Analysis of Competitive Environment Using Porter's Five Forces Model

This report delves into the competitive environment of businesses, employing Porter's Five Forces framework to analyze market dynamics. It examines the forces at play, including the threat of new entrants, the threat of substitutes, the bargaining power of suppliers and buyers, and competitive rivalry. The report also discusses factors influencing the level of rivalry among competitors, such as balanced rivalry, slow industry growth, fixed costs, product differentiation, barriers to exit, and strategic stakes. By understanding these forces, businesses can make informed strategic decisions to gain a competitive advantage and improve their operations. The report concludes that the Porter's Five Forces model is a valuable tool for businesses to assess their competitive position and develop effective strategies. This report is designed to help students better understand and apply the framework to real-world business scenarios.

Running head: BUSINESS MANAGEMENT
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Name of the Student
Name of the University
Author’s Note

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Table of contents
Introduction......................................................................................................................................3
Forces operating in competitive business environment...................................................................3
Factors affecting the level of rivalry among competitors................................................................7
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

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Introduction
The report describes about the forces that operates in the competitive environment by
using the porters five forces framework. The competitive environment mainly consists of huge
number of rivalries that the organization faces, relative size of these rivalries and
interdependence degree within the sector. The department of marketing in an organization has
less control over this competitive environment. Now-a-days, as all companies faces huge
competitive from their competitors, they should implement proper strategy in order to combat
with the challenges facing them (Adekola and Sergi 2016) Some of the forces that mainly exist
in competitive environment and affect the business include- total number of rivalries, changing
customers, competition from advancement of new technologies and interdependence degree. In
addition, the factors that impacts level of rivalry among the competitors are also analyzed in this
report.
Forces operating in competitive business environment
The competitive environment refers to the dynamic external system at which the business
organization competes as well as functions. The larger the number of retailers of homogenous
product, the greater competitive environment it is at which the business compete (Babatunde and
Adebisi 2012). Competitive environment has both advantages as well as disadvantages. The
benefits of competitive environment includes-
 Larger levels of competition means the companies have low influence on setting the
prices higher, which in turn benefits the consumers.

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 Higher competitive environment increases the competition among the business for
producing quality products and services, so as to they retain their customers and attain
their trust.
 Competitive environment also forces the businesses to increase their efficiency as well as
remain competitive (Weske 2012)
 It also increases the productivity of the business organization and hence providing larger
products benefits the customers to have wider range of options to choose from it.
The disadvantages of the competitive environment are illustrated below:
 The organizations might partake bad practices for sustaining in the competitive
environment
 It might lead to unfair trade
 It also increases the risk of unemployment
 It involves social as well as ethical issues.
Porter’s five forces refer to the framework that identifies as well as analyzes competitive forces
that frames the industry and also facilities their strength as well as weaknesses (Dälken 2014). It
is one of the most commonly as well as effective used framework that analyzes the competitive
environment. This model has been widely used for analyzing the structure of industry and their
corporate strategy. This framework was named after Micheal E. Porter, who identified five
forces which play huge role in framing the market and sector in the globe. These forces are often
used for measuring the competitive intensity, attractiveness and profit margin of the industry.
Furthermore, the larger the competitive forces, lower is the profitability in the business operating

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in the industry. Strategic analyst in business applies this model for understanding whether new
commodities are profitable. The five forces that are identified are given below:
Threat of the new entrants- If the market is profitable and demand for goods are higher
than supply, then this attracts new players (Dobbs 2012). This raises competition and
reduces the profitability level for firms present market. the threat becomes high when-
 Economies of scale are easily achieved
 No government regulation
 Goods are identical
 Less capital is needed to enter the market.
Threat of substitute goods or services- if the substitute goods are available in the
market, then the customers tends to switch to other alternatives owing to rise in price.
This decreases market attractiveness as well as suppliers power.
Suppliers bargaining power- Retailers have certain extent of power over the
organization in terms of product pricing as well as its supply. Suppose if the suppliers are
less than buyers, then this permits the supplier in setting increase in price for having
power. Therefore, if suppliers are greater than buyers, then this increases that
organization’s power and thus putting them in the position to negotiate cost as well as
terms (Dobbs 2014). Moreover, suppliers having stronger bargaining power can sell the
goods at higher price to the purchasers. This in turn directly impacts the organizations
profit.
Buyers bargaining power- Buyers have power in demanding lower price or better
quality product from producers when they have strong bargaining power. They have
higher bargaining power if the supply of goods is higher than demand in the marketplace.

