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Porters Five Forces Analysis

Porter's five forces analysis is a framework for analyzing the level of competition within an
industry. Michael E. Porter of Harvard University developed the model. Porter refers to these
forces as the micro environment.

Five Forces:

Porter's five forces include three forces from 'horizontal' competition:

The threat of substitute products or services

The threat of established rivals
The threat of new entrants;

Two forces from 'vertical' competition:

The bargaining power of suppliers

The bargaining power of customers.

1. Threat of Substitutes:

The existence of products outside of the realm of the common product boundaries increases
the propensity of customers to switch to alternatives. For example, tap water might be
considered a substitute for Coke, whereas Pepsi is a competitor's similar product.

2. Industry Rivalry:

It means rivalry among the competitors in the same industry. For most industries the
intensity of competitive rivalry is the major determinant of the competitiveness of the
industry.

3. Threat of New Entrants:

Profitable markets that yield high returns will attract new firms. This results in many new
entrants, which eventually will decrease profitability for all firms in the industry, unless the
entry of new firms can be blocked.

4. Bargaining Power of Suppliers:

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw
materials, components, labor, and services (such as expertise) to the firm can be a source of
power over the firm when there are few substitutes. If we are making biscuits and there is
only one person who sells flour, we have no alternative but to buy it from them. Suppliers
may refuse to work with the firm or charge excessively high prices for unique resources.
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5. Bargaining Power of Customers:

The bargaining power of customers is also described as the market of outputs: the ability of
customers to put the firm under pressure, which also affects the customer's sensitivity to price
changes. Firms can take measures to reduce buyer power, such as implementing a loyalty
program. The buyer power is high if the buyer has many alternatives. The buyer power is low
if they act independently e.g. If a large number of customers will act with each other and ask
to make prices low the company will have no other choice because of large number of
customers pressure.

Analyzing Plastic Hanger Industry Based on Porters Five Forces

I completed my internship at Bengal Plastics Ltd. (Hanger Division), so I am going to

analyze the Garments Hanger Industry according to Porters five forces framework. This
industry is completely export oriented and operates B2B activities.

1. Threat of Substitutes:

Customers will switch to alternatives if there are substitute products. In this industry
substitute products are limited.

Buyer propensity to substitutes: instead of plastic hangers buyers can use metal or
glass hangers.
If the price of metal hangers are relatively low, buyers cam move to that product.
Switching costs are relatively lower in this industry.
Lower level of product differentiation.
There is lower number of substitute products.

2. Industry Rivalry:

Intensity of competitive rivalry is the major determinant of the competitiveness of the

industry. In this industry rivalry among competitors is also high. In early 1991 Bengal
Plastics Ltd. was the only manufacturer in the industry. Now there are many competitors in
the market. Company like Pran-RFL recently entered in the market, so competition among
the firms is very high now.

At earlier time the firms used to operate business offline. Now competitors can go
online. As this an international business online activities can be a vital factor here.
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Personal selling and relational marketing is very important to operate B2B activities.
Firms can emphasize on their sales force to gain competitive advantage.

3. Threat of New Entrants:

As this business is 100% export oriented, companies can perform total duty free import-
export operations. To import plastic raw materials they dont need to pay any taxes to the
government. As a result, new firms are trying to enter in the market which eventually will
decrease profitability for all firms in the industry.

The following factors can have an effect on how much of a threat new entrants may pose in
this market:

The most attractive segment is one in which entry barriers are high and exit barriers
are low. In this market entry barriers are low as the government is trying to emphasize
on more exporting and employment.
Government policy in this market helps new firms to enter.
Capital requirement, absolute costs are entry barriers in this industry because to
operate business in this industry a firm need huge amount of capital.
Economies of scale can be easily maintained in this industry.

4. Bargaining Power of Suppliers:

Suppliers of raw materials, components, labor, and services (such as expertise) to

the firm can be a source of power over the firm when there are few substitutes.

In this industry raw materials are imported and there are many suppliers, so the raw
materials supplier power is relatively low.
Need to consider the supplier switching cost.
Need to consider strength of the distribution channel of supplier.
The labor supplier power is low because labor force is available and cheaper in our
country.

5. Bargaining Power of Customers:

Bargaining power of customers depends on the number of manufacture in the industry,

substitute products, switching costs etc. When there are many competitors in the market and
switching cost in low the customers can pressurize the organization.

Here, in this industry firm switching cost is higher for the buyer, because at b2b
operations buyer seller relationship is very important.
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Buyer information is always available for the manufacturer. So the can understand the
customer need easily.
Foreign buyers in this market are not price sensitive; rather they concentrate on
quality product.
Substitute product is available, so client can switch if he sacrifices the switching cost.

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