Essay about Michael Porter’s Five Forces
Michael Porter’s 5-forces can be used to analyze an industry and help shape and create a “competitive strategy” (Porter, 6). Understanding each of the five forces and how they interact with one another provides a clear picture of the degree of competition being faced within an industry, and therefore its relative attractiveness. The understanding cannot provide an advantage; it is what you do with the understanding. Without the understanding, a strategy can be at risk of being unrealistic. Michael Porter’s 5-force Analysis is a tool for the structural analysis of industries. There are 5 forces that always shape the competitive structure of an industry: Supplier Power, Barriers to Entry, The Threat of …show more content…
Examples of high supplier power industries are operating system and office productivity software suppliers to the PC Industry because it is dominated by few companies such as Unix, Microsoft. On the other hand, an example of a low supplier power industry is the computer hardware industry. Suppliers should make their products meet the worldwide standard so that products are compatible.
II. Barriers to Entry
Barriers to entry deter new competitors from entering the market and creating more competition for established firms. There are several major barriers to entry and they include economies of scale, capital requirements, product differentiation, switching costs, cost disadvantages independent of scale, access to distribution channels, and government policy. One example of an industry with high barriers to entry is computer chip manufacturing. The extremely high cost of building a fabrication plant makes entry into this industry very risky. The resturaunt industry on the other hand has considerably fewer barriers to entry since almost everything can be leased and employees need not be highly experienced and trained. (Porter, 7).
Economies of scale exist when per unit costs of a product decline as production volume increases. This puts new companies at a disadvantage because they are forced to either