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This permits the purchasers to pressure organizations in offering higher product quality at
low prices. Thus, purchaser’s power is reduced when supply is lower than demand for
goods.
Competitive rivalry among competitors- Rivalries among the competitors are high
when barriers in exit are high, growth of sector is slow, competitors have equal size,
products are homogenous and the customer’s loyalty is low (Gobble 2012). However,
based on the market positions as well as consumer perceptions, there might be higher
rivalry level between the products of one firm and its competitor.
Therefore, implementation of this model enables the organization to adopt proper business
strategy for better utilizing the resources for generating higher earnings for the investors.
Figure 1: Porter’s five forces
Source: (Dobbs 2012)

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Factors affecting the level of rivalry among competitors
The factors that influences the level of rivalry among the competitors includes-
 Equally balanced rivalry- when the organization have balanced in their strength, they
have the tendency to engage in battles and retaliate since they apt for leadership in
market.
 Slow growth in the sector- In slow growth industry, the entities can increase the growth
by increasing their market share, which in turn increases competition (Rothaermel 2015).
 Higher fixed or storage cost- Higher fixed cost mainly creates huge pressure for the
firms for filling capacity and hence leading to reduction in price. However, higher cost
of storage pushes the entities to reduce prices for ensuring sales.
 Lower product differentiation level- when the product differentiation level is low, the
customers make the choice by focusing on price as well as service. This leads to rise in
competition level within the industry.
 High barriers in exit- strategic factors prevent the firms from exiting the sector even if
they are attaining negative returns. Some main sources of barriers in exit includes-
specialized assets, strategic interrelationships, social restrictions etc.
 High strategic stakes- The organization with higher stakes for attaining success might
sacrifice huge profitability (Ellram, Tate and Feitzinger 2013). Even the firms with higher
share in market might feel threatened by rivalries that seek to decrease their share in
market.
 Diverse rivalries- the firms with different strategies and their relationship with parent
firms have diverse target. Their varied approaches to market as well as unique strategies
also increase rivalry level in competitive marketplace.

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Conclusion
This porter’s five forces vary among the industry as these forces affect the profitability
level owing to impact in prices, cost and competitive environment. This model also facilitates the
firms in making strategic business decisions for determining competitive structure of industry.
Thus, the companies adopting this framework help them to gain competitive advantage over their
rivalries and improve their business operations. In addition, this five forces framework might
overlook innovation and the importance of individual company’s difference and thus presents
stagnant view about competition. However, based on the data derived from this model, the
management of the company should influence specific features of the sector.

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References
Adekola, A. and Sergi, B.S., 2016. Global business management: A cross-cultural perspective.
Routledge.
Babatunde, B.O. and Adebisi, A.O., 2012. Strategic Environmental Scanning and Organization
Performance in a Competitive Business Environment. Economic Insights-Trends &
Challenges, 64(1).
Dälken, F., 2014. Are porter’s five competitive forces still applicable? a critical examination
concerning the relevance for today’s business (Bachelor's thesis, University of Twente).
Dobbs, M.E., 2012, January. Porter's five forces in practice: Templates for firm and case
analysis. In Competition Forum(Vol. 10, No. 1, p. 22). American Society for Competitiveness.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), pp.32-45.
Ellram, L.M., Tate, W.L. and Feitzinger, E.G., 2013. Factor‐market rivalry and competition for
supply chain resources. Journal of Supply Chain Management, 49(1), pp.29-46.
Gobble, M.M., 2012. Innovation and strategy. Research-Technology Management, 55(3), pp.63-
67.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Weske, M., 2012. Business process management architectures. In Business Process
Management (pp. 333-371). Springer Berlin Heidelberg.

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Wilson, R.M. and Gilligan, C., 2012. Strategic marketing management. Routledge.