Using the Porter Five Forces Model - Coursework Example

Porter’s Five Forces] [Name] [Course] [Lecturer] [Date] It is quite evident that while some people considers stock market as a technical exercise which involves interpreting charts and other who view it as qualitative processes which largely involves estimating company share value compared to its competitor, it is quite important to assess the possibility of using porters five forces model in explaining why one stock market might take over another. Porter’s five forces can be used to determine why one stock market can have a competitive advantage over another. Porter’s five forces framework is defined as a qualitative tool that is widely used in investment analysis. This tool assists in analyzing a stock market competitive stance within any given industry by widely examining specified industrial conditions. The framework also assists investor to determine who well a corporation such as a stock market is positioned to adapt various changes within target market. The five porters forces are; bargaining power of customers, the bargaining power of suppliers, threat of increased competition from rivals in the market, threat of substitute products and services and finally, threat new entrants into the market (Porter, 2008). The five porter forces are aimed at developing tactics for the share stock markets to design strategies that will be able to reduce the chances of the profits from leaking to the other players in the same market. The adopted strategies are aimed at the neutralization of the powers of the suppliers by the standardization of the company parts to those that are more dynamic among the vendors. The strategies should be able to create and maintain a competitive where the buyers are not able to leave you as the supplier and source for the same or equally valuable product from another supplier source (Porter, 1980). The trader of shares will also be able to have offer quality share products in an environment that is heavily competitive and still maintain a competitive advantage. The strategies that are to be employed should be able to scare off new entrants from venturing into the market and disrupting its value to the buyers. In addition the strategies will be able to limit the threats that will be offered by substitutes that would shift the attention of the buyers in the market (Berenson, 2003). Based on threat of entry, it widely involves analysis how easy a new stock market can enter an industry and compete away all the profits earned by an existing stock market. This can be through economies of scale where a stock market marketing, manufacturing, financial and purchasing tend to take advantage of low cost of capital. Further, the stock market can engage in hiring more specialized workers compared to an already existing industry. Threat of entry can also be in the form of product differentiation whereby an industry engages in technologically unique branding of consumer products. Evidently, selling of a uniquely branded differentiated product attracts consumers to buy the product. This in turn makes such an industry a legal monopoly so long the product differentiated is not superseded (Keen, 2001). Threat of entry considerably has cost advantages that are independent of size. An industry can have experience thus having a competitive advantage over its opponents. Further, this same industry may have greater access to unique assets such as raw mineral deposits thus producing goods that enable to overtake other competitors’ stock market. Cost advantage can be experienced when an industry has its own defined proprietary technology which has favorable supplies widely supported by government subsidies. Threat of entry can explain why one stock market can take over another through great access to distribution channels and government policy. For many customers goods, supply chain is usually controlled by various small number of participants in each distinct segment normally includes existing product manufacturers and retailers, this can prevent new errant from presenting their products into the market thus giving an indication of why one stock market can take over another. Based on government policy, it is evident that within certain industries governments are seen to award preferential right or monopoly to specific operator which in turn limits or prevents entry of competitors in a given stock market. In most countries, utilities fall into this market giving a reason as to why stock market may take over another. In given times, this may happen on accident as opposed to purpose as government regulations especially within stock markets aims at creating high cost of entry thus giving preferred market take over or domineer market share prices (Berenson, 2003). Capital requirements fuels on why a stock market can overtake another one. This is usually seen as a result of economies of scale as opposed to a separate barrier. When new competitors enter a market, there is evidence of committing to wide amounts of capital in purchasing fixed assets so as to finance inventory. In return, industries perceived to have greater scales in economies as well as great capital requirements take over stock market. Similarly, having higher capital requirements implies that the pool of potential entrants is greatly reduced thus limiting threat of entry to already existing industry within stock markets (Porter, 1990). It is natural for any market to have substitutes and stir competition. This place a possible limit on the profitability industries can make within the same market. A substitute is perceived to exist when the market experiences an entry of a product that can function like the one that was already in existence. Stock brokers for example face stiff substitution cases in the real estate forms, insurances and funds from the money market. The substitutes receive an added importance as they increase in availability. Customers in the case of stock market shares would have a hike or fall as the customers have a choice from which they are to switch to from the alternatives that they have been given. Such alternatives would either have a positive impact on the brands and shares trading in the market as they buyers will play a vital role in the determining of the share prices at the stock market. Most of the customers in this case will substitute to a product that they feel is performing better in the stock market and giving profitable share returns to them. Brands or shares with minimal or little returns are bound to be neglected or have minimal trading attentions (Klein, 2000). The suppliers in the share market can exert power due to their competitive position that is stronger. The groups are likely to influence the stock prices and reduce the levels of output with the view of influencing their own returns at the buyers’ expense. This will happen if the share market is mainly dominated by few suppliers with a market that is concentrated by a large number of purchasers. This will imply that the suppliers will be weak if the share market is concentrated by competitive suppliers and thus the share products will be standardized. If the share customers are weak, the share value of the suppliers will be weak as they will lack the purchasing power (Burrell & Morgan, 1979). The suppliers can also have their influence in the share market increased by affecting the prices of the trading shares by increasing their quality. The increase of the quality of the products will have an effect in the minimization of the possible competitors from entering in to the market with similar or products that have got the same value. This will have the industry or company dominate the market by having its brand as the only alternative to the customers. The customers or buyers in this case will have no option to alternate the products with and thus have no power to influence the pricing of the share product that is being traded. This implies that the supplier