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MIDTERM

The document discusses Porter's five forces model for analyzing competitive advantage. It explains the five competitive forces as: 1) competition in the industry, 2) potential of new entrants, 3) power of suppliers, 4) power of customers, and 5) threat of substitute products. Each force is described in terms of how it affects a firm's power and profitability within its industry.

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Kristina Pablo
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42 views23 pages

MIDTERM

The document discusses Porter's five forces model for analyzing competitive advantage. It explains the five competitive forces as: 1) competition in the industry, 2) potential of new entrants, 3) power of suppliers, 4) power of customers, and 5) threat of substitute products. Each force is described in terms of how it affects a firm's power and profitability within its industry.

Uploaded by

Kristina Pablo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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COMPETITIVE

ADVANTAGE
An environment represents all internal or
external forces, factors, or conditions that exert
some degree of impact on the strategies,
decisions and actions taken by the firm.
2 TYPES OF
ENVIRONMENT
1. INTERNAL
2. EXTERNAL
INTERNAL

Pertaining to the forces within


the organization (Ex: Functional
areas of management)
EXTERNA
L
pertaining to the external forces
namely macro environment or
general environment and micro
environment or competitive
environment
EXTERNA
L

A. Macro environment
Political environment
B. Micro environment
Customers
MICRO ENVIRONMENTAL

2. Suppliers An individual or an organization


involved in the process of making a product or
service available for use or consumption by a
consumer or business user is known as
supplier
MICRO ENVIRONMENTAL

1. Shareholders Any person or company that


owns at least one share (a percentage of
ownership) in a company is known as
shareholder. A shareholder may also be
referred to as a "stockholder"
MICRO ENVIRONMENTAL
3. ) Distributors - Entity that buys non-
competing products or product-lines,
warehouses them, and resells them to
retailers or direct to the end users or
customers is known as distributor
- provide strong manpower and cash support to the supplier or
manufacturers promotional efforts
MICRO ENVIRONMENTAL

4. Customers A person, company, or other


entity which buys goods and services
produced by another person, company, or
other entity is known as customer.
MICRO ENVIRONMENTAL
Competitors A company in the same industry
or a similar industry which offers a similar
product or service is known as competitor. The
presence of one or more competitors can
reduce the prices of goods and services as the
companies attempt to gain a larger market
share.
MICRO ENVIRONMENTAL

Media Positive or adverse media attention on


an organizations product or service can in
some cases make or break an organization.
MACRO ENVIRONMENTAL FACTORS
An organizations macro environment consists of
nonspecific aspects in the organizations
surroundings that have the potential to affect the
organizations strategies. When compared to a
firms task environment, the impact of macro
environmental variables is less direct and the
organization has a more limited impact on these
elements of the environment.
MACRO ENVIRONMENTAL FACTORS
1. Political Factors
include government regulations and legal issues
and define both formal and informal rules under
which the firm must operate.
Some examples include: • tax policy •
employment laws • environmental regulations •
trade restrictions and tariffs • political stability
MACRO ENVIRONMENTAL FACTORS

2. Economic Factors Economic factors affect the


purchasing power of potential customers and the
firms cost of capital.
The following are examples of factors in the macro
economy: • economic growth • interest rates •
exchange rates • inflation rate
MACRO ENVIRONMENTAL FACTORS
3. Social Factors Social factors include the
demographic and cultural aspects of the external
macro environment. These factors affect customer
needs and the size of potential markets.
Some social factors include: • health
consciousness • population growth rate • age
distribution • career attitudes • emphasis on
safety
Michael Porter’s 5 forces
is one of the most recognized framework for the
analysis of business strategy. Porter, the guru of
modern day business strategy, used theoretical
frameworks derived from Industrial Organization
(IO) economics to derive five forces which determine
the competitive intensity and therefore
attractiveness of a market
Michael Porter’s 5 forces
1. Competition in the industry
2. Potential of new entrants into the
industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
Competition in the industry
This force refers to the number of competitors and their ability
to undercut a company. The larger the number of competitors,
along with the number of equivalent products and services
they offer, the lesser the power of a company. Suppliers and
buyers seek out a company's competition if they are able to
offer a better deal or lower prices. Conversely, when
competitive rivalry is low, a company has greater power to
charge higher prices and set the terms of deals to achieve
higher sales and profits.
Potential of New Entrants Into an Industry
Potential of New Entrants Into an In Industry
A company's power is also affected by the force of new
entrants into its market. The less time and money it
costs for a competitor to enter a company's market and
be an effective competitor, the more a company's
position may be significantly weakened. An industry
with strong barriers to entry is an attractive feature for
companies that allows them to charge higher prices and
negotiate better terms.
Power of Suppliers
This force addresses how easily suppliers can drive
up the cost of inputs. It is affected by the number
of suppliers of key inputs of a good or service, how
unique these inputs are, and how much it would
cost a company to switch from one supplier to
another.
Power of Customers
This specifically deals with the ability that customers have to
drive prices down. It is affected by how many buyers or
customers a company has, how significant each customer is,
and how much it would cost a company to find new customers
or markets for its output . A smaller and more powerful 
client base, means that each customer has more power to
negotiate for lower prices and better deals. A company that
has many, smaller, independent customers will have an easier
time charging higher prices to increase profitability.
Threat of Substitutes Threat of Substitutese

Substitute goods or services that can be used in place


of a company's products or services pose a threat.
Companies that produce goods or services for which
there are no close substitutes will have more power to
increase prices and lock in favorable terms. When close
substitutes are available, customers will have the
option to forgo buying a company's product, and a
company's power can be weakened.

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