ACTIVITY 2
The Porter’s five forces model is a powerful tool for understanding the competitiveness of the
business environment and adjust strategies accordingly. By examining all five forces an
organization is able to determine how much competition will exist in a market and
consequently the profitability.
The Intensity of Rivalry among Competitors in an Industry, this force could be intense
enough to limit profitability for the company, if the competitors are large in number and
equivalent in power. Company may use tactics like price discounting, advertising campaigns,
and product innovation. The Threat of Substitute Products and Services, substitute
products or services limit a company’s profitability and growth potential by placing a ceiling
on prices. If a company does not distance itself from substitutes it will suffer. The Bargaining
Power of Buyers, customers have power when they are low in number and they buy a large
volume or have many substitutes to choose from. the power of buyers increases when the
product/service is undifferentiated. The Bargaining Power of Suppliers, this force tends to
be a reversal to power of buyers. When company don’t have many choices of suppliers, the
power of suppliers is high which cause to squeeze profitability and limiting quality. Company
must depend on a wide range of different supplier groups. The Threat of New Entrants,
company should analyze how likely it is for new entrants to enter the competitive environment
within. The barriers to entry can come in many forms, change the product or operations design
to create scale economies. Company should concentrate to raising the height of an entry barrier
and focus on variable tactics.
Company ability to establish a sustainable competitive advantage depends on a properly
designed strategy differentiating it from the competitors in the competitive environment. A
competitive advantage gained by many forms and different ways based on each firm resource.
To construct a competitive advantage, a company must be able to identify and analyzing
internal and external environment using SWOT framework, company strategy must build on
its strengths, remedy the weaknesses or work around them, take advantage of the opportunities
presented by the environment, and protect it from the threats. Another way is to developing
strategies based on future scenarios (Scenario analysis) a more in-depth approach to