Porter's Five Forces And External Business Environment

Great Essays
Any factors ranging outside the scope of the internal business environment are all considered external and they cannot be controlled by an organization which must adapt to them to gain competitive advantage. External business environment can be divided into two distinct categories known as macro and micro-environments. As previously mentioned in the internal business environment analysis, a SWOT analysis is also implemented here. It will help analyse opportunities and threats which are the external uncontrollable factors that usually appear or arise due to the changes in the macro-environment, industry or competitors’ actions. Opportunities represent the external situations that may help develop competitive advantage if seized upon. Threats …show more content…
The tool used to analyse and forecast the industry is formally known as Porter’s five forces framework which identifies five fundamental competitive forces that impact a business competitive profile. These forces determine an industry structure, the competitive intensity and level of competition in that industry, therefore the attractiveness of the market. The stronger competitive forces are in a given industry, the less profitable that industry becomes. An industry with low barriers to entry, having few buyers and suppliers but many substitute products and competitors will be seen as very competitive and thus, not so attractive due to its low …show more content…
That necessity leads to the buyer-supplier relationship. This force shows how easily suppliers can affect the price increase of goods and services within a producing industry. Suppliers have strong bargaining power when they hold scarce resources and the cost of switching raw materials is very high. When the number of suppliers is concentrated (there are few suppliers and many buyers) and the power of those suppliers is leveraged by how much industry participants depend on them. The power of suppliers come from their threat of forward integration, a strategy in which an organisation gains ownership and control over its previous distributors or retailers.
Threat of substitutes: This force is the determinant of how quickly customers can have access to a company product or service alternatives. The threat soon intensifies when buyers can easily find the leading brand substitute products for attractive prices or better quality. And when buyers can switch from one product or service to another with little to no cost. The threat of a substitute is high when it offers an attractive compromise to the industry leading product, and when switching costs towards substitutes are

Related Documents

  • Superior Essays

    Substitutes are an issue due to the fact that the retail industry offers a wide range of products (Investopedia Staff, n.d.). The Bargaining power of the customer is high, if the products are not differentiated then the customer can switch to another retailer. When the products are similar the customer will compare prices, which increases competition which will increase competition and will lead to lower prices and profits (Investopedia Staff,…

    • 1135 Words
    • 5 Pages
    Superior Essays
  • Improved Essays

    1.Introduction Paragraph The taxi has for quite some time been one of the prevailing types of transportation in urban areas around the world. Medallions are small metal plates which are attached to the hood of the vehicle as proof of the right to pick up passengers, who can only hail yellow cabs with a medallion in the street. Most cities placed government regulations to control the oversupply of taxis by late 1930s. This was intended to balance out costs, guarantee the wellbeing and nature of cabs, and give drivers a reasonable wage.…

    • 705 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    Even if there is another competitor that offers the same product at a lower price, both Wal-Mart and Target guarantee a price match. The last two forces, substitutes and rivalry, were difficult to distinguish because there are not any other companies that offer the variety of goods that Wal-Mart and Target do (groceries, clothes, toys, etc.). The most prominent substitute is online retailers such as Amazon, but our society’s need for instant gratification nullifies this threat as with online purchases you have to wait to receive shipments. There are businesses that rival individual departments such as Harris Teeter (grocery) or Dick’s Sporting Goods (sporting goods), but there is no other all-encompassing superstore that can rival these.…

    • 2153 Words
    • 9 Pages
    Improved Essays
  • Superior Essays

    Name Professor Class Date Verizon Competitive Advantage Verizon is a company who has been in business for quite a long time. It is not only a larger company, but is known for its competitive advantage, as well as its industry attractiveness. Verizon has good overall performance compared to many of its rivals. Verizon is in the communications industry, offering wireless phone service, business products, internet, television, and home phone services. This industry is extremely competitive, as there are many big names out there who dominate the market.…

    • 1357 Words
    • 6 Pages
    Superior Essays
  • Improved Essays

    Food Industry Analysis Essay

    • 2314 Words
    • 10 Pages

    Buyers are looking for quality products that meet the wants and needs of consumers with the lowest price. Buyers purchase a large amount of the industry’s total output and the seller’s annual revenues. If necessary, the buyer could switch products with low costs. The buyer would also be a threat if they were to go back to the seller’s industry. This, plus the technology advances such as using the Internet as a form of shopping, has increased the bargaining power of buyers.…

    • 2314 Words
    • 10 Pages
    Improved Essays
  • Improved Essays

    __________ involves the evaluation of strengths and weaknesses, which are internal factors; and opportunities and threats, which are external factors. a) Strategic analysis b) Business performance c) Operational planning d) SWOT analysis 40. Price wars or other fierce reactions by competitors are examples of: a) strengths. b) weaknesses. c) opportunities.…

