Porter Five Forces Analysis Essay Example
Porter Five Forces Analysis Essay Example

Porter Five Forces Analysis Essay Example

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Threat of new entrants  - A way of trying to eliminate threat of new entrants would be to create economies of scale. This approach would make it harder for new entrants to reach high scale production, as they would have higher costs. This is what Samsung and Apple are trying to do at the moment, by building large economies of scale. But at the same time, ZTE a Chinese company, started selling the cheapest Android phones in 2010 and now have 2% of the smartphone market share. Obviously, as this industry had an immense growth in the recent years, companies such as ZTE started making smartphones as this industry was developing, therefore the company had the opportunity to grow with the industry.

Another way would be patenting new technologies. Therefore, new companies that would want to use patented technologies would have


to pay for them, rising their costs. The experience curve, would most likely come naturally, because experienced companies in an industry would be more cost effective than new entrants as they would have improved their processes. Sometimes new entrants buy another company just because the barriers are too high.

For example, Vodafone has a smartphone branded Vodafone, as selling it under a different name would not sell. * In other industries, people have managed to enter an industry through on-line retailing (Amazon). * Price wars could also increase the threat of new entrants * In order to access this industry Nokia and Microsoft (Microsoft previously acquired Skype for 10 bn US dolars) formed an alliance by having a new Operating System called Windows Phone. As the consumers do not trust these two brands, they are trying

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to add value to their homes by integrating in the operating systems social networks such as Facebook, Twitter and Linkedin. Furthermore, they have the official Microsoft Office app and image stabilisation cameras. This way they try to differentiate.

Threat of Substitutes - In the mobile phone industry the threat of substitutes is very low. But nowadays smartphone makers are trying to cover all their basis by creating very large smartphones, similar in size to a tablet. This way they cover a niche market where consumers want really large phones, where a substitute for a phone would be a tablet. * Although in theory the higher the threat of substitutes the less attractive a market is, the mobile phone industry although it does not have a high threat of substitutes, it is still not very attractive because start-up companies would need a high investment to enter such a market.

The Power of Buyers - In the mobile phone industry the power of buyers is very high. Although the best option to increase switching costs, this is quite hard to do in this industry because the hardware gets old very quickly, therefore every two years when a phone contract ends, the buyer has the option to choose another phone. For the sake of the argument, Microsoft has an increased switching cost from its Windows Operating System, and customers would rather pay 50 pounds yearly to keep using it, rather than paying for a new operating system more than 200 pounds. * There is also the threat were buyers have the power to supply themselves. In this case websites such as Alibaba sell unbranded Android phones at less than half

the price.

The mobile phones have the exact same capabilities as branded mobile phones.  The Power of Suppliers - The suppliers have more power when they have the chance to cut the middle man. But usually big companies such as Samsung and Apple have power over suppliers as they usually sign big contracts that suppliers can`t afford to lose. As an interesting fact, Samsung is Apple`s supplier of mobile touchscreens and they have the power to dictate the price as Apple can`t find a similar quality display supplier that can deliver such a high number of units. Competitive Rivalry * In order to eliminate competition, some companies have decided to attract only a niche market. For example High-End Blu Ray manufacturer Oppo started in 2013 making High-End Android Smartphones.

Obviously, these are very well built but at the same time they are very expensive, therefore the company focuses more on the price and quality rather than selling large numbers. * Criticism * The model assumes a classic perfect market.  The model is best applicable for analysis of simple market structures. The model assumes relatively static market structures. This is hardly the case in today's dynamic markets.

Technological breakthroughs and dynamic market entrants from start-ups or other industries may completely change business models, entry barriers and relationships along the supply chain within short times. * The model is based on the idea of competition. It assumes that companies try to achieve competitive advantages over other players in the markets as well as over suppliers or customers. With this focus, it dos not really take into consideration strategies like strategic alliances, electronic linking of information systems of all companies along

a value chain, virtual enterprise-networks or others. The power of the 5 forces varies with the industry life cycle.

Use radar plots to analyse industries:

  • Pestle should also be mentioned
  • Legal influences – patent disputes
  • Economical – industry focused on western countries
  •  Environmental – Apple in China
  • Technological – Obvious
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