The Five Forces That Shape Industry Competition

Also known as Porter's Five Forces, the Five Forces that Shape Industry Competition is a business strategy development method created by Michael E Porter in 1979 at the Harvard Business School. This is yet another tool to help the business owner understand where his strengths lie within an industry and how to find for himself/herself, a comfortable niche within the industry where the external factors affecting him/her are least disruptive.

Each force is gauged to be either highly competitively, moderately competitive or lowly competitive to arrive at an overall level of competitive rivalry within the industry. The first of the forces is Supplier Power. Here we assess how much bargaining power, the suppliers of the raw materials or machinery have within the industry. Their ability to hike up the prices, their control or strength over the business owner and how much choice between suppliers there is for a business owner. In the airline industry, Bargaining power of the supplier is high as there are only two major suppliers.

The second opposing force is the Buyer Power. Here we assess how much clout the collective or individual buyer has over a company in an industry. The switching costs to another provider and the number of buyers are both factors to be considered. Again, in the airline industry, the buyer has low switching costs and therefore high bargaining power.

Competitive Rivalry is the number and capability of a business' competitors. The strength of competition is determined by the similarity of products within a market and how exclusive the services a company offers are. The competitive rivalry in the Airline industry is high as there are many airlines all offering the exact same service.

If there are other methods available outside of a specific industry for customers to achieve the same ends, then the Threat of substitution is said to be high. If substitutes are viable and readily available then the strength a company occupies within an industry is low 

Threat of New Entry also affects the potential strength that a company has within an industry. If it is easy for prospective business owners to enter the industry in which a company operates, then the exclusive power of that company is said to be low and threat of a new entry is high. We will now look at how these factors affect the technology industry and Google Inc. in particular.

Please play the following presentation:



Google analysis partially quoted & referenced from
http://utsavmahendra.blogspot.co.uk/2012/03/google-porters-five-force-model.html