Porter's Five Forces and Computer Technology
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The five forces model as presented by Michael Porter in the 1980's helps a company decide a particular market or industry's attractiveness. One of Porter's five forces is the threat of entry. Some things that would change the threat of entry would be the place in the life cycle the product or industry is in, how saturated the market is with competitors, the cost of entry and how embedded the current competitors are in the market. Another force that Porter stressed the need to look into was the intensity of the rivalry of competitors already in the market. The intensity of the rivalry has a strong effect on the market and how competitive the market is going to be. Sometimes a smaller competitor can come in and take up a piece of the market if the existing companies are heavily fighting amongst one another. The next part of Porter's model is threat of substitutes. Substitutes is self-explanatory, what other things can be used in place of the product that is being produced. Sometimes there can be many substitutes; while in other markets there can be few substitutes. The next force Porter discusses is bargaining power of suppliers. This is a key force because it threatens the price of the product or service offered directly, which affects profits. If the supplies being used by a company are common and easy to find the suppliers will have weak to moderate influence. The last force Porter discusses is the bargaining power of buyers. For the most part buyer does not mean the end-user. The buyer generally means the retailer or middleman who will then sell the product to a consumer. The buyer's power depends mainly on how many other companies offer a certain product or service. The more competition the more power the buyer has.
Now that we have looked at the five forces model from a general standpoint, let us view it from a specific industry, cellular service.
Threat of Entry - Computer Technology
- Threat of Entry: In the computer industry the threat of entry is weak. The main players in the industry have a tight hold on the market. Since the market is bordering on maturity, entry into the market would cost a great deal and be difficult to break into any of the main markets already provided for by the larger more well known companies.
- Intensity of Rivalry: The intensity of rivalry in the computer industry is very strong. There are many main players and all of them are fighting for the same markets. This leads to a greater deal for the consumer because the rivalry leads to competitive prices and services.
- Substitutes: The substitutes market for computers is currently pretty weak. There are a few alternatives to core computer products.
- Bargaining Power of Suppliers: The bargaining power of suppliers is moderate. Again, the industry operates using core components manufactured by only a few computer parts manufacturers.
- Bargaining Power of Buyers: Bargaining power of buyers is strong. It is important to note that the buyers include the retail establishments that provide to the end user. Therefore, the retailer has many choices in computers to offer its clients, leaving them with a lot of bargaining power. The buyers have a large influence on what service will be used, thus having a good deal of power over the market.