Business – 6.1 External influences – Competitors and suppliers | e-Consult
6.1 External influences – Competitors and suppliers (1 questions)
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Porter’s Five Forces model provides a framework for analysing the competitive environment that influences a firm’s profitability and strategic choices. The five forces are:
- Threat of new entrants: Determines how easily new rivals can enter the market, affecting decisions on barriers such as patents, economies of scale, or brand loyalty.
- Bargaining power of suppliers: Influences cost structures; high supplier power may lead a firm to seek alternative sources or vertical integration.
- Bargaining power of buyers: Strong buyers can demand lower prices or higher quality, prompting firms to differentiate or improve service.
- Threat of substitute products or services: Forces firms to innovate or improve value to retain customers.
- Rivalry among existing competitors: Direct competition drives decisions on pricing, marketing, product development, and capacity utilisation.
By evaluating each force, managers can identify where competitive pressure is greatest and choose strategies such as cost leadership, differentiation, or niche focus to mitigate risks and exploit opportunities.