This document provides an overview of Porter's Five Forces model of competition and its application to analyzing Samsung's business strategies. It discusses the five competitive forces - threat of new entrants, power of suppliers, power of buyers, threat of substitutes, and industry rivalry. It then provides an example analysis of Samsung using Porter's five forces framework to evaluate the competitive landscape in the white goods industry and how each force impacts Samsung's profitability. The document aims to demonstrate how managers can use this model to inform strategic decision making.
This document provides an overview of Porter's Five Forces model of competition and its application to analyzing Samsung's business strategies. It discusses the five competitive forces - threat of new entrants, power of suppliers, power of buyers, threat of substitutes, and industry rivalry. It then provides an example analysis of Samsung using Porter's five forces framework to evaluate the competitive landscape in the white goods industry and how each force impacts Samsung's profitability. The document aims to demonstrate how managers can use this model to inform strategic decision making.
This document provides an overview of Porter's Five Forces model of competition and its application to analyzing Samsung's business strategies. It discusses the five competitive forces - threat of new entrants, power of suppliers, power of buyers, threat of substitutes, and industry rivalry. It then provides an example analysis of Samsung using Porter's five forces framework to evaluate the competitive landscape in the white goods industry and how each force impacts Samsung's profitability. The document aims to demonstrate how managers can use this model to inform strategic decision making.
This document provides an overview of Porter's Five Forces model of competition and its application to analyzing Samsung's business strategies. It discusses the five competitive forces - threat of new entrants, power of suppliers, power of buyers, threat of substitutes, and industry rivalry. It then provides an example analysis of Samsung using Porter's five forces framework to evaluate the competitive landscape in the white goods industry and how each force impacts Samsung's profitability. The document aims to demonstrate how managers can use this model to inform strategic decision making.
Faculty of Manufacturing Engineering Universiti Teknikal Malaysia Melaka 1 Sections: 1. Introduction 2. Porter’s Five Forces Model of Competition 1. Risk of entry by potential competitors 2. Rivalry among current competitors 3. Bargaining Power of Buyers 4. Bargaining Power of Suppliers 5. Threat of Substitute products
3. Example: Porter’s Five Forces Analysis of Samsung
2 INTRODUCTION Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an organization’s strategy. One of the most renowned among managers making strategic decisions is the five competitive forces model that determines industry structure. According to Porter, the nature of competition in any industry is personified in the following five forces: 1.Threat of new potential entrants
2.Threat of substitute product/services
3.Bargaining power of suppliers
4.Bargaining power of buyers
5.Rivalry among current competitors
The five forces mentioned above are very significant from point of view of strategy formulation. The potential of these forces differs from industry to industry. These forces jointly determine the profitability of industry because they shape the prices which can be charged, the costs which can be borne, and the investment required to compete in the industry. Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry.
Let’s discuss the five factors of Porter’s model in detail:
Sources: https://www.managementstudyguide.com/porters-model-of-competetion.htm 3 1. RISK OF ENTRY BY POTENTIAL COMPETITORS Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. The various barriers to entry are-Economies of scale Brand loyalty Government Regulation Customer Switching Costs Absolute Cost Advantage Ease in distribution Strong Capital base
4 2. RIVALRY AMONG CURRENT COMPETITORS Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. The strength of rivalry among established firms within an industry is a function of following factors: Extent of exit barriers Amount of fixed cost Competitive structure of industry Presence of global customers Absence of switching costs Growth Rate of industry Demand conditions
5 3. BARGAINING POWER OF BUYERS Buyers refer to the customers who finally consume the product or the firms who distribute the industry’s product to the final consumers. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. They purchase in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat.
6 4. BARGAINING POWER OF SUPPLIERS Suppliers refer to the firms that provide inputs to the industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs( labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Suppliers products have a few substitutes. Strong suppliers’ products are unique. They have high switching cost. Their product is an important input to buyer’s product. They pose credible threat of forward integration. Buyers are not significant to strong suppliers. In this way, they are regarded as a threat.
7 5. THREAT OF SUBSTITUTE PRODUCTS Substitute products refer to the products having ability of satisfying customers needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry. Lesser the number of close substitutes a product has, greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal).
