The 5 competative forces that are taken into consideration are:
Competition in the Industry
Potential of new entrant into Industry
Power of Suppliers
Power of Customers
Threat to substitute products
Lets discuss each of these points in detail:
Competition in the Industry:
This describes the competition between the existing firms in an industry. Greater the competitive riverly (companies providing equally good …show more content…
Patents: Ideas and Knowledge that provides competitive advantage over others when patented, preventing others from using it and thus creates barrier to entry. Pharma and Software sectors sees maximum number of patents being filed making it difficult for new firms to replicate their products.
High Entry Cost: If the initial cost to set up a new firm is difficult, then the chances of new entrants are very less. Once again coming back to oil sector, Exploration and Production of oil and gas involves a highly capital and technology intensive process of finding oil reserves, assessing its feasibility, drilling and extracting.Hence creating a very high entry cost
Existing loyalty to major brands: If the existing brands are very well-established, then chances of a new firm giving them competition is minimal. Pepsi and Coca Cola dominate the soft drinks industry worldwide making it difficult for any new entrant to survive in front of them.
On the other hand, if the industry uses common technology, there is little or no brand franchise and if the entry cost is low then it is very easy for a new entrant to enter into the industry.
Power of Suppliers:
A company to manufacture its products requires raw material, labor etc.This creats a buyer-supplier relationship in an