
Changes in who buys the
product and how they used
to it
Technological changes in
manufacturing
Product and marketing
innovation
Entry or exit of major firms
Diffusion of technical
knowhow across companies
and countries
Changes in costs and
efficiency
Reductions in business risks
Regulatory influences and
policy changes
Changing societal concerns,
attitudes and lifestyles
3. HOW ARE INDUSTRY RIVALS
POSITIONED IN THE MARKET?
Strategic Group Typical variables used
Mapping – A technique
for displaying the
different market or
competitive positions
that rival firms occupy
in the industry
Strategic Group is a
cluster of industry rivals
that have similar
strategic approaches and
market positions
in the strategic group
maps
Price/quality range
Geographic market
scope
Product-line breadth
Degree of service
offered
Use of distribution
channels
Degree of vertical
integration
4. WHAT STRATEGIC MOVES ARE
RIVALS LIKELY TO MAKE NEXT?
Framework for Studying past actions
Competitive Analysis and preferences
uses four indicators to provides help in
build strategic profiles anticipating what
of rivals strategic moves rivals
Current strategy are likely to make and in
Objectives planning how to
Capabilities outmaneuvering them
Assumptions Need for Competitive
Intelligence
5. WHAT ARE THE KEY SUCCESS
FACTORS IN THE INDUSTRY?
Strategy elements
Product and service attributes
Operational approaches
Resources
Competitive capabilities