    • 2146 Words
    • 9 Pages
    Improved Essays
  • Great Essays

    5. Methodology The Porter’s five force model is used to evaluate the competitive environment of the company. PESTLE analysis is used to assess the external environment of the company. SWOT analysis is used to understand the external and internal facto…

    • 1394 Words
    • 6 Pages
    Great Essays
  • Improved Essays

    3.0 Starbucks Porter’s Five Forces Analysis Porter’s five forces is generally used for strategy development and industry analysis. The five forces which shapes the competition within the industry are rivalry among competitors, the threat of substitute products and services, the entry of new competitors, the bargaining power of the buyers and the bargaining power of the suppliers. The relationships among these forces is best presented in the following figure. Bargaining Power of Buyers Threat of substitutes Industry Rivalry Threat of new entrants…

    • 1165 Words
    • 5 Pages
    Improved Essays
  • Great Essays

    External Analysis: Michael Porter’s five forces In business the ability to make profit depends on how strong of a position the company has in the market. This is determined by; how many competitors that offer the same products, how easy is it for other companies to enter the market if they can see that you make a profit, and how dependent are you to your customers that leads them in to making you lower your price. It is essential to determine you’re positioning in order to avoid working very hard and not being profitable.…

    • 3094 Words
    • 13 Pages
    Great Essays
  • Great Essays

    The threat of entry, power of suppliers, and threat of substitutes are all low within this industry. The power of buyers is marginally high since they have the power to command increasingly reduced prices and increased value. Lastly, rivalry among competitors is high within the…

    • 1272 Words
    • 6 Pages
    Great Essays
  • Improved Essays

    4.0 Porter’s Five Forces The Porter’s five forces of the observer determine the competitiveness of competitors, the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers and the threat of alternative products and services. 4.1 Rivalry Among The Competitors (high to moderate) The use of concentrated coffee does not depend on the cost of the item, but the difference between each item and respect includes variables such as the brand estimate of the item, the market situation of the organization, and the nature of the customer's interest. a) The highly competitive business model…

    • 789 Words
    • 4 Pages
    Improved Essays
  • Great Essays

    Bargaining power of suppliers. Since there are no switching costs for customers, they can easily switch suppliers. However, big companies like Amazon, eBay and Provide Commerce have developed a business branding and strategy that allows them to offer quality service, competitive prices, and fast shipping. These competitive advantages give these companies a certain power to retain its customers, making hard for the competition to match that kind of service. 5.…

    • 1745 Words
    • 7 Pages
    Great Essays
  • Improved Essays

    The SWOT model in the strategic management could analyze both the internal environment and the external, in order to be aware that if if the company still has competitive on the market. The company must develop systematic exploitation for external information, because it has short, medium or long term significant influence on its future. Company use all of these elements to establish the strategy and plan, in order to have a successful activities on the existing and also exploring potential markets. The company could be determined by SWOT analysis as introvert entity, or as extrovert entity. it has to adapt permanent feedbacks quickly through opening the global environment analysis.…

    • 1318 Words
    • 6 Pages
    Improved Essays
  • Improved Essays

    What Is Somersby Cider?

    • 2201 Words
    • 9 Pages

    Introduction Somersby cider is a brand of 4.5% ABV cider by Danish brewing company Carlsberg Group. Developed in 2008, it was originally developed for the Danish market, but today has been launched in more than 46 markets, including all of Europe, Ukraine, Russia, Australia, Malaysia, Taiwan, South Korea, Canada, Nepal and the USA. Of the world's ten biggest cider brands, Somersby was the one that grew most in 2012. In 2012, Carlsberg UK developed and introduced a new version of Somersby Cider specific to the United Kingdom market.…

    • 2201 Words
    • 9 Pages
    Improved Essays
  • Decent Essays

    Question 2 SWOT Analysis SWOT analysis aims to identify the internal strengths and weaknesses involved an organization and the firm’s capability and resources to deal with changes. Besides, it is useful in assisting risk management by analyzing the opportunities and threats arising from external business environment. It is useful to assist the firm in providing specific insights that can be used to develop the appropriate marketing strategy by summarizing the key favorable and unfavorable issues from the business environment (Wheelen & Hunger 2002, p. 109). 2.1 Strengths In term of the beverages and diaries business, F&N has gained itself a strong and reputable brand name over the years with various brand awards (Awards 2014).…

    • 749 Words
    • 3 Pages
    Decent Essays