Explain Porter

1. The threat of entry:

This examines the threat of potential competitors as well as existing competitors. The threat of new entrants is based on the market entry barriers. These barriers can take a variety of forms and exist to prevent a surge of new firms into an industry whenever profits rise above zero. The most common forms of entry barriers (excluding legal and physical obstacles) are as follows:

• Economies of scale: for example, the benefits of bulk purchasing

• Cost of entry: for example, how much one would have to invest in new technology in order to compete

• Distribution channels: for example, competitors' ease of access

• Cost advantages that aren't related to the size of the company: for example, connections/contacts and expertise

• Government legislation: for example, new laws that might weaken a company's competitive position

• Differentiation: for example, a certain brand that cannot be copied

2. The Power of Buyers:

Buyer power is one of the two horizontal forces. The most important factors that determine buyer power are the size and the concentration of customers. Buyer power is high when there are only a few large players in the market, such as large grocery store chains. It is also high if there are a large number of small suppliers supplying the large grocery store chains.

3. The Power of Suppliers:

This tends to be the opposite of the power of buyers. The switching costs are high (for example, switching from one software to another). The power of suppliers is also high where the brand is powerful (Microsoft, Mercedes, Pizza Hut, etc.).