Introduction: Five Forces Framework
Porter’s Five Forces Model is a model that analyzes an industry to help develop a business strategy. The model uses five forces that have been identified to categorize an industry as intensely competitive or not competitive at all and this will then determine the attractiveness of the market.There are many features of an industry in which a company competes that determines the level of competition it will face and the profits it will get. The most famous classification was done by Michael Porter, known as Porters Five Forces framework which can help a company determine its potential profits by looking at five sources of competitive pressure. The five sources of competition are: 1. Threat of new entrant
2. Threat of substitutes
3. Rivalry among existing competitors
4. Bargaining power of suppliers
5. Bargaining power of buyers.
Porter's Five Forces
In particular, we will focus on three different industries; We will start analyzing the five forces in the smartphone industry and then we will continue dealing with the personal computer industry and finally we will present digital music portable industry.
In general the smartphone market is rapidly changing, with constant product introductions. It is characterized by quickly evolving technology and designs, short product life cycles, aggressive pricing, rapid imitation of product and technological advancements, and highly price sensitive consumers. Self-elasticity and cross-elasticity are high. No one firm in the market has sufficient market share to control prices, resulting is strong rivalry and competitive pricing. 1. Threat of new entrant: The barriers to entry are high due to the existence of patents, high fixed costs and economies of scale, regulation, and brand loyalty. The individual market participants engage in attempts at product differentiation, some being more successful than others. The standout is Apple, which has successfully differentiated its iPhone, and stands a good chance of maintaining that differentiation due to its closed and all-inclusive model or development and use.Barriers to entry in the smartphone market are relatively high, but the rapid growth of the market is providing opportunities despite this. There are significant fixed costs associated with smartphone manufacturing. While most firms have the hardware of the phones manufactured overseas by foreign companies, the costs of developing the research and engineering personnel to design and test the smartphone and software can be prohibitively expensive for an entering firm. These fixed costs include not just the cost of the manpower, intellectual knowhow, intellectual property, computers, test equipment, prototyping devices and supplier and manufacturer contracts, but also the time necessary to develop all of these. Because the industry moves so quickly, an entering firm would either have to enter with existing resources targeting the smartphone market, or it would have to have another significant competitive. Moreover consumer will face an high switching costs if they decide to change their products, as a result of the fidelity every brand put on its product. Because all these reasons smartphone industry is extremely difficult to enter. As a result the threat of new competition is low. Smartphone production needs huge number of money and high technology. Even if established the company, it is impossible for new brand to compete with big company like Apple and Samsung.
2. Threat of substitutes : As a result of the high barrier to entry, to build and launch a substitute product is a hard work. Thus Threat of substitute is low. It’s extremely difficult to enter Smartphone production; because this industry base on high technology. As a result, it’s very hard to invent the substitute to replace smartphone with low price and more power function.
3. Rivalry among existing competitors:With rapid innovation...
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