Strategic Management Porters Five Forces: Analysis - Case Study Example

 Strategic Management: Porter’s Five Forces Strategic Management: Porter’s Five Forces Introduction Every business in a competitive market must engage certain competitive strategies in order to persist in the industry. Porter’s five forces model explains how different factors in a business environment determine a business’s competitive nature. This paper will canvas the five competitive forces that shape strategy with reference to the Carrefour Company. Carrefour is a retailer company operating in thirty-two countries and is the largest international food retailer. Its internationalization process has taken a period of 40 years and hence, is rated as a very successful business. The company operates hypermarkets, supermarkets, discount and convenient stores as their main formats of sale although their major focus is on hypermarkets. Carrefour Company was the introducer of hypermarkets in Europe when they opened their first hypermarket in Paris in 1963. Supplier Power Supplier power refers to the ease at which the suppliers of products or services can change prices and thus affect the mode of operation of the company (Porter, 2008, p.5). Supplier power is shaped by the number of suppliers that the company has on one product together with the uniqueness of their products. When a company is strung-out on one supplier for a particular commodity, they are exposed to the risk of hiked prices and lack of stock when the supplier is not producing. The supplier power may also be high when a supplier has exclusive rights to produce a certain commodity. Companies are in a good position when they have many suppliers to choose from and in such situations, they enjoy bargaining power. The Carrefour Company supplies a wide range of products and hence has many suppliers. They sell goods that have many substitutes and hence they have the benefit of choosing their supplier and have the advantage in bargaining power. Their main products are groceries that have many suppliers.  Buyer Power Buyer power pertains the ability of the buyers of the company’s products to the control the prices and strategies (Porter, 2008, p.9). The number of buyers or customers that the company has determines their ability to control the prices. On the occasion where a company has very many buyers of their commodities, one buyer or a group of buyers is insignificant and cannot control the price at which that company sells its products. On the other hand, when a company produces products with few buyers or is over-dependent on one customer or group of customer, the customers can determine prices. The Carrefour Company produces products that are used by all people each day. Therefore, they have a large pool of customers, and hence, the customers do not can control the costs that the company fixes for its goods. Carrefour has expanded and operates in different countries, and this provides it with many customers for their products. The company, therefore, has no threat from buyer power. The company also enjoys customer loyalty since they have been in operational for many years, and this reduces the threat of buyer power. Competitive Rivalry Competitive rivalry refers to the levels of competition that the company is let out to in the market by the capability and dominance of the competitors. Competitors of any business are always working hard to make their products enchanting and more satisfying. In the occasion where the competitors of the company are stronger, suppliers and buyers tend to shift to the stronger side. Such a situation leads to a weaker competitor experiencing reduced profits and may run out of business and closedown. Then again, if a company is stronger in competition, it will enjoy more sales and more often gain customer and supplier loyalty. Carrefour Company operates in a business environment with very many competitors. Over the last years, the company has experienced low customer satisfaction rates, which have led to reduced sales. Low customer satisfaction rates have occurred since the competitor offer better services. Their competitors have ensured that their brands are well developed, and it has contributed to Carrefour’s weak stance in Asia and Middle East. Other competitors in Japan because of the better services offered their weakness in customer attraction in japan. Although they have dominated the Europe market, their market percentage has significantly reduced to competition from other retailer companies. Threat of Substitution Threat of substitution refers to risk of a company losing its customers since the products it produces have other better alternatives being produced by other companies (Porter, 2008, p.15). In the occasion where the goods or services of a company have many substitutes, the company is exposed to the threat of substitution that can only be overpowered through quality improvement. The goods produced by a company have less or no substitutes, the company enjoy product dominance in the market. The Carrefour Company sells different commodities from different suppliers and offers their customers freedom of choice. The choices given to the customer reduces the threat of substitution exposed to the company. However, customers may also consider shopping in a different hypermarket due the general services provided. In this perspective, the Carrefour Company is exposed to the threat of substitution since the services and products it offers are also found in other hypermarkets. The company overpowers this threat by offering better services and ensures that their brands are better than those of their competitors. Threat of New Entry Threat of new entry refers to the ability of other people to venture into the industry. Threat of entry is dictated by elements such as exclusive rights, initial capital, time and technology. (Porter, 2008, p.18) Businesses that require low capital and have no regulation of entry are easy for people to venture in and hence increasing competition to the existing businesses. However, businesses that have exclusive rights of operation, require high capital and time, and have special technologies discourage people from entry and hence the existing businesses face low competition. The Carrefour Company faces threat of entry since the business has no entry restrictions and over the years, the count of competitors has heightened. However, despite the many competitors, the business requires a lot of capital and industry experience in order to compete with the older businesses. This limits likely entrepreneur’s form venturing into the business and hence lowers the threat of entry. The market expertise and economies of scale of Carrefour makes it overpower the threat of new entries Bibliography Porter, M. E. 2008. “The five competitive forces that shape strategy.” Harvard Business School Publishing. Boston, MA Read More