The forces are: potential competitors, substitutes, bargaining power of buyers, and bargaining power of suppliers.
Example Industry Telecommunication
Potential competitors: LOW
If there is a relative ease of entry in the industry, then it will me highly competitive. One firm will always need to come up with new ways to protect its market share. ex. food market stand. On the contrary, if there is mass initial capital required for entry, there will be few players. ex. telecommunication. and be less competitive. When there are only two(Verizon and AT&T) the more the attractive the industry.
Substitutes: LOW
Less the product is unique the more the industry will be competitive. There is no substitute for a phone service. For decades the Telecommunication have not innovated. Why? they don't need to. Because they have a monopoly of the services offered to customers and the customers have no choice but the pay up for these services.
Bargaining power of buyers/suppliers: LOW to Medium
In the phone service arena there is no shopping around for the cheapest plan. Rather, the companies give you a hand full of narrowly price plans. LOW
Suppliers to the telecoms. Suppliers have a LOW to limited bargaining power.
Porter’s theory of analyzing attractiveness of an industry is brilliant. In fact, it covers all of the major components from customers to suppliers to substitutes to competition. It is important to analyze all of these factors with great detail within an industry to understand the attractiveness and the future outlook of the players within them.
4 comments:
Your analysis here is rather weak. you make assertions with no evidence or basis in stated fact. You need to give this more thought.
--prof K
You did a good job explaining to audience about different component of Porter’s 5 Force model. However, I disagree with you that Telecommunication industry has very few substitutes for phone service. I believe we also have VOIP (Voice over IP) and Wi-Fi technologies available are indirectly substituting the traditional telecommunication network. In addition, I think current potential competitors are not only limited to Verizon and AT&T, we still have Sprint and T-Mobile.
I generaly agree with the way you analyzed the Telecommunication industry. You supported your arguments well. However,I believe nowadays cell phone has some substitues.
Porters 5 forces can be used to asses the attractiveness of a particular industry. My assessment is the telecommunication industry is highly attractive because has high barriers to entry, limited substitution products, low bargaining power from the customers which makes the rivalry with in the industry limited and creates the well established companies "cash cows".
There is a huge barrier to entry. In other words, one cannot get up a start a phone company. Lots of capital and experience is required. For instance, there are only hands full of phone companies out there: Verizon, AT&T, Bell south, etc. Because there is less completion among the service providers there is less price differential among them. That reduces the bargaining power of recipients of the service. They have limited choices for phone service providers; they have to pick the one that matches their preference. The Recent improvements in technology created many subsidies of communicating. Email is a perfect example of a recent innovation but remember that internet connection is not free. In fact, it is connected through the phone line. Back to square one. In other words, there are substitutes but that substitute works in conjunction with the service provided buy the telecom service. Your using to service provided by the telecom company in either case.
These are the reasons why porters 5 forces tell us that telecom industry in highly attractive.
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