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Unit-2 Porter Five Force Model, SWOT Analysis

Porter's five forces model analyzes five competitive forces that determine the intensity of competition in an industry: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and rivalry among existing competitors. A SWOT analysis identifies an organization's strengths, weaknesses, opportunities, and threats. It is used to evaluate internal factors (strengths, weaknesses) and external factors (opportunities, threats) and develop appropriate strategies. The document provides details on each of the five forces and the four components of a SWOT analysis.

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17 views

Unit-2 Porter Five Force Model, SWOT Analysis

Porter's five forces model analyzes five competitive forces that determine the intensity of competition in an industry: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and rivalry among existing competitors. A SWOT analysis identifies an organization's strengths, weaknesses, opportunities, and threats. It is used to evaluate internal factors (strengths, weaknesses) and external factors (opportunities, threats) and develop appropriate strategies. The document provides details on each of the five forces and the four components of a SWOT analysis.

Uploaded by

rohiyaki
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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UNIT-2

Competitive Analysis
1.PORTER’S FIVE FORCE MODEL
Porter’s five forces model is an analysis tool that uses five industry forces to determine the intensity
of competition in an industry and its profitability level.

ive forces model was created by M. Porter in 1979 to understand how five key competitive forces
are affecting an industry. The five forces identified are:

These forces determine an industry structure and the level of competition in that industry.
The stronger competitive forces in the industry are the less profitable it is.
An industry with low barriers to enter, 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 profitability.
1.Threat of new entrants.

This force determines how easy (or not) it is to enter a particular industry. If an industry is profitable
and there are few barriers to enter, rivalry soon intensifies. When more organizations compete for
the same market share, profits start to fall. It is essential for existing organizations to create high
barriers to enter to deter new entrants.

Threat of new entrants is high when:

• Low amount of capital is required to enter a market;


• Existing companies can do little to retaliate;
• Existing firms do not possess patents, trademarks or do not have established brand
reputation;
• There is no government regulation;
• Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to
other industries);
• There is low customer loyalty;
• Products are nearly identical;
• Economies of scale can be easily achieved.

2,Bargaining power of suppliers.

Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their
buyers. This directly affects the buying firms’ profits because it has to pay more for materials.
Suppliers have strong bargaining power when:

• There are few suppliers but many buyers;


• Suppliers are large and threaten to forward integrate;
• Few substitute raw materials exist;
• Suppliers hold scarce resources;
• Cost of switching raw materials is especially high.

3.Bargaining power of buyers.

Buyers have the power to demand lower price or higher product quality from industry producers
when their bargaining power is strong. Lower price means lower revenues for the producer, while
higher quality products usually raise production costs. Both scenarios result in lower profits for
producers.

Buyers exert strong bargaining power when:

• Buying in large quantities or control many access points to the final customer;
• Only few buyers exist;
• Switching costs to other supplier are low;
• They threaten to backward integrate;
• There are many substitutes;
• Buyers are price sensitive.

4.Threat of substitutes.

This force is especially threatening when buyers can easily find substitute products with attractive
prices or better quality and when buyers can switch from one product or service to another with
little cost. For example, to switch from coffee to tea doesn’t cost anything, unlike switching from car
to bicycle.

5.Rivalry among existing competitors.

This force is the major determinant on how competitive and profitable an industry is. In competitive
industry, firms have to compete aggressively for a market share, which results in low profits. Rivalry
among competitors is intense when:

• There are many competitors;


• Exit barriers are high;
• Industry of growth is slow or negative;
• Products are not differentiated and can be easily substituted;
• Competitors are of equal size;Low customer loyalty.

2.SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats.

By definition, Strengths (S) and Weaknesses (W) are considered to be internal factors over which
you have some measure of control. Also, by definition, Opportunities (O) and Threats (T) are
considered to be external factors over which you have essentially no control.

SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position of
the business and its environment.

1.Strengths –

Strengths are the qualities that enable us to accomplish the organization’s mission. These are the
basis on which continued success can be made and continued/sustained.

Strengths are the beneficial aspects of the organization the capabilities of an organization, which
includes

• human competencies,
• process capabilities,
• financial resources,
• products and services,
• customer goodwill and brand loyalty.

Examples of organizational strengths are huge financial resources, broad product line, no debt,
committed employees, etc.

2.Weaknesses –

Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our
full potential. These weaknesses deteriorate influences on the organizational success and growth.
Weaknesses are the factors which do not meet the standards we feel they should meet.

Weaknesses in an organization may be

• depreciating machinery,
• insufficient research and development facilities,
• narrow product range,
• poor decision-making,
• high employee turnover,
• large wastage of raw materials, etc.

3.Opportunities –

Opportunities are presented by the environment within which our organization operates.

Organizations can gain competitive advantage by making use of opportunities.

Opportunities may arise from

• market,
• competition,
• industry/government
• technology.
• Increasing demand

4.Threats –

Threats arise when conditions in external environment.

Threats are uncontrollable..

Examples of threats are –

• unrest among employees;


• ever changing technology;
• increasing competition leading to excess capacity,
• price wars
• reducing industry profits; etc.

Advantages of SWOT Analysis


• SWOT Analysis is instrumental in strategy formulation and selection.
• It is a strong tool, but it involves a great subjective element.
• It is a source of information for strategic planning.
• IT Builds organization’s strengths.
• It helps to Overcome organization’s threats.
• It helps in identifying core competencies of the firm.
• It helps in setting of objectives for strategic planning.
• SWOT Analysis provide information that helps in synchronizing the firm’s resources and
capabilities with the competitive environment in which the firm operates.

Example TOYOTA Car Company

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