Porters 5 Forces Essay

Published: 2020-02-16 12:52:51
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Category: Commerce

Type of paper: Essay

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Competitive strategy is a field of great interest to managers and is mainly based on a thorough understanding of the industrial, trade and service, competitors and environment. However, until the 80s, has offered few comprehensive analytical methods to obtain it. The competitive analysis and formulate corporate strategy, planning also helps to finance, marketing, value analysis and many other aspects of daily life of a business. One interesting for corporate strategy planning approach has been proposed by Michael E. Porter who states that there are five forces that influence the long-term profitability of a market or some segment of it. Therefore, the corporation must assess their objectives and resources against these five forces driving industry competitions, which are described below:

1) Threat of entry of new competitors or the market segment is unattractive depending on whether entry barriers are easy or not to cross by new entrants that may come with new resources and capabilities to seize market share.

2) Rivalry among competitors: for a corporation will be more difficult to compete in a market or a particular segment where competitors are well positioned, are very numerous and fixed costs are high, it will be constantly faced price wars, aggressive advertising, promotions and new product entry.

3) Bargaining power of suppliers: a market or market segment will not be attractive when providers are very well organized or trade union have strong resources and to impose its conditions of price and size of the order (with the aggravating circumstance if inputs that provide or have no substitutes are scarce and expensive). Nor if the provider decides strategically integrated forward and, for example, takes the distribution channels or where a product is distributed. 4) Bargaining power of buyers: a market or segment will not be attractive when customers are very well organized, the product has many substitutes, and it is not very differentiated or low cost to the client, allowing you they can make substitutions equally or lower cost. The growing demands of large buyers are focused on reducing prices, higher quality and best service; therefore, a corporation will be affected profit margins. The situation would worsen if buyers decide to integrate backwards and, for example, acquired its suppliers or produce their own inputs.

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