Question-   What is porter's five forces model in strategic management?

Solution-

PORTER’S FIVE FORCES MODEL

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The threat of New Entrants

The ease of entry for novice players includes: the technology used for cement production is easily available and the raw material used for cement production is also easily available. But the entry barriers consist of: high fixed cost, the requirement of large investment, high cost of electricity and power, and achievement of economies of scale. Hence, the intensity of this threat is at a medium level i.e. not posing a threat for Lucky Cement Ltd.

Threat of Supplier Power

The raw materials are easily available from local vendors. The electricity power supplier to the industry is increasing its prices on the command of the government, and this is affecting every sector, but Lucky Cement Ltd. is lucky to have its own energy generation system too. Hence, the intensity of this threat is low.

Threat of Buyer Power

 The price of the cement given by all the companies is almost the same in Pakistan. So, the buyer has no other option if s/he is in need of it, which means the switching cost of the buyer is low. Hence, the intensity of this threat is low.

Threat of Substitutes

There is no proper substitute available in the market for cement products, except the building blocks and pre-fabricated walls and ceilings. Indeed, abruptly the building blocks (used instead of bricks) industry seems booming as blocks (which use some cement as well) have been used in construction, which has slightly diminished the demand for cement while construction. In the same way, pre-fabricated walls and ceilings also play the same effect. But such a decrease in demand is not noticed yet, since the overall demand for cement for the construction industry domestically and internationally seems rising. Hence, the intensity of this threat is low.

Threat of Rivalry among Firms

The competition in the industry is very stiff, as there is almost no differentiation in products. The production capacity of all the players is high. The top players inclusive of LCL has the cutting edge technology, production capacity, alternate energy generation, huge financial backing, own transportation, wide distribution network, and relationships with customers and dealers based on services. Even then, the intensity of this threat is high.

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