Porter's Five Forces And External Business Environment

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

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