Michael Porter’s Th

eory – 5 Forces Mo
del and Competitive
Advantage of Natio
n
 Shivam Jaiswal
Covering one force of Michael porter’s 5 forces model i.e. Threat of new
entrants and the case study of Airline Industry

Sujal Agrawal
Covering one force of Michael porter’s 5 forces model i.e. Bargaining
power of Supplier and the case study of Airline Industry

Our Anubhav Thakur

Team Covering one force of Michael porter’s 5 forces model i.e. Threat of
substitutes and the Role of government in Competitive advantage of
Nation’s theory.

Layout Saumyashree
Covering one force of Michael porter’s 5 forces model i.e. Rivalry among
existing competitors and the 4 components of Diamond Model of Competitive
Advantage of Nation’s theory.

Shruti Mishra
Covering one force of Michael porter’s 5 forces model i.e. Bargaining
power of Buyer and a case study of Diamond Model of Competitive
Advantage of Nation’s theory.
Michael Porte
r’s 5 Forces
Model
 Porter’s Five Forces Model

01 02 03 04 05
Rivalry Among Existing

Threat of New Entrants

Bargaining Power of
Bargaining Power of
Porter's Five Forces is a model
Threat of Substitutes

that identifies and analyses five

Competitors

competitive forces that

Supplier

Buyers
shape
every industry and helps
determine an industry’s
weaknesses and strengths.
 Rivalry Among
Existing Competitors

It examines how intense the

current competition is in the
marketplace, which is determined
by the number of existing
competitors and what each
competitor is capable of doing.
Competition keeps companies on
their toes. It motivates them to
perform better.
 The larger the number of competitors,
along with the number of equivalent
products and services they offer,
the lesser the power of a company.

 Conversely, when competitive rivalry

is low, a company has greater power to
charge higher prices and set the
terms of deals to achieve higher sales
and profits.

 In addition, rivalry will be more

intense when barriers to exit are high,
forcing companies to remain in the
industry even though profit margins
are declining.
 Threat of Substitutes
The threat of substitutes is the
availability of other products that a
customer could purchase from
outside an industry. The competitive
structure of an industry is
threatened when there are
substitute products available that
offer a reasonably close benefits
match at a competitive price.
 Causes of
Threat of How to reduce the
Substitutes threat of substitutes?

The level of competition among

 Switching Cost the substitute products decides
the level of threat. The level of
 Product Price competition and threat are
directly proportional to each
 Product Quality other. If the substitute products
or services are more, then the
 Product Performance customers choose one of those
products to fulfil their needs.
 Threat of New
Entrants
New entrants put pressure on current organizations
within an industry through their desire to gain market
share. This in turn puts pressure on prices, costs, and
the rate of investment needed to sustain a business
within the industry.
The threat of new entrants is particularly intense if
they are diversifying from another market as they can
leverage existing expertise, cash flow, and brand
identity as it puts a strain on existing company's
profitability.
 Your Picture Here

Companies that have

successfully diversified into
another industry :

ITC, is one of those rare examples where the company has successfully diversified
much beyond its core business. The company, which started as a tobacco
products manufacturer, eventually expanded to hotels, paper and packaging, with
agri-business and foods being added recently.
 Barriers To Entry

Economies of Scale Product Differentiation

High Capital Costs Cost of Switching

Legal and Government Created Barriers Barriers to Exit

What will you choose ?
( Example of Product Differentiation )
 Bargaining Power of Supplier

The Bargaining Power of Suppliers,

one of the forces in Porter’s Five
Forces Industry Analysis Framework,
it refers to the pressure that
suppliers can put on companies by
raising their prices, lowering their
quality, or reducing the availability of
their products.
Types of Suppliers
Independent Suppliers /
Independent Craftspeople Drop shippers

Manufacturers Distributors and

& Vendors Wholesalers
 When the
Bargaining
Power of
Suppliers is High
/ Strong !
 Small number of suppliers
relative to buyers
 Low dependence of a
supplier’s sale on a particular
buyer
 Substitutes are unavailable
 Buyer relies heavily on sales
from suppliers
When the
Your Picture Here Bargaining
Power of
Suppliers is
Low / Weak !
• Large number of suppliers
relative to buyers
• High dependence of a supplier’s
sale on a particular buyer
• Substitutes are available
• Buyer does not rely heavily on
sales from suppliers
 Bargaining Power of
Buyers
Porter’s Forces of buyer bargaining
power refers to the pressure consumers
can exert on businesses to get them to
provide higher quality products, better
customer service, and lower prices.
According to Porter’s 5 forces industry
analysis framework, buyer power is
one of the forces that shape the
competitive structure of an industry.
 Buyer Power is
High / Strong if :
• Buyers are more concentrated than
sellers
• Buyer switching costs are low
• Threat of backward integration is high
Buyer is price sensitive
• Buyer is well-educated regarding the
product
• Undifferentiated product
• Buyer purchases product in high
volume
• Substitutes are available
• Buyer purchases comprise large
portion of seller sales
Buyer Power is
Low / Weak if :
• Buyers are less concentrated than
sellers
• Buyer switching costs are high
• Threat of backward integration is low
• Buyer is not price sensitive
• Buyer is uneducated regarding the
product
• Highly differentiated product
• Buyer purchases product in low volume
• Substitutes are unavailable
• Buyer purchases comprise small
portion of seller sales
 Case Study
Let's understand the Porter’s 5 Forces Model with the help of a case study of an Airline Industry.
Michael Porter’
s Competitive
Advantage of N
ations
 Porter’s
Competitive Advantage of Nations

A nation’s competitiveness
depends on the capacity of its
industry to innovate and upgrade.
Companies gain advantage
against the world’s best
competitors because of pressure
and challenge. Differences in
national values, culture, economic
structures, institutions, and
histories all contribute to
competitive success.
 Porter’s Diamond Model
Michael Porter’s Diamond Model
( also known as the Theory of
National Competitive Advantage
of Industries) is a diamond-
shaped framework that focuses on
explaining why certain industries
within a particular nation are
competitive internationally,
whereas others might not.
 Firm
Strategy,
Structure,
and
Rivalry

Components Of
Porter’s Diamon
Factor Demand
Conditions Conditions

d Model Related and

Supporting
Industries
Role of the Government
The role of the government in
Porter’s Diamond Model is
described as both
‘a catalyst and challenger‘.
Porter doesn’t believe in a free
market where the government
leaves everything in the
economy up to ‘the invisible
hand’. 
 Case Study
Let’s understand Porter’s Diamond Model with the help of a case study.
Do you have
any Question
s?
Clear it with us ! We hope
you all learned something
new.