Industry Analysis, Porters Five Forces Model - Essay Example

The threat of new entrants integrating into the industry is low. The analysis revealed certain barriers do currently protect industry players to a certain extent. The advantage of current firms utilizing economies of scale as well as their respective brand identities do dissuade new entrants, thus protecting current market share. The global advertising industry generated total revenues of $109.8 billion in 2010, representing a compound annual growth rate (CAGR) of 4.8% for the period spanning 2006-2010. However the service differentiation is no longer sustainable and capital requirements are manageable, meaning a new business could potentially enter the market and attempt to erode current profit margins.

Taking a holistic view, the industry seems to be in the growth phase of its life cycle. However, the growth is not uniform across the globe. It varies from one market to another. For example, the emerging market like India and China has immense potential for this industry which is witnessing double-digit growth rates i.e. around 10%. At the same time, Western Europe has developed into a mature market having a growth rate of hardly 3-4%.

When discussing the bargaining power of suppliers (for the advertising industry these are the services support firms) it must be understood this is a variable and relative measure. A supplier’s bargaining power is usually determined by its market position, its relationship and worth to the relevant services provider, and how important the support services is to the advertising services provided. Therefore it is a variable factor determined by individual circumstances. Although a uniform conclusion cannot be determined suppliers are in fact universally strong in regards to their bargaining power. The compatibility issue makes a supplier very specific to a firm. This increases the dependence of the firm on its supplier. But at the same time since the industry is knowledge specific, the chances of vertical integration by the supplier are very feeble.

Bargaining power of buyers (for the advertising industry, it is the client base) is quite high. If the service is sufficiently differentiated to be a unique item, buyers have little ability to affect the profitability of such services, assuming it has something they want and is willing to pay for. If however similar services can be attained elsewhere then the bargaining power of buyers increases exponentially. This is becoming evident in light of the fact that differentiations are no more sustainable. As a matter of fact, the possibility of backward integration is also negligible as the industry is knowledge-intensive.

The growing power of substitutes is the most defined threat when it comes to current firms’ long-term survival. Because there is a vast array of readily available, cheap, convenient, and in many cases, a superior substitute for these services, the industry in question must continue to differentiate their services from that of such substitutes. It should be noted the power of substitutes depends on how one defines the industry. The substitutes are abundant for products and services of general use but are very restricted for a specific one.