Porter's five forces model

The environment analysis can be done through "five forces model".It is known as porter's diamonds.It helps to identify the sources of competition in an industry.
The forces of competition are :
1)potential entrants :The new entrants face barriers to entry.They need to overcome them to compete successfully.The barriers can be :

• Economics of scale :They require high investment to gain cost advantage.They can be in production or marketing.
• Capital requirements : Specialized technology requires high capital costs.So does scale of production and distribution.Globalization has advantages in this respect.
• Product differentiation :It can be in terms of physical factors,service,promotion,channel or image.Customers perceive the product superior in value compared to competing products.
• Access to distribution channels : Blocked access to established channels becomes a barrier to entry.Guaranteed distribution also blocks new entrants.
• Customers loyalty:High customers loyalty to brands serves as a barrier to entry.
• Retaliation :Expected retaliation by existing firms can be costly for new entrants.
• Experience :Experience provides established firms benefits terms of cost or loyalty.It makes entry difficult for a new entrant.
• Government action :Planets and trademark protection preferential trademark by government serve as a barrier to entry.

2)Substitutes :Substitutes are product of firms in other industries.They attract customers who switch products.

• Product for product substitution :One product is substitution for another product.
• Substitution of need :It is substitution of exec ting product by a new product.
• Generic substitution :It occurs when product compete for disposable income.

3)Buyer power :It is the ability of the buyer to forces down price.Buyer power is high in the following .

• Concentration of buyers:The buyers are large and buy in volume.For example,grocery relating chains.
• Large number of small supplies :Sellers are several and sources of supply are many product is standardized.
• High material cost:Material cost percentage is high in total cost.Buyers will shop around to get the best prices.
• Low cost of substitution :The cost threat of background integration by the buyer.
• Background integration :There is threat of background integration by the buyer.For example,acquisition of a supplies.

4)Supplier power :It is the ability to force price up Supplier power is high in the following circumstances.

• Concentration of suppliers :The supplier is large and sells in volume.
• High switching costs :Costs are high for buyer to switch suppliers.For example,item which is crucial to production process.
• Powerful brand :Supplier's brand is powerful and has repulsion.
• Fragmented buyers :The customers of the suppliers are fragmented.
• Few substitution :The substitutes are few for buyers to switch products.

5)Competitive rivalry :It is among firms with similar products and same customer group.

• Balance among competitors:Competitors are equal in size and capability.
• High exit barriers :It costs more get out of the industry than to stay in.
• Low switching costs :If the product is undifferentiated.
• High fix costs :High capital intensity leads to high fixed costs.
• Slow market growth :The maturity stage in product life cycle is characterized by slow growth in sales.There is competition to gain market share.