is able to control the pricing by altering the supplier strategy. The large trading companies have a bigger advantage over the other small companies as they control the wider distribution network. The larger retailers in this case have to access the wider distribution network to be able to have a say in the determination of the share price (Landes, 1998). An analysis of the five porter’s model reveals the importance of the buyer on the prices of the shares on the stock market. The buyers of the shares can either influence the prices to either go up or down. This can occur as a result of the demand on the shares that are being traded in the market. The share prices would be valuable to the buyer depending on the unique quality they possess on the stock market. The demand for higher quality for the shares that are being traded on the stock market will spur the competitors against one another which will result in the potential loss of profits to the industry. Buyers can command power in the stock market if they purchase the shares in large quantities or volumes as the product in this case the share is of great significance to the buyer’s aspect of the purchases (Stiglitz, 2002). In this case the buyer will determine the demand, supply, price and the cost of the share that is being traded in the stock market. The bargaining power of the buyer in this case has the ability to change the strategy of the company that is trading the shares in the stock market. This implies that the investors in the shares are to diversify their holdings so as to minimize their firms being exposed to a particular security of relying on one customer. This calls for the companies trading their share to be exposed to a diverse customer base to mitigate the threat (Naomi, 2007). The model is essential in the identification of the intensity of the rivalry that is present in a market thus determining the type of competition structure that exists in the specific market. The rivalry is certainly more intense in cases where the competitors in the market are of the same size and much less in cases where a market has a clear leader. The model will thus be able to provide avenues for the creation of strategies that are to reduce fixed costs and thus limiting the numbers of competitors in the process. Strategies that could be adopted to decrease the competitiveness in a market would be the adoption of differentiation degree that is applied on various products and thus adding their value in the market. the competition could also be decreased if the a company will decide to switch the costs decreasing of costs in most cases does not necessarily mean the increase in the competitive advantage as some buyers are always weary of low prices of goods and products as they are at times related to poor quality. The competitor would in most cases employ changes and pursuance of more aggressive strategies that attract growth. Many players in such situations tend to exit the rivalry stages in search for other markets with limited or that few business entities have ventured in (Johnson & Scholes, 2002). The model is a better opportunity in the company to evaluate itself and identify the strengths and weaknesses that it has with an aim of identifying the best strategies to fill the gaps that have hindered them in attaining their formulated goals and thus being able to build and sustain a competitive advantage over the other companies or firms. It is vital to note that the model can offer chances where the competitors’ strengths and weaknesses as well as their capabilities can be identified with the view taking advantage over their weaknesses. The rivalry is to be measured in terms of the indicators of the concentration of industries. The concentration of industries in one section will imply more rivalry and vice versa. The rate of rivalry in the stock market will be determined by the size of the market share that exists in the area. Intensified rivalry in the share market is mainly influences by large number of firms, market growth that is slow, fixed costs that are high, storage costs for perishable goods that are high, switching costs that are high, high strategic stakes and the exit barriers that are high (Drejer, 2000). In a share market the flow and share purchase activities will be highly determined of the buyer power. The buyer concentration will determine the number and type of shares that will be purchased from the stock market. a larger concentration of buyers will have a high impact on the purchase of products as more product share will be purchased at a single time. However, this will also be determined by the quality of the product that is being purchased. The buyer power will also be determined by the buyer volume and the amount of products that they will be able to substitute for other products that they think will still have the same value but at a relatively cheaper price. Thus the price sensitivity will play a vital role as a high buyer volume will settle for substitute goods or share products that have more value but at a relatively cheaper price. The buyer power on the side of the seller will be determined by the amount of profit that he/she will be able to make after the sake of the product share and what price tag (Porter, 1998). In conclusion the model assists in analyzing a stock market competitive stance within any given industry by widely examining specified industrial conditions. The framework also assists investor to determine who well a corporation such as a stock market is positioned to adapt various changes within target market. This can be through economies of scale where a stock market marketing, manufacturing, financial and purchasing tend to take advantage of low cost of capital. Further, the stock market can engage in hiring more specialized workers compared to an already existing industry. Threat of entry can also be in the form of product differentiation whereby an industry engages in technologically unique branding of consumer products. Evidently, selling of a uniquely branded differentiated product attracts consumers to buy the product. The five porters forces are; bargaining power of customers, the bargaining power of suppliers, threat of increased competition from rivals in the market, threat of substitute products and services and finally, threat new entrants into the market. Stock brokers for example face stiff substitution cases in the real estate forms, insurances and funds from the money market. The substitutes receive an added importance as they increase in availability. Customers in the case of stock market shares would have a hike or fall as the customers have a choice from which they are to switch to from the alternatives that they have been given. References Berenson, A. 2003. The Number: How Americas Balance Sheet Lies Rocked the Worlds Financial Markets, Simon and Schuster CHEAP Burrell, G & Morgan, G. 1979. Sociological Paradigms and Organisational Analysis Heinemann Press Drejer, A. 2000. Organisational learning and competence development, The Learning Organization: An International Journal, Vol. 7 Issue 4, pp.206-220. Johnson, G. & Scholes, K. 2002. Exploring Corporate Strategy, 6th ed., Prentice Hill: London; Keen, S. 2001. Debunking Economics: The Naked Emperor of the Social Sciences Pluto Press Klein, N. 2000. No Logo Knopf Cananda Landes, D. 1998. The Wealth and Poverty of Nations Abacus Naomi, K.2007. Shock Doctrine: the Rise of Disaster Capitalism. Canada: Knopf Canada. Porter, M. 1980. How Competitive Forces Shape Strategy, The McKinsey Quartely, Spring 1980, pp.34-50. Porter, M. 1990. The Competitive Advantage of Nations Macmillan Porter, M. 1998. Competitive Advantage: Creating and Sustaining Superior Performance The Free Press. Porter, M. 1998. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press, 1998. Porter, M.2008. The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008. Stiglitz, J. 2002. Globalization and Its Discontents, Penguin Read More