2 General External Information o Economic social cultural political legal and

2 general external information o economic social

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2. General External Information o Economic, social-cultural, political-legal and technology environment 2-5
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3. Porter’s Five Forces Model is an industry level too l. An important point to remember is to stay focused on one industry. Definition of the industry determines many of the key elements. In order for profits in an industry to be high, one or more of these forces must be weak. If all of these forces are strong, profits in the industry will likely be low. o Bargaining power of buyers o Bargaining power of suppliers o New entrants threat o Substitutes o Intensity of rivalry o Complementors—products that sell will with another product. This is not part of Michael Porter's original model but was added by others at a later date. a. Bargaining power of buyers Those who determine what, how much and/or from whom to buy a product. The strength of buyers is dependant on: o percentage of the industry's output the buyer purchases. o costs of switching to competing brands or substitutes. o number of sellers available b. Bargaining power of suppliers Those who provide inputs used in producing the product such as raw materials, fixed assets, labour and financial support. The strength of suppliers is dependant on o high demand for the suppliers' product relative to the amount of the product available. o whether the quality and performance of the product supplied are unique o inability of the customer to vertically integrate. 2-6
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c. New entrants threat and the ease with which new entrants may enter an industry The strength of new entrants is dependant upon o brand loyalty by consumers o economies of scale making it necessary for a new entrant to start off as a very large concern. o capital requirements making it very expensive to enter an industry o inability to access marketing channels. o proprietary process technology protected by patents. o defensive actions of firms blocking new entrants. d. Substitutes – products that perform a similar function in a different way. Substitutes develop a ceiling in the profitability of an industry. The strength of substitutes in an industry is influenced by: o the ability of customers to compare quality, performance and price. o the cost of switching from an industry's product to a substitute. e. Intensity of rivalry – the more intense rivalry becomes, the lower profits go. The influence of rivalry on an industry is dependant on: o an increasing number of competitors o a growing demand for the product o the need for greater sales to support economies of scale. o the ability of customers to switch among companies with low costs. o exiting the industry is more expensive than staying in it. 2-7
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f. Complementors – products that sell well with other products. For example Intel chips and Microsoft software are complementary products.
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