Question

It can be difficult to determine how much potential profit exists in an industry. This question is important for managers to address. Five forces analysis offers a tool towards providing an answer to the question. Please address each of the following in 800-1000 words so I can fully understand and how to go about this assignment.

1. Discuss the five forces of Michael Porter’s Five Forces of the Competitive Environment.
2. Discuss potential aspects of industry that the five force analysis does not consider
3. Are all six elements of PESTEL important to every organization? Why or Why not?

Answer 1

FIVE FORCES ANALYSIS + PESTEL

Competitive intelligence: A systematic and ethical process of gathering and analyzing information about the competitors their activities and the general business trend to further a firms on goals

The nature of competitiveness in a given industry can be viewed as a composite 5 forces

Porter’s 5 forces model

1. Intensity of Rivalry among competitors

Here identifies the industry growth rate, exit barriers, number of competitors, quality differences of output among competitors and the diversity of competitors

2. Potential entry of new competitors

Any organization in particular market has to face lot competition, in this stage this modes discuss major market barriers for new entry, capital requirements of the market government regulations

3. Potential entry of Substitutes

Understands the buyer’s response to substitutes, level of product differentiation and relative price of substitutes, switching costs etc.

4. Bargaining power of suppliers

Availability of different suppliers, difference between each suppliers their quality and cost

and their scale of reach in industry

5. Bargaining power of consumers

Here identifies the volume of buyers, brand identity among buyers their purchasing power impact of quality of products, switching cost etc.                                                                               

• Disadvantage of this model

1. There are strategies available like the blue ocean strategy (creating entire new market instead of existing market )
2. Not applicable for highly dynamic environment
3. It does not identify organization performance in relation with its competitors

• PESTEL Analysis for external environment

Political Factors that Impact on organization

Political factors play a significant role to understand long-term legal aspect of country from different perceptive, analyzing these factors lead to risk management and lead to generate a strategic approach to law related constrains of a country or may lead to taking leverage out of favorable political environment

• Political stability and importance of industry.
• Level of regulatory bodies available
• Understanding the legal framework of the country (especially for creating contract, agreement etc.)
• Use of Intellectual property rights (Name logo etc...)
• Trade regulation and tariff rate (Rate of imports and exports set by political framework of the state)
• Taxation policy
• Understand Employee benefits (No of mandatory leaves, minimum wage, and wage for overtime)
• Industrial safety regulations in the sector (keeping minimum no. of fire extinguisher).

Economic Factors (both micro and macro)

Factors influencing macro environments such as rate of interest, foreign exchange rate of the country inflation rate and current stage of economic cycle to know macro output like growth of the market. whereas micro environmental factors helps to analyze industry viability , spending capacity of consumers the standard of living etc..

• Current Economic cycle of the country (Recession, boom)

• Strength of financial market (Rate of currency and its stability)
• Support from financial sector (Availability of credit institutions provides support to sector)
• Inflation rate
• Understanding the competitors in relative market and their market reach
• Availability of skilled work force for industry
• Cost of factors of production (Availability of Men material money machinery)
• Business cycle stage (e.g. prosperity, recession, recovery)
• Inflation rate of relative market
• Rate of unemployment

Social Factors

Cultural behavior of an economy lead to culture of the company in a particular environment. Understanding Customer’s behaviors and culture will helps to generate marketing strategies for Company (example Transit advertisement on festival day day) some of the factors are

• Demographics of population ( Example Age groups , educational standard )
• Economic class of people
• Setting minimum educational standard
• Culture of the geographic area

Technological Factors

Technology is fast moving at every year. Nowadays automation is the key player in technological environment adopting the right technology at right time will lead to profitability of the firm.

• Technological developments
• Technology's impact on product design
• Impact on cost structure
• To know the outdated technology and find appropriate substitute

Legal Factors

In certain countries, business law will provide enough protection to business (Acts on intellectual property rights) it’s purely depend on the law framework of the county

• Copyright
• Law against theft
• Consumer act and their interest of protection
• Employment related law (Labor acts)
• Health and safety related law (facilities should a company can offer its employees)
• Auditing as per government guidelines
• Use of power etc.