Industry Analysis: the Five Forces Essay

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Industry Analysis: The Five Forces
Cole Ehmke, Joan Fulton, and Jay Akridge Department of Agricultural Economics Kathleen Erickson, Erickson Communications Sally Linton Department of Food Science

Assessing Your Marketplace
The economic structure of an industry is not an accident. Its complexities are the result of long-term social trends and economic forces. But its effects on you as a business manager are immediate because it determines the competitive rules and strategies you are likely to use. Learning about that structure will provide essential insight for your business strategy. Michael Porter has identified five forces that are widely used to assess the structure of any industry. Porter’s
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This may be very costly to you, thus you will have less bargaining power with your supplier. • Your input purchases don’t represent a significant portion of the supplier’s business. If the supplier does not depend on your business, you will have less power to negotiate. Of course the opposite is true as well. Wal-Mart has significant negotiating power over its suppliers because it is such a large percentage of suppliers’ business.


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Perspective on Bargaining Power of Suppliers
For an Indiana winery, one of the main supply decisions lies with the key product ingredients—winegrapes and juice. Wineries have several options, including owning the vineyard, purchasing grapes, or purchasing juice. An overabundance of winegrapes and juice from the West Coast of the U.s., for instance, enhances Indiana wineries’ negotiating power with grape and juice suppliers. However, the bargaining power of Indiana wineries is generally weakened due to lack of winegrape growing experience. If the winery needs a specific grape variety for a particular wine, then the manager needs to be concerned about the supply and demand for the product. As supply becomes short, the manager will find that suppliers have increasing bargaining power. Raw materials for wine production are commodity items that are very cyclical in price, quality, and availability. There are times when high-quality grapes can be bought for low prices (over supply) and