Porters five forces

Value chain
Porter’s 5 Forces Model
Potential Entrants

Threat of
new
entrants
Suppliers

Bargaining power of Bargaining power of

Buyers
suppliers Industry competitors
Buyers

Threat of
substitut
es

Substitutes
Potential Entrants: Barriers to
entry
 Absolute cost advantage
 Government Policies
◦ Anti dumping duties
 Economies of Scale
◦ Maruti 800
 High Switching costs
◦ CDMA
 Strong Brands
◦ Colas
 Proprietary Technology
◦ Honda Engines, Sony

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Threats of Substitutes
 Switching Costs
 Price vs. Performance

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Buyer’s bargaining power
 Buyers are powerful if:
◦ Buyers are concentrated
◦ Buyers purchase a significant proportion of output.
◦ Buyers are large enough to threaten backward
integration
 Buyers are weak if:
◦ Producers threaten forward integration
◦ Significant buyer switching costs
◦ Buyers are fragmented- many and different

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Supplier Power
 Suppliers are powerful if:
◦ Credible forward integration by suppliers
◦ Suppliers are concentrated
◦ Significant cost to switch suppliers
 Suppliers are Weak if:
◦ Many competitive suppliers
◦ Concentrated purchasers

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Rivalry
 No. of Competitors
 Slow market growth
 High fixed costs
 Low levels of product differentiation
 High exit barriers
 Diversity of rivals

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Value Chain Concept
 Michael Porter
Value Chain
 A tool for identifying ways to create more
customer value
 Nine strategically relevant activities that create
value and cost in a specific business. These
activities are divided into:
 Primary Activities
 Support Activities

  Inbound Logistics –
 Materials handling, warehousing, inventory control
used to receive, store and disseminate inputs to a
product.
 Fertilizer and chemical storage, delivery of
inputs, application of inputs
 Operations –
◦ Take inputs from inbound logistics and convert
to final products
◦ Plowing, planting, spraying, harvesting, feeding,
medicating, weighing, etc.
 Outbound Logistics –
◦ Collecting, Storing, and physical distribution of
the final product.
◦ Crop storage, finished hog handling, Processing
and determining delivery dates, delivery to the
packer or elevator etc.
◦

  Marketing & Sales –
◦ Collecting, Storing, and physical distribution of
the final product.
◦ Crop storage, finished hog handling, Processing
and determining delivery dates, delivery to the
packer or elevator etc.
 Services –
◦ Activities designed to enhance or maintain a
product’s value
◦ Timely delivery, identity preservation, ISO9000,
certifying as organic, etc.



 Procurement
◦ Activities to purchase the inputs needed to
produce products
◦ Negotiating with suppliers, standard timing of
replenishing parts and tools, setting up
buying groups, etc.
 Technological Development
◦ Activities that improve the firm’s products
and/or processes
◦ Volunteering for test plots, being a part of
feeding trials, attending technology
seminars/field days, designing equipment to
make specific production tasks more
efficient, etc.
 Human Resources
 Recruiting, hiring, training, developing, and
compensating all personnel

  Firm’s Infrastructure
◦ General Management, planning, finance, accounting,
legal support, governmental relations, etc.
◦ Establishment of accounting practices, management
information systems, compliance with environmental
regulations, tracking and reporting for government
programs, etc.
◦ Where strategy development takes place identifying
opportunities and threats, resources and capabilities,
and support of core competencies

Five Forces of Airline
Industry
 Threat of new entrants
◦ Substantial costs to access bank loans
◦ Brand names
 Power of Suppliers
◦ Boeing and Airbus
◦ Forward integration not possible
 Power of Buyers
◦ High costs with switching airplanes
 Substitutes
◦ Time, money, personal preference
 Competitive Rivalry
◦ High – generate low returns
