Novus Business and IT Training Program
Assessing Industry Competitiveness:
Porter’s Five Forces Theory
Objective: To examine Porter’s Five Forces Theory which provides a framework for assessing the competitive environment.
Porter’s Framework
2Novus Business and IT Training
Program
Degree ofRivalry
Within the Industry
Buyer Power
Supplier Power
Threat of Substitute
s
Threat ofNew
Entrants
3Novus Business and IT Training Program
Degree of Rivalry: What Creates Fierce Competition
• High Industry Concentration • Low Industry Growth Rate• High Fixed Costs vs. Variable
Costs• Perishable Products• High Storage Costs• Low Switching Costs• Little Product Differentiation• High Exit Barriers
Porter’s Framework
4Novus Business and IT Training
Program
Degree ofRivalry
Within the Industry
Buyer Power
Supplier Power
Threat of Substitute
s
Threat ofNew
Entrants
5Novus Business and IT Training Program
Threat of New Entrants
Situations that make an industry difficult to enter:• Regulatory Hurdles• Proprietary Technology• High Start-up Costs• Need Economies of Scale to
Prosper• Distribution Network is Hard to
Create• Dominant Player with a Strong
Brand Exists
Porter’s Framework
6Novus Business and IT Training
Program
Degree ofRivalry
Within the Industry
Buyer Power
Supplier Power
Threat of Substitute
s
Threat ofNew
Entrants
7Novus Business and IT Training Program
Threat of Substitutes
• Often creates downward pressure on prices
• Can come from new technology
Porter’s Framework
8Novus Business and IT Training
Program
Degree ofRivalry
Within the Industry
Buyer Power
Supplier Power
Threat of Substitute
s
Threat ofNew
Entrants
9Novus Business and IT Training Program
Supplier Power
Suppliers are Strong when:• Suppliers are concentrated• It is expensive to switch suppliers
Suppliers are weak when:• Buyers are concentrated• They supply commodity products
Porter’s Framework
10Novus Business and IT Training
Program
Degree ofRivalry
Within the Industry
Buyer Power
Supplier Power
Threat of Substitute
s
Threat ofNew
Entrants
11Novus Business and IT Training Program
Buyer Power
Buyers are Strong when:• Buyers are concentrated
Buyers are weak when:• It would cost a lot or be difficult to switch to the product of a different supplier• They buy very specialized products
Porter’s Framework
12Novus Business and IT Training
Program
Degree ofRivalry
Within the Industry
Buyer Power
Supplier Power
Threat of Substitute
s
Threat ofNew
Entrants
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