Porter Forces Five and Bargaining Power of Suppliers - Essay Example

Several forces shape the competition within the business industry. Porter identifies five distinct forces that affect the competition involving industries. These involve the bargaining power of suppliers, the bargaining power of buyers, and the threat of new entrants into the market (Hill and Jones, 2010). In addition, the threat of substitute products as well as the rivalry between the existing competitors also forms the key factors that shape the industry.

It is significant to note that new entrants may bring several changes to the market. These entrants may come up with good products that favorably compete with the already existing ones. This follows that such entries always follow an up to date research. The entry of such new industries can pose major challenges to the already existing industries offering the same products (Hill and Jones, 2010). As such, the entry can lead to fluctuation in prices of goods thereby minimizing the profits made by the other industries. Such new entrants may also command a large customer base following their improved products sold at low prices, thus posing greater risks to the other rival industries.

The rivalry amongst the existing competitors can also shape the business industry in many ways. Such rivalries may lead to price fluctuations (Ahlstrom and Bruton, 2010). This makes the consumers purchase goods at very low prices at the expense of the industry. In this case, the industry generally makes losses since they are forced to lower their prices to suit the current state of the market. Again, if such rivals compete on price, it presents a good opportunity for the entry of new entrepreneurs into the market, thereby flooding the market with well-researched goods (Henry, 2011). This leads to a reduction in profits for such industries.

The bargaining power of buyers also affects the industries from several perspectives. When the bargaining power of the buyers is very high, it means several goods will be bought at a substandard price (Ahlstrom and Bruton, 2010). This may lead to such businesses making huge losses, thereby reducing their profits. However, when the bargaining power of the buyers is weak, the industries are likely to make huge profits since most goods will be bought at relatively high prices.

It is notable that the bargaining power of suppliers also shapes the competition within the business industries. If the bargaining power of suppliers is very high, the industry is likely to experience a reduction in profits (Porter, 2011). This follows that such industries will get goods at relatively high prices from such suppliers. This acts to raise the profit on the side of the supplier and reduce the profits on the side of the industry. Again, some suppliers may have low-quality products but with very high bargaining powers (Porter, 2011). This may negatively affect the quality of the products from such industries thereby leading to low purchase powers. This lowers the profits realized from such sales.

The availability of substitute products also shapes the competition within industries in several perspectives. The availability of substitute products can lower the profits in any business industry. This follows that if the prices of such products from the industries are higher than those of the substitutes, many customers will fall for the substitutes (Schermerhorn, 2010). This will reduce the level of consumption of such products from the industries. As such, the industries will run at losses following the reduction of consumption of such products. Read More