8 PORTER’S FIVE FORCES MODEL OF COMPETITION The power of Porter’s five forces varies from industry to industry. Whatever be the industry, these five forces influence the profitability as they affect the prices, the costs, and the capital investment essential for survival and competition in industry. This five forces model also help in making strategic decisions as it is used by the managers to determine industry’s competitive structure. Porter ignored, however, a sixth significant factor- complementaries. This term refers to the reliance that develops between the companies whose products work is in combination with each other. Strong complementors might have a strong positive effect on the industry. Also, the five forces model overlooks the role of innovation as well as the significance of individual firm differences. It presents a stagnant view of competition.
9 PORTER’S FIVE FORCES ANALYSIS OF SAMSUNG Introduction 1. Industry Rivalry 2. Barriers to Entry and Exit
• Porter’s Five Forces • This element is especially • The White Goods industry is methodology is used in this significant for Samsung as the characterized by high barriers article to analyze the business other White Goods to entry and low barriers to strategies of white goods multinationals like LG, Nokia, exit especially where global makers like Samsung. This tool and Motorola not to mention conglomerates like Samsung is a handy method to assess Apple are engaged in fierce are concerned. Indeed, it is how each of the market drivers competitive rivalry. Indeed, often very difficult to enter impact the companies like Samsung cannot take its emerging markets because a Samsung and then based on position in the market for host of factors have to be the analysis, suitable business granted as all these and other taken into consideration such as strategies can be devised. domestic white goods players setting up the distribution Further, companies like operate in a market where network and the supply chain. Samsung are known to study margins are tight and the • However, global conglomerates the markets they want to competition is intense. can exit the emerging markets approach thoroughly and • Apart from this, Samsung faces easily as all it takes is to deeply before they make a the equivalent of the “Cola handover and sell the business move and it is in this Wars” (the legendary fight for to a domestic or a foreign perspective that this analysis is dominance between Coke and player in the case of declining undertaken. Pepsi) in emerging markets like or falling sales. This means that India where Samsung has to Samsung has entered many contend and compete with a emerging markets through a multitude of players domestic step-by-step approach and has and global. This has made the also exited the markets that impact of this dimension have been found to be especially strong for Samsung. unprofitable. This is the reason why white goods multinationals like Samsung often do their due diligence before entering emerging markets. 10 PORTER’S FIVE FORCES ANALYSIS OF SAMSUNG 3. Power of Buyers 4. Power of Suppliers 5. Threat of Substitutes
• The power of buyers for white • In many markets in which • This element is indeed high as the goods makers like Samsung is Samsung operates, there are markets for white goods are somewhat of a mixed bag where many suppliers who are willing to flooded with many substitutes and though the buyers have a offer their services at a discount given the fact that consumer multitude of options to choose since the ancillary sectors are durables are often longer term from and at the same time have very deep. However, this does not purchases, companies like to stick with the product since they mean that the companies can Samsung have to be careful in cannot just dump the product, as it exert undue force over the deciding on the appropriate is a high value item. suppliers as once the supply chain marketing strategy. This is also • Further, the buyers would have to is established; it takes a lot to the reason why many necessarily approach the undo it and build a new supply multinationals like Samsung often companies for after sales service chain afresh. This is the reason adopt differential pricing so as to and for spare parts. Of course, why white goods makers like attract consumers from across the this does not mean that the buyers Samsung invariably study the income pyramid to wean them are at the mercy of the markets before setting up shop away from cheaper substitutes. companies. Far from that, they do and also take the help of • Further, this element also means have power over the companies, consultancies in arriving at their that many emerging market as most emerging market decision. consumers are yet to deepen their consumers are known to be finicky dependence on white goods and when deciding on the product to instead, prefer to the traditional buy and explore all the options forms of housework wherein they before reaching a decision. This rely less on gadgets and means that both the buyers and appliances. However, this is the companies need each other rapidly changing as more women just like the suppliers and the enter the workforce in these companies, as we shall discuss markets making it necessary for next. them to use gadgets and appliances.
11 PORTER’S FIVE FORCES ANALYSIS OF SAMSUNG 6. Stakeholders Conclusion
• This is an added element • As the diagram above
for analysis as the indicates the relative increasing concern over strengths and the social and weaknesses of each environmentally conscious element, we can now business practices means conclude this analysis that companies like with the theme that as Samsung have to be the global economy careful in how they do integrates and more business as well as emerging markets open project themselves to the up, companies like consumers. For instance, Samsung are at an white goods makers are advantage because they known to decide after have already established due deliberation on themselves in many everything from choosing markets. However, it must their brand ambassadors also be noted that each to publicizing their CSR market is unique and (Corporate Social hence, Samsung must not Responsibility) initiatives. adopt a one size fits all strategy and instead, must approach each market differently